The Message Is Money And It All Sounds Cool

Michael Hedges June 15, 2015 Follow on Twitter

If there is any message from the rise of media by subscription it is that the business universe has no patience with “digital pennies.” People will pay, as always, for the cool thing. But the trick is not to invent it. That’s been done. Reaching the young and restless with smartphone in hand means giving them entry to something they can only buy. The business is clear.

It has been about a week since the official announcement of Apple Music, its subscription music streaming service. At the Apple Worldwide Developer Conference (WWDC) CEO Tim Cook, channelling the historic Steve Jobs “just one more thing” moments, called it “the next chapter in music.” Apple Music will offer 30 million tunes, playlists dreamed up by real humans and options to connect with favorite artists all for roughly US$10 per month, GB£10 or €10 depending on geography and significantly less - $2 - in India. Apple Music will start rolling out around the world at the end of the month.

For many observers of tech media, Apple is jumping ahead of other music streaming services, from Deezer to Pandora, Spotify to Tidal and many others. The ubiquitous iTunes download product has 800 million users and there are 500 million iPhones providing a huge - and typically loyal - customer base. Pricing is neither above nor below average though the three-month free trial will tempt early sign-ups and the “family plan” for US$15 monthly - up to six users - could be quite attractive.

Other features round-out a product designed - crafted, if you will - to keep Apple users enthralled, attract a few million more and get them to pay for it. Making the business-side work smoothly is the “Connect” feature that lets artists, publishers and their PR folk reach-out to fans all day and all night. Another feature highlights new releases based on user’s preference history. Unable to contain his excitement, Sony Music Entertainment chairman Dick Morris spoiled the secret, such as it was, two days earlier.

“Apple knows that music is great for selling everything except music,” said El Music Group CEO Joshua Katz to CNBC (June 9). “Apple does not need to sell music to make Apple Music successful. It only needs to keep users in its ecosystem so they buy more hardware, apps, and Apple owned products. Once again, Apple will step in and turn a struggling technology, this time streaming music, into the norm for consumers.” El Music Group is subscription music provider for hotels, airports and shopping malls that absorbed the bankrupt Muzak Company in 2009.

Apple Music will also have a radio feature, Beats 1, with, they say, live DJs, pickin’ the tunes and talkin’ the talk. BBC Radio 1 DJ Zane Lowe was hired away last February. He’ll be broadcasting from Los Angeles with Ebro Darden - ex-WQHT Hot 97 New York DJ - in New York and Julie Adenuga - ex-Rinse FM London alternative community station DJ - in London. Note to radio executives: these are definitely not time and temperature DJs. Also poached from BBC Radio 1 were four top-flight producers. Apple acquired electronics manufacturer and streaming music service operator Beats Music last year for US$3 billion, clearly not for the cool headphones it makes.

Apple introduced iTunes followed by the iPod in 2001 neither an immediate raging success. By the time iPod Shuffle appeared in 2005 radio broadcasters, particularly those comfortable with low-cost, high-profit music-only stations, were reading the tealeaves. “Five years ago,” said one big-time programmer at the time, “if you wanted to carry around a thousand songs in your pocket you carried a radio. That has changed.” The music industry challenged Apple in court after court over iTunes and never found the desired relief.

The foray into subscription streaming audio with its radio-like channel is of consequence for radio broadcasters. By hiring DJs for live shows the Beats 1 channel could be an attractive contrast for new music fans to semi-automated broadcast fare. More broadly the Apple brand will give heft to web and mobile radio. Beats 1 will be free-access to Apple ID holders - generally iOS users - and ad-free.

UK public broadcaster BBC’s youth channel Radio 1 may well be the model for Beats 1. Enthusiastically “scarring off” listeners creeping into middle age over the last couple of years it’s ratings performance has been dismal as that youthful target audience, smartphones in hand, drifts away from traditional linear radio. “I’m not scared of what they’ve got,” said Radio 1 controller (program director) Ben Cooper, quoted by digitalspy.co.uk (June 10). “I’m very intrigued by it and it would be a fool that ignores them, because they’re something like a hundred and nine billion dollar company, so of course you’re going to look at what they’re doing.” Actually, at last count Apple has US$160 billion cash on hand. Shortly after “the Apple crumble” of personnel exits Mr. Cooper referred to Apple as “a disruptive monster.”

Back to business. Brand equity, as long preached by management consultants, eases entry into new markets, gives enormous negotiating power and scares off competitors. Market researcher Millward Brown last month ranked Apple the world’s most valuable brand, worth US$247 billion. CEO Tim Cook can do about whatever he wants.

But the digital world is fickle and the new wisdom is far less risk-averse. Just as Apple Music was announced Spotify, arguably most at risk from frontal assault, raised US$525 million, a quarter of which came from Swedish telecom Teliasonera. Spotify’s market capitalization is now estimated at US$8.2 billion, about twice the value of the next streaming music company, Pandora. “To me, it is enough to be among the top three,” said Spotify founder Daniel Ek to Dagens Industri (June 10).

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