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Apple tunes into terrestrial radio to compete with Spotify

Apple tunes into terrestrial radio to compete with Spotify

Apple tunes into terrestrial radio to compete with Spotify
December 01
07:50 2018

In 2003, Apple upended the music industry with iTunes, its digital music store that was tightly linked to its iPod devices.

Fifteen years later, Apple is taking a much broader approach to boost its music streaming business, from a tie-up with rival Amazon to a potential move into traditional broadcast radio.

Investors are watching Apple’s progress closely as it expands its online services to include a new video streaming offering to compete with the likes of Netflix and Amazon Prime Video next year.

And after a slow start in streaming, music industry executives say Apple is gaining confidence, making acquisitions and forging partnerships that are likely to fuel further growth. The number of Apple Music subscribers has grown to 56m, up from 50m in May, according to industry insiders.

“They’re getting more serious,” said one label executive. “They’re coming to us with new ideas all the time, that they wouldn’t have done two years ago.”

‘Aggressive’ push to close the gap with Spotify

Apple was caught flat-footed by the arrival of streaming services such as Spotify, which undermined its hard-won leadership in digital downloads.

In 2014, it paid $3bn for Beats, the maker of headphones and a music streaming app, to help recover lost ground. The following year, it launched Apple Music, its own streaming service, offering unlimited “on demand” access to a library of millions of tracks.

Despite the service being preloaded on every iPhone and featuring superstar DJs for its Beats 1 online radio service, Apple Music had a rocky start. Critics preferred Spotify’s advanced personalisation features, which recommend songs and playlists based on users’ listening habits, and complained about Apple Music’s clunky interface.

Three years later, however, Apple is starting to close the gap with Spotify. According to music industry executives who have seen the latest figures, Apple Music recently overtook Spotify to become the top music streaming service in the US, the world’s biggest music market by revenues.

Spotify, nevertheless, remains the global leader, with 78m subscribers, and is adding customers at a faster rate worldwide. Its audience also tends to be younger and uses the service more frequently than Apple Music’s older listeners, according to industry sources.

“Apple stumbled out of the gate with an inferior product three years ago. Apple Music did not become this spectacular product like iTunes was,” said a senior executive at one of the “big three” record labels, who added that in the past year Apple has “become more aggressive”.

On Friday, the company surprised investors by announcing that Apple Music will be available on Amazon’s Alexa-powered Echo devices before Christmas. Amazon’s Echo competes directly with Apple’s HomePod smart speaker, and the tie-up marks the first time that Apple’s streaming service can be controlled by a virtual assistant other than Siri.

News that the company is considering a deal with radio group iHeartMedia, which was first reported by the Financial Times last month, also caught investors off guard. The Silicon Valley company that put a smartphone in hundreds of millions of pockets is turning to one of the oldest forms of listening to increase its influence on the music industry: terrestrial radio.

‘A changing of the guard’

Apple has a history of making music acquisitions, starting with the 2014 Beats deal. In September of this year, it purchased Shazam, the music recognition start-up, for $400m. It also spent tens of millions of dollars to hire the founders of Asaii, a music analytics company, in October.

Meanwhile, Beats co-founder Jimmy Iovine retired in August and Oliver Schusser, who previously worked in Apple’s London office, moved to California this year to run the music service worldwide. In August, Apple Music hired Brian Bumbery, a veteran music publicist to stars such as Madonna, as its head of publicity.

“There’s definitely a changing of the guard,” said one music label executive, pointing to the shift away from Mr Iovine’s strategy of paying high prices for exclusive releases from artists such as Drake. One person close to Mr Schusser said that music could form part of a bundled offering alongside Apple’s forthcoming video service.

Despite celebrity DJs such as Nicky Minaj attracting big audiences, the Beats 1 radio service has not taken off in the way Apple had hoped

News of Apple’s potential move into the struggling traditional radio business surprised many in the music world. But any iHeartMedia deal would also be aligned with Apple’s emphasis on human taste and curation, rather than algorithmic recommendations, to choose new artists to promote or compile playlists.

According to people familiar with the negotiations, Apple has considered buying a stake in the radio group, as well as signing a marketing or promotional partnership. It could also acquire iHeartRadio’s streaming platform, with its 120m registered users.

“Terrestrial radio is not the force it once was, but there are millions of people listening to the radio,” said one major music label executive. “These radio listeners will inevitably migrate to online services, and they could be herded towards Apple.”

Mark Mulligan, analyst with Midia Research, said any deal could lend Apple the knowledge required to succeed in radio, which is often driven by strong personalities and brands, and where it has struggled to find success with Beats 1.

“Apple understands that when it gets radio right, that’s going to be an important asset,” he said. “They’ve shown an understanding that building radio is not as simple as putting music in the sequence . . . [iHeartMedia] would give them industry IQ on that.”

Chasing higher revenues

Tim Cook, Apple’s chief executive, has said that by 2020 he wants revenues generated from the company’s online services, including Apple Music, the App Store and Apple Pay, to hit $50bn, a doubling of 2016 levels. The company’s revenues from services topped $10bn for the first time in the company’s most recent quarter.

In addition to the billions of dollars that it generates in revenues from subscriptions every year, Apple sees music as key to keeping users loyal to its iPhones and encouraging them to buy its other devices.

Last week, over the Thanksgiving holiday and “Black Friday” shopping frenzy, HomePod sales had their best week since its launch in February, Apple said on Friday.

And unlike Spotify, which has to stomach significant losses as a standalone company, Apple can subsidise its streaming service — which is notoriously hard to make money from because of the royalties that are paid out to artists and labels — through its highly profitable devices.

Mr Cook has alluded to such a tactic, telling Fast Company this year that Apple is “not in [music] for the money”.

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