Apple Inc. seems to have locked down a decent foothold for its music streaming service. Cyberspace is already filled with reports that Apple Music now has 15 million subscribers. Of those users, 6.5M are paid users while the remaining 8.5M are still on the free three-month trial period of the service. After the free trial, users can end the service at no cost or they can continue using the service for $10 per month.
Apple CEO Tim Cook notes that the service now has 6.5M paid users and it appears that the music service might soon join the crew of billion-dollar businesses that Apple owns. 6.5M million users paying $10 per month for a period of 12 months in a year should give the firm about $780M in revenue each year. If Apple is able to convert just 1.8M users out of the remaining 8.5M users on the free three-month trial, Apple Music will have technically become a billion dollar business for Apple.
Apple Music not quite a billion-dollar business
The theory on possible revenue as presented above seems to be the mainstay among Apple bulls who think that the music service could be the next big thing for the firm. Richard Windsor, analyst at Edison Investment Research noted that the Apple has a potential goldmine in its music service because user numbers are “completely at odds with the feedback that the service has received where Spotify offers a better experience with a much richer feature set at the same price”.
Windsor also thinks that Apple might start making serious money on with the music service, much in the same way that its iTunes store became an important reporting segment. He noted “This is one of the clearest demonstrations yet of how important it can be to control the platform upon which a service is to be sold,”.
However, what most of the bulls have failed to consider is that the firm doesn’t keep all the revenue from the music service for itself. To start with, Apple has to pay the artists and bands whose songs are being played. Apple is big on intellectual property rights and the firm has already given its word to pay artists for a free trial after Taylor Swift called out the firm some months ago.
Even it does become a billion dollar business, that simply won’t mean much to those with shares in the firm. Apple had more than $200B in sales in 2014, and adding another billion isn’t likely to even factor into the moves made by traders.
Apple isn’t really after Music subs
The jury is still out on whether Apple Music will become a billion-dollar business or not. However, it doesn’t appear that the firm is getting into the music streaming space because it needs the money – more than $200B in cash confirms this notion. It appears that Apple is mainly concerned about keeping users locked within its platform for all their mobile needs.
If users are flocking to Spotify or Pandora for songs, the smartest thing is to make a better offering to keep them engaged. the firm, might lose money on its music service, but the firm won’t be bothered inasmuch as the music service provides users with an extra reason to keep their iPhones, iPads and MacBooks.
Apple Music is a great way to sell Apple products, and that’s where the firm’s real revenue comes from. Given the marginal effect the service has on sales of the iPhone, and the paltry $120M that it has to make up in order to become a $1B business, it’s likely that Apple Music is already worth more than $1B per year to Apple, and that number’s likely to keep growing with its feature list.