Apple Inc. (NASDAQ:AAPL) is in the midst of bringing a new streaming service to the market. With the firm’s iOS 8.4 update, which went live on Tuesday, Apple Music hit iPhones around the world. Many users will have signed on for three months of free service from the music streaming app, and the firm’s shareholders hope it can convince most of them to pay out for the full service in three months time.
The problem is, if it is a problem, that even if 120m users, an impossible feat even with Kanye’s new album (tentatively titled SWISH) as a possible Apple Music exclusive, they’ll only bring in sales of $14bn and profit of much less. That’s a solid little business for Tim Cook, but it means nothing in the grand scheme of things at the firm.
Revenue for the concern as a whole in 2014 was $182bn. That means that the impossible case of 120m users is about a 7% bump in revenue. Why then does Wall Street seem to love Apple Music so much?
Bring on “Planet Apple”
It’s not about Apple Music so much as it’s about the future of the business as a whole, at least in the mind of Brian White, who follows Apple for Cantor Fitzgerald. Mr. White says he sees Tim Cook pushing for “an expanding digital ecosystem” and that “Apple’s future prospects have never been brighter.”
Mr. White makes reference to “Planet Apple,” his name for the “digital matrix” that keeps Tim Cook, Jony Ive and their partners way ahead of other phone makers. He says that the matrix is often not seen as positively by investors as it should be as it lives in the shadow of the clearly massive iPhone sales that it has a hand in generating.
It’s not about Music on Wall Street so much as it’s about what Apple can do if Apple Music is a success. FBR Capital analyst Daniel Ives says that “the name of the game for Apple around music is expanding its tentacles further into the consumer world and helping build out a broader stream of content.”
For him that means TV. Mr. Ives is looking for Apple to release a TV streaming service sometime before the end of the year, but he doesn’t think that will take away from the core business. Apple is still “laser-focused” on the iPhone 6 and growing China as a market, says Ives.
Apple music isn’t great, but it is good
Early reviews for Apple Music have shown certain issues with the service, and the slightly buggy launch didn’t do the firm any favors. The consensus appears to be that though the service isn’t amazing, it is a decent offering and it’s free for the time being.
There’s lots of features that Apple is likely to add to its Music service over the coming months, and lots of tweaks to the interface are likely to make it suit most people. Apple is good at UI design and making the time a user spends in an app feel good. If that’s not the case with Music right now it will be before the end of the year.
Apple looks for growth
Apple can’t grow with revenue from Music, as is clear from the numbers above, but Wall Street doesn’t expect it to. Mr. White is clear when he refers to the power of “Planet Apple” in keeping other firm’s in the business at a lower level, while Mr. Ives sees streaming as the start of a process that will lead the Cupertino firm further and further into the services world.
With Apple Pay still trying to grow, and a TV service looked for before the end of the year, the “digital matrix” is expanding. Wall Street is looking for that to push the sale of more devices, and guard current sales against disruptive forces.
Music is the next big part of that matrix, and Wall Street loves it because of what it can do for the firm as a whole, even if it can’t bring in that much money by itself.