There has been a lot of coverage about the Apple Music presentation last week at the company’s Worldwide Developer Conference (WWDC). We have seen in-depth reporting about the perceived threat to Spotify and passing reference to the new Beats 1 radio service. However, it’s tough to report on what wasn’t said. There were a number of obvious questions that weren’t answered by the Apple Music executives in the debut presentation. I assume that was intentional.
In particular, there was no mention of iTunes Radio beyond June 30th or of advertising-supported listening. Both topics remain important questions about the future of Apple’s music ecosystem.
iTunes Radio Ceding to Beats
It is a safe bet that the iTunes Radio as a product name is going away. You need look no further than the method for accessing the app today. The screen shots for Apple Music were clear. Consumers will access the new app through the existing music app icon pre-installed on every Apple mobile device. This also happens to be how you reach iTunes Radio today. You then simply select “radio” from the buttons in a tray at the bottom of the app.
The Apple Music design has a similar user experience. The new “radio” icon of emanating ellipses around a dot for Beats 1 replaces the stylized transistor radio introduced by iTunes Radio. Based on the demonstration, this button will take users to the new Apple Music radio service. Beats 1 is an option behind this button as are stations similar to the existing iTunes Radio.
This makes sense in terms of product clarity as well. It would be confusing to have iTunes Radio and Beats radio options. This change will repair the branding issue caused by naming iTunes Radio after the media content download store. [Who thought that was a good idea anyway?]
The size of iTunes Radio’s audience in the U.S. is unclear. Most of the available data combines iTunes Radio with other services such as iCloud where the estimate tops out at 40.5 million monthly users according to comScore and comments cited in Ad Age. Edison Research data reported in Statista suggested last year that its monthly user base trailed only Pandora and iHeart. It’s fair to assume that the number runs into the 10’s of millions of people accessing the curated iTunes Radio channels or have set up personal channels.
Apple apparently does not want to aggravate its existing iTunes Radio users and the new “radio” channel will be more than just hosted sessions from Zane Lowe. Marketing material for the new service lists “Apple Music radio stations” as and option. Screen shots from a beta version of Apple Music published by Apple Insider show similar station features as iTunes Radio in addition tothe Beats 1 DJ-led programming.
What About Ad Supported Listening?
Apple talked a lot about the personalized streaming service that requires a subscription but is free for the first three months. However, reviewing the promotion pages on Apple.com pertaining to Beats 1 shows there are two implicit tiers of “radio” service: “Signed in with Apple ID” and “Apple Music Members.”
How do you pay the music royalty costs for non-subscribers listening to Beats 1 and other Apply Music radio stations? Advertising. Recode’s Peter Kafka helped confirm this earlier in the week.
Apple explicitly embraced advertising when it launched iTunes Radio in late 2013. The company even promoted the names of the launch advertisers and restricted it to an exclusive coterie of top brands that included McDonald’s, Nissan, P&G and Pepsi. In fact, ad-supported listening was the only option. There was not and is no direct subscription-based listening for iTunes Radio. There is the iTunes Match service that indirectly offers subscription-like features through iTunes Radio, but for some reason Apple always seemed to promote it as an afterthought.
In the spring of 2014, Apple purchased the subscription-only Beats streaming service and all but shut it down while considering its options and implementing the new music strategy. Meanwhile, iTunes Radio continued to operate as an ad-supported service. However, the iTunes approach to advertising has changed over the past 18 months. Some big brands that included MasterCard, McDonald’s, Nissan and Progressive were running ads through February of 2015. However, the vast majority of its recent ads have been artist promotions for new albums. This aligns well with Apple’s model of music sales through the iTunes store, but it hardly reflects a strong commitment to an advertising business.
Most People Choose Ad-Supported Listening
You might be wondering why advertising wasn’t mentioned in the Apple Music launch. Anyone following the industry is surely aware of the orchestrated attack by music labels on ad-supported listening. Industry analysts expect subscription rates to top out at around 11%. This means that the vast majority of listeners will be using ad-supported services. Included in that group will be Apple Music radio, Beats 1 or whatever moniker is used going forward.
I can only assume that Apple wants to position itself as a friend to the record labels and is staying quiet on the ad-supported model as an implicit concession to the music industry’s overlords. Pandora has proven there is great value in a predominantly ad-supported music service. Likewise, Spotify has shown how an ad-supported tier can be an onramp to subscriptions. Apple also has millions of current ad-supported listeners on iTunes Radio that it will not want to lose to a rival audio services.
Subscription revenue may be the stated preference of most label executives, but there will be considerably more income generated from advertising because the audience will be so much larger. The real question is how many of those dollars the labels will allow to trickle down to the artists. Either way, look for Apple to embrace advertising even if it takes an evasive public stance.
A Bonus Unanswered Question
Is the free trial of Apple Music available for three months from whenever you start listening or is it calendar-based and free only from June 30 – September 30, 2015? I guess we’ll know at the end of the month.
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