Apple set to unveil new music streaming plan to take on Spotify

Apple is set to launch a rival to Spotify and other services that let users stream songs instead of buy them.

A logo is displayed on the facade of an Apple Inc. store in San Francisco, California, U.S., on Friday, April 19, 2013. Apple...

With its dominant position in music threatened by a decline in download sales, Apple is preparing to launch a direct rival to Spotify and other popular services that let users stream songs instead of buy them.

The tech giant is betting that for the second time in as many decades it can persuade millions of people around the world to change how they listen to and pay for music. In 2003, the company’s iTunes Music Store made downloading individual songs the most common way for people to buy music — and made iTunes the biggest music retailer on the planet.

Music-industry executives see Apple’s launch, expected to be announced at its developers’ conference next week, as a watershed moment for streaming music that could move the technology from early adopters to the mainstream. While it is late to the game, Apple can aggressively push its hundreds of millions of iTunes customers — most with credit cards already registered with the company — to embrace a subscription model on the same devices where they listen to downloaded songs and albums.

Apple sells an estimated 80 per cent to 85 per cent of music downloads worldwide, according to people in the music industry, but it has a fraction of the streaming business — the only mode of music consumption that is on the upswing globally. Spotify accounts for 86 per cent of the on-demand music-streaming market in the US, according to data shared with music publishers. Its share of the international market is believed to be similar.

For its new service, Apple wants people to pay $10 a month to stream songs, according to people familiar with the plans. Unlike Spotify, which has an ad-supported service as well subscription, Apple will make only a handful of songs available for free listening, these people say.

Apple also plans to augment its free, ad-supported internet radio service with channels programmed and hosted by human DJs.

People familiar with Apple’s thinking say the company is prepared to cannibalise its download business in favour of streaming. The subscription model offers the prospect of more revenue for both Apple and the biggest music labels. Apple’s push may include prompting people who download a $US10 album to instead subscribe to the streaming service for $US10 a month, those people said.

Apple has been rushing to finish work on the new service and secure licensing deals with music companies. It hasn’t closed deals with the three biggest global music companies, Vivendi SA’s Universal Music Group, Sony Corp’s Sony Music Entertainment and Warner Music Group, owned by billionaire Len Blavatnik’s Access Industries, according to people familiar with the talks. Many in the music industry expect such deals soon. If Apple doesn’t get its licensing deals done before the conference, it could delay its announcement long enough to wrap up negotiations, a scenario some in the music industry described as possible but unlikely.

Not everyone in the music industry is optimistic about the change. Some artists and smaller labels have complained about low royalty rates for streamed music, over which they have little control.

Of the 110 million people who bought music on the iTunes Store last year, the average customer spent a little more than $US30 over a 12-month period, according to music-industry estimates. Persuading a significant share of those buyers to switch to a product that costs $US120 a year will be a challenge, but would be lucrative for Apple and the record companies. But the move could backfire, if many subscribers are drawn from the elite ranks of iTunes purchasers who spend more than $US120 a year.

For Apple, retaining leadership in music means more than dollars and cents. It is about maintaining a legacy that dates back to the company’s resurgence under former chief executive and co-founder Steve Jobs.

Music was central to that rebirth with iTunes and the iPod. More recently, however, download sales have stagnated as younger listeners migrate to streaming services or Google’s YouTube. Download sales fell 8 per cent last year, to $US3.6 billion, according to an industry trade group, while subscription revenue increased 45 per cent, to $US1.6 billion.

Apple signalled its interest in streaming last year when it spent $US3 billion to acquire Beats Music and its parent company. The deal got Apple the flashy Beats headphones, the fledgling Beats Music service, and the music-industry connections of the company’s co-founder, producer-turned-executive Jimmy Iovine.

On-demand services like Spotify and Beats let users listen to any song or album they choose — as if they had an iTunes library with tens of millions of songs. Pandora’s internet radio plays a mix of music after a user chooses an artist or song as a starting point. So a Metallica “station” would play a variety of heavy metal artists, including a handful of songs by Metallica itself.

Until now, Apple’s efforts to adapt to new music models have been largely unsuccessful. Beats remains a small player, with around 303,000 paying subscribers as of December 2014, all of them in the US, according to data provided to music publishers. Apple’s iTunes Radio, its earlier attempt to compete with Pandora, has gotten little traction.

The company isn’t expected to immediately move current Beats Music subscribers onto the new service, instead keeping Beats up and running while it works out any kinks in the new service before eventually migrating Beats users onto it.

In Spotify, Apple faces an entrenched competitor that has used a seven-year head start to build a daunting lead. Spotify reported more than $US1 billion in revenue last year and said it ended the year with 15 million paying subscribers, plus around 45 million free users.

Pandora Media Inc has spent 10 years habituating music fans to getting online music without paying, albeit with ads. Pandora — which is available only in the US, Australia and New Zealand — said it had more than 79 million active users in March; it posted a loss of $US30 million on about $US921 million in revenue last year.

Apple sees two opportunities in the new streaming service, according to the people familiar with the matter: generating more revenue from existing iTunes customers, and expanding the universe of streaming-music subscribers.

Apple plans to promote the new subscription service aggressively, with a major advertising campaign. It may offer a free trial period, and is expected to let record companies and artists make certain songs available free, much as they now use SoundCloud and YouTube to promote new songs.

Apple plans to update its music app in a software update of its mobile-operating system, and plans to make the new services available on Google’s Android software as well.

The new Apple radio push is aimed mainly at users outside the US, who don’t have access to Pandora and could eventually be converted to paying subscribers. It is expected to offer a battery of “channels” programmed much like traditional broadcast stations, featuring some high-profile personalities, according to people familiar with the matter. Apple has hired a number of well-known DJs and producers from BBC Radio 1 to help create the service. It is in talks with rap stars Q-Tip, Drake and Dr. Dre — Beats’ other co-founder, also now working for Apple — to host shows, according to people familiar with the plans. Pandora-style “custom” stations are expected to be available alongside the new programmed channels.

Beyond Pandora, the programmed channels also would compete with Sirius XM Radio Inc., which beams hundreds of programmed channels to its users by satellite. Even traditional, over-the-air radio broadcasters may be in Apple’s sights: Most “terrestrial” stations also make their broadcasts available on the internet, where they are fairly popular — and where Apple’s new service could be a competitor.

Wall Street Journal