“Apple’s US$3 billion ($3.52 billion) purchase of headphone maker and music streaming company Beats Electronics sheds light on a rarely recognised reality in the music streaming industry – it’s hard to succeed without offering other products and services,” Ryan Nakashima reports for The Associated Press. “Streaming music companies like Beats Music, which charge users up to US$10 a month, can sometimes pay as much as 70 per cent of their revenue in artist royalty fees. It leaves little for advertising and promotional campaigns to explain to consumers the benefits of paying for a music service.”
“Even streaming leader Spotify – with 10 million paying customers worldwide – is reportedly burning through cash as it seeks to attract enough subscribers to turn a profit,” Nakashima reports. “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 the devices more usable and attractive.”
“Observers believe Apple’s purchase of Beats could have both positive and negative effects for other streaming companies,” Nakashima reports. “On the one hand, if Apple pushes hard to promote streaming music subscriptions and makes the idea more acceptable to a broader audience that currently purchases downloads or acquires pirated music, the company’s efforts could help all music services… 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… 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.”
Read more in the full article here.
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