Apple, Spotify (and Pandora and Rdio) and CDs

I spent 5 years (froScreen Shot 2015-06-10 at 11.55.53 AMm 2007 – 2012) trying to cobble together financing to launch a national TV channel in Canada of independent/emerging music and met a lot of smart people with a lot of smart, well informed thoughts about the future of music distribution and sales.

This was in a world caught between CDs and iTunes with Pandora just starting up and Spotify barely a European rumour.

They all had varying opinions about what the world would look like in coming years, so I watched with some interest the reaction to the announcement on Monday of Apple Music.

First, a couple of facts, from the IFPI annual music report

Worldwide sales of music (all channels, including streaming) in 2014 was $15B

Streaming accounted for $1B of that.

Here is the surprising part: Physical sales are down for the umpteenth straight year, yes – BUT THEY STILL ACCOUNT FOR MORE THAN HALF OF ALL SALES: 51.5% to be exact. (Maybe that’s why IFPI continues to stand for the International Federation of the Phonographic Industry.)

At $10 per month per subscription, Apple Music would need 125 million subscribers to account for $15B all by itself. Which may seem like a lot, but iTunes has about 1 billion users, so it would be only 12.5% of their userbase. (I don’t know if the 1B figure is totally accurate, but they had 547M users in June of 2013 and 800M in June of 2014, so I’m pretty confident in the billion figure.)

So one can see why the music industry would want to make some deals with Apple. On the other hand, the music industry does not want Apple to hand them their lunch once again like they did on the launching of iTunes.

To give you some perspective on how big that lunch is, or was, before iTunes launched physical sales were almost $12B annually (2003) IN THE UNITED STATES ALONE. (Sorry about all the CAPS, but the two points I have made in caps are pretty significant.)

On the non-Apple front, Spotify has just claimed 70M users – 20M of whom pay a monthly subscription and Pandora claims 81.5M users. Rdio is pretty quiet about its user base, so it may only be in the million or million and a half neighbourhood.

Some bloggers have suggested Spotify could be in trouble, but I don’t think so, and obviously neither do the investors that just put an additional $150M into it. From these user figures you can see that the music industry isn’t forced to play totally nice with any one particular service like Apple and in fact it would probably be in their best interests to continue to play off service against service country by country. Rdio could disappear be virtue of its small user base. But you never know – the music industry may cuddle up to it with some kind of deal more beneficial to the labels to look like they are helping the little guy while setting precedents for the big guys.

I also have to agree with the pundits who are disappointed in what Apple Music has announced it is going to be.

Yes, I am sure there are at least 50 million people who will, for whatever reason, add $10 per month to their iTunes/Apple account to be able to stream Taylor Swift, but I don’t think there are 50 million Spotify or Pandora users on their free plan that are going to pay to switch over.

Quite simply, for them Apple Music doesn’t offer enough advantages in terms of convenience, selection or useability to warrant a $120 per year price for something marginally better than what they currently get for free.