Music subscription to cost £10 a month; augmented Internet radio will have DJs.
With its dominant position in music threatened by a decline in download sales, AppleInc. is preparing to launch a direct rival to Spotify AB and other popular services that let users stream songs instead of buy them.
The tech giant is betting that for the second time in as many decades it can persuade millions of people around the world to change how they listen to and pay for music. In 2003, the company’s iTunes Music Store made downloading individual songs the most common way for people to buy music—and made iTunes the biggest music retailer on the planet.
Music-industry executives see Apple’s launch, expected to be announced at its developers’ conference next week, as a watershed moment for streaming music that could move the technology from early adopters to the mainstream. While it is late to the game, Apple can aggressively push its hundreds of millions of iTunes customers—most with credit cards already registered with the company—to embrace a subscription model on the same devices where they listen to downloaded songs and albums.
Apple sells an estimated 80% to 85% of music downloads world-wide, according to people in the music industry, but it has a fraction of the streaming business—the only mode of music consumption that is on the upswing globally. Spotify accounts for 86% of the on-demand music-streaming market in the UK, according to data shared with music publishers. Its share of the international market is believed to be similar.
For its new service, Apple wants people to pay £10 a month to stream songs, according to people familiar with the plans. Unlike Spotify, which has an ad-supported service as well subscription, Apple will make only a handful of songs available for free listening, these people say.
Apple also plans to augment its free, ad-supported Internet radio service with channels programmed and hosted by human DJs.
People familiar with Apple’s thinking say the company is prepared to cannibalize its download business in favor of streaming. The subscription model offers the prospect of more revenue for both Apple and the biggest music labels. Apple’s push may include prompting people who download a £10 album to instead subscribe to the streaming service for £10 a month, those people said.
Apple has been rushing to finish work on the new service and secure licensing deals with music companies. It hasn’t closed deals with the three biggest global music companies, Vivendi SA’s Universal Music Group, Sony Corp.’s Sony Music Entertainment and Warner Music Group, owned by billionaire Len Blavatnik’s Access Industries, according to people familiar with the talks. Many in the music industry expect such deals soon. If Apple doesn’t get its licensing deals done before the conference, it could delay its announcement long enough to wrap up negotiations, a scenario some in the music industry described as possible but unlikely.
Not everyone in the music industry is optimistic about the change. Some artists and smaller labels have complained about low royalty rates for streamed music, over which they have little control.
Of the 110 million people who bought music on the iTunes Store last year, the average customer spent a little more than £30 over a 12-month period, according to music-industry estimates. Persuading a significant share of those buyers to switch to a product that costs £120 a year will be a challenge, but would be lucrative for Apple and the record companies. But the move could backfire, if many subscribers are drawn from the elite ranks of iTunes purchasers who spend more than £120 a year.