Apple has put out the first stats around its music subscription service and the end result is ... good start.
There are 15m users of the service, said CEO Tim Cook, speaking at the WSJDLive conference this week, and 6.5m of them are paying $9.99 a month.
In its most simple terms, that puts Apple straight into second position in the streaming music market behind only Spotify with its 20m paying subscribers.
But the situation is a little more complex than just paying subscribers, and only in three months' time will it be possible to see just how successful the company's foray into streaming music has been.
Apple Music is unusual in several respects. First, it was able to install its app on millions of people's phones through an upgrade to its iOS operating system. It was also able to gather enormous publicity for the service by announcing it at one of its hype-fest Apple events. In that respect, if Apple hadn't jumped straight in near the top of the market, it would have failed.
Secondly though, Apple is not following the market norm and offering a free version beyond an initial three-month "trial period." That means that people will either pay for it or not. All other streaming services recognize that they need to offer a free version of their services and then prod people into "upgrading" to a paid version through various additional services. The free version typically runs ads, which brings in useful revenue.
Apple has decided not to go that route, and so the non-paying 8.5m users are those people whose free trial periods have not expired yet. The key question then is: what percentage of trial users went on to become paying members? And the answer is 60 per cent.
What's this on my credit card?
But again, it's not that simple. Apple set it up so that users of the trial period were automatically subscribed to the service when it expired. And thanks to the fact that the app is running on Apple's system – which in the vast majority of cases already contains people's credit card details – it was able to seamlessly sign people up without forcing them to enter their credit card details. Another reason why its user figures should be very high.
What the figures show more accurately is that 40 per cent of people actively went into their accounts and turned off automatic subscription. The key stats to watch from now will be how much the paying subscriber figures drop when people start noticing they are being charged $9.99 a month. At that point people will really start to evaluate whether the service is worth it for them.
And then, if it turns out that people do love Apple Music and want to subscribe to it, we should also see a drop in the paying subscribers for other music streaming services. After all, who wants to pay twice for essentially the same thing?
Here is a rundown of the market as it currently stands:
- Spotify remains the largest in the market with 75m users, of which 20m are paying $9.99 a month (and the equivalent in other countries).
- Apple Music comes next with 15m users and 6.5m of them paying. It is hard to know whether this 6.5m will go up or down as people come off the free trial and existing subscribers realize they are now paying for the service. Our best guess would be that it increases slightly over the next few months.
- Then Deezer – which is not available in the huge US market just yet. It has 16m users, 6.3m of them paying. Deezer has built its following by reaching beyond the English-speaking market, working hard with manufacturers of sound systems, and offering what is probably the best user experience. Deezer is one to watch to see how the market shifts going forward.
- Pandora is a different animal in that it offers an internet radio – it chooses songs for you based on your preferences. It has far fewer songs (1.5m as opposed to the other services' 30m songs) and fewer paying subscribers: 3.9m. But it has many more active users: 80m of them. Nonetheless, the company is currently suffering as more companies come into the market offering the ability to choose songs. The company posted a $48m loss in Q1 2015, as opposed to a $12.3m profit the quarter before.
- Rhapsody was the first into the streaming market but looks increasingly like an also-ran. It has 3m paying subscribers, most of which it has picked up outside the United States in the past year. It is working hard but not making much headway against the bigger beasts.
- And last comes the troubled Jay-Z-owned venture Tidal. Tidal also doesn't offer a free version and its paid subscriptions are more expensive than the rest of the market: $12.99 for the basic service and $25.99 a month for high-definition audio. As a result, it has under 1m paying subscribers and looks increasingly like an app for fans of Jay-Z and his wife Beyonce.
So, taken overall, what does it mean that Apple Music has 15m subscribers and 6.5m of them are currently paying $9.99?
Well, it's a good start. Apple's senior VP in charge of internet services, Eddy Cue, recently said about the service: "Everybody gets fixated on the short term, but we're in this for the long haul."
In other words, don't believe the hype. Just because Apple and its fanbois were all excited about the launch earlier this year doesn't mean that the wider market is going to run into Apple's arms. It has to provide a better service consistently if it is to start growing its market and market share.
And that's where Cue's long term view is right. Apple has the resources and the inclination to stay in the market for a long time. Unless it does a horrible job, it should remain one of the top three companies thanks to its installed base and ready availability.
Whether it will be able to surpass Spotify – which focuses solely on streaming music – or stay ahead of Deezer, which focuses on quality and working with the broader stereo system market (doing special deals with Bose and Sonos, for example), will be the true test of how good Apple Music is.
And to see that play out, we will have to check back in three months. ®
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