Apple strikes a new chord in future of music

May 19 2014, 11:53 IST
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With digital music downloads in decline, record labels have put pressure on Apple to get its act together on streaming, according to two of the three sources. (AP) With digital music downloads in decline, record labels have put pressure on Apple to get its act together on streaming, according to two of the three sources. (AP)
SummaryApple, the makers of iPods and iPhones, is shortly expected to announce a $3.2 bn agreement to buy Beats Electronics.

More than a decade ago, the late Steve Jobs pulled one of his trademark reality distorting maneuvers, browbeating music label executives into selling songs on Apple Inc's then-nascent iTunes digital store for a mere 99 cents apiece.

Now, the tables have turned and it's Apple that is being forced into a deal that is far from a sure-fire winner.

The iPod and iPhone maker is expected to announce as early as this week a $3.2 billion agreement to buy Beats Electronics, the music streaming service and headphone maker founded by legendary music producer Jimmy Iovine and rapper Dr Dre, according to three sources familiar with Apple's thinking.

The deal would come after Pandora Media Inc and Spotify have already claimed the vanguard of the music streaming revolution, while Apple's riposte - the eight-month-old iTunes Radio - is stumbling.

"Apple is about two years late, behind Spotify," said David Pakman, a digital music investor with Venrock Capital and a co-creator of Apple's Music Group. "They need a streaming offering."

With digital music downloads in decline, record labels have put pressure on Apple to get its act together on streaming, according to two of the three sources. The record labels hope Apple can turn Beats Music into a strong competitor with Spotify and other streaming services, the sources said.

"The labels wanted Apple to build a premium service," said one of the sources, who like the others were not authorized to speak about the matter on the record. "They wanted ... to make money through the stream."

In recent months, the major labels had grown dissatisfied with the performance of iTunes Radio, the source said. Streaming subscriptions are now the fastest-growing revenue source for the music industry, but Apple has not made a dent.

Streaming subscriptions jumped 51 percent in 2013 to $1.1 billion, out of a $15 billion total spent on music, according to the International Federation of the Phonographic Industry. Meanwhile, digital downloads slipped 2.1 percent.

Per-user spending is higher with streaming services than for music downloads. A good customer spends $25 to $35 a year on music purchases, but a subscriber spends $9 or more a month - or more than $100 a year, according to one source.

Labels earn royalties of a fraction of a cent for every stream, which the source said works out to a higher revenue per user than pure digital sales.

Apple, Beats and record labels Warner Music Group and Sony Music Entertainment declined to

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