Apple Inc. (NASDAQ:AAPL) Has 11m Music Subs, but They’re Burning Cash

Apple (AAPL) Music

Apple Inc. revealed on Thursday morning that 11 million people have opted to sign up for its Apple Music Streaming service. The number is decent, and the firm’s VP of software and services said that Apple is “thrilled with the numbers so far.” It is clear that, for now at least, 11 million won’t be good enough.

Apple (AAPL) Music

For the first three months those who signed on to Apple Music won’t have to pay a cent while Apple, after a major battle with Taylor Swift, will have to shell out for every track they listen to. With so much publicity around the launch, and the low price tag, it’s likely that much less than 11 million will end up paying for the service.

Apple can’t keep up with Spotify

Spotify, the most well-regarded of the paid music subscription services, has convinced more than 20 million people to pay to stream music. The firm also offers a free tier where users listen to ads in order to get through an album. 55 million people listen to music for free on Spotify. That’s a conversion ratio of around 27 percent.

If the same ratio applies to Apple , the firm can expect around 3 million people to sign up. There is reason to believe that Apple won’t be able to attract the same level of conversion, at least not at this early stage.

Apple will not offer a free trial once a user’s initial three months runs out, meaning that many who simply didn’t use it to begin with will likely just delete it off of their phones. That makes the chance that they will seek to upgrade later on lower.

Spotify, which offers free streaming to those that don’t want to pay, will likely stay ahead for the time being.

Apple Music isn’t a money maker

If Apple does manage to mirror the Spotify conversion rate, it still won’t make much of a difference to the firm’s bottom line. Apple stock has been hammered in recent weeks because Wall Street is worried about the firm’s growth going ahead. Apple Music simply can’t cure that ill.

Eddie cue says that around 2m users, or about 18 percent of total, opted for a family plan that runs $14.99 per month.

If 3m users decide to stick with the Apple service, and 18 percent of them go with the family plan, the firm will be able to collect a little less than $400m in sales from Apple music each year. That’s the equivalent to the sale of just 582,000 iPhones at the ASP of $687 Apple showed off in its February earnings report.

Finding out about Apple Music

What really matters is hours listened, rather than user numbers. With the sheer number of news stories about the launch of Apple Music, many people may have signed up in order to see what the fuss was about. It’s free, and that means that user numbers don’t matter all that much. User engagement is much more important, but Apple isn’t letting the world know about those numbers.

11m users is just the start for Apple, and the firm’s shareholders are going to have to be happy enough with it for now. Tim Cook and his team will have to prove that they can go out and bring in more and more users in the year ahead, and make them pay for the service, before those with shares are going to bat an eyelid.

With worries about Apple Inc.  iPhone sales in China taking up most of their time, investors simply don’t care about Apple music. 11m is a nice number, but it’s just not good enough to matter in the behemoth that is Apple.

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