Wednesday, April 1st6.9°C
25326
24864

Apple's purchase of Beats could lift music streaming boats or devalue stand-alone product

LOS ANGELES, Calif. - Apple's $3 billion purchase of headphone maker and streaming music company Beats Electronics sheds light on a rarely recognized reality in the music streaming industry: It's hard to succeed in the business without offering other products and services.

Streaming music companies like Beats Music, which charge users up to $10 a month, can sometimes pay as much as 70 per cent of their revenue in artist royalty fees. That leaves little left for advertising and promotional campaigns to explain to consumers the benefits of paying for a music service.

"The only people that can afford to get into this business have other main businesses," says Mark Mulligan, a music industry analyst and blogger with MIDiA Consulting. "Every service ends up putting itself into significant debt just to cover its basic operating costs."

Even streaming leader Spotify — with 10 million paying customers worldwide — is reportedly burning through cash as it seeks to attract enough subscribers to help it turn a profit. With just 250,000 subscribers, analysts say Beats Music is even further from that goal.

Although analysts say Apple's purchase is largely an acquisition of talent and a way to offset the declining popularity of iTunes song downloads, the company notes its main source of revenue has always been from devices. Music is just a hook to make those devices more usable and attractive.

Observers believe Apple's purchase of Beats could have both positive and negative effects for other streaming companies.

On the one hand, if Apple Inc. pushes hard to promote streaming music subscriptions and makes it the idea more acceptable to a broader audience who currently purchase downloads or acquire pirated music, the company's efforts could help all music services.

After all, Apple has been the driving force in many new product categories. It popularized digital music players with the iPod, gave birth to the smartphone era with the iPhone, and was instrumental in creating customer demand for tablets with the iPad.

"We're cheering from the sidelines," says Paul Springer, senior vice-president of the Americas for Rhapsody International, which has 1.7 million paying music subscribers worldwide. "When the most valuable company in the world says that music subscriptions are strategic to its future, that's great for our sector. That's great for customer awareness."

Even so, there's a downside for the industry. Apple could easily devalue music subscriptions by running the service at a loss because it makes plenty of money elsewhere. Apple is likely to advertise and possibly offer bundled discounts to make Beats Music a bigger force.

Already, prices across the industry for unlimited streaming plans are starting to drop from the original price of $10 a month. Beats itself offers a family subscription for $15 a month for up to five people, as long as they're on a group account with cellphone operator AT&T. For a limited time, mobile carrier Sprint has cut Spotify Premium prices to $5 a month per person as long as six people are on a family plan.

If Apple creates an even more attractive bundle for people who buy Beats headphones or Apple devices, stand-alone music services may find it tougher to compete.

"It makes Spotify nervous," says James McQuivey, a digital content business analyst with Forrester Research. "They only have the one revenue stream. It would be harder for them to compete in a marketplace against someone that doesn't have to return the same cash."

Even before Apple jumped in, the paid streaming music business was in a tight squeeze. Spotify, based in Sweden, reportedly lost about $80 million, despite more than doubling revenue to around $590 million, in 2012. Its results for 2013 are expected in the next couple of months, although Spotify said earlier this month that its paying subscribers jumped 66 per cent over the last 14 months.

Rdio, the streaming service backed by Skype co-founders Janus Friis, last year sold a 15 per cent equity stake to radio station network operator Cumulus Media Inc. in exchange for $75 million of on-air advertising. The deal was an acknowledgement that cash flow from operations wasn't enough to pay for marketing.

It's unclear what Apple's purchase price means for the value of other streaming operators, because Beats' $3 billion purchase price includes some amount for the hugely popular headphone portion of the business, which is profitable and posted $1.1 billion in revenue last year.

What is clear is that music streaming is just a part of the mix for Apple. Figuring out how best to match music with its devices could help Apple stand out in an increasingly crowded consumer electronics market.

"Apple always bundled software well with hardware," says Moshe Cohen, an assistant professor at Columbia Business School. "That is a big advantage. How to create those bundles is important to producing a superior product and a much bigger business."

The Canadian Press


Read more Business News

25464


Recent Trending




Today's Market
S&P TSX14928.43+25.99
S&P CDNX680.93+0.86
DJIA17702.39-73.73
Nasdaq4870.02-30.86
S&P 5002059.71-8.18
CDN Dollar0.7937+0.0049
Gold1208.20+25.10
Oil49.96+2.36
Lumber273.70-4.50
Natural Gas2.603-0.037

 
Okanagan Companies
Pacific Safety0.135+0.010
Knighthawk0.010.00
QHR Technologies Inc1.55+0.07
Cantex0.03-0.01
Anavex Life Sciences0.2295+0.0185
Metalex Ventures0.045+0.005
Russel Metals24.65+0.61
Copper Mountain Mining1.17+0.01
Colorado Resources0.11-0.01
ReliaBrand Inc0.0036-0.0024
Sunrise Resources Ltd0.04-0.01
Mission Ready Services0.23-0.02
Decisive Dividend Corporation1.80+0.02

 



25719

FEATURED Property
2192327#1 4450 Postill Drive
4 bedrooms 3 baths
$369,900
more details
image2image2image2
Click here to feature your property
Please wait... loading


Down payment

If you have less than 20% down payment, mortgage insurance is required through Canada Mortgage & Housing (CMHC), Genworth or Canada Guaranty. Homeowners no longer need the minimum 5% down payment ...


CRA Notice of Assessment

Many Canadians rush to file their taxes on time each year and don’t think about it until the next year. One of the most overlooked notices received from the CRA annually is the annual Notice of ...


Medical confidential?

If ICBC asks your doctor for your information you may wonder: Can ICBC ask my doctor for my medical information? Can ICBC request a medical report from my doctor without my consent? What is ICBC entit...

_








Member of BC Press Council


25732