Streaming music system ties in users, supports iPhone and iPad sales and is likely to lead to more music buying
It's easy to forget that the largest music retailer in the world isn't Amazon, it's Apple: the iTunes Music Store is now 10 years old and has more than 300m outlets – in the form of installations on people's computers, iPhones and iPads. Tim Cook, Apple's chief executive, pointed out that Apple stores details of 575m credit cards – more than any rival internet store. Yet the real killer stat, calculated by Horace Dediu, founder of the Asymco consultancy, is that iTunes is adding about 500,000 new accounts every day.
Almost from the inception of the Music Store, the music business has long had a love-hate relationship with Apple. It loves the fact that it finally made digital music into a moneyspinner (where before file-sharing meant money was pouring down the drain), but hates the power Apple has come to wield.
But with iTunes Radio, announced last week at Apple's Worldwide Developers Conference in San Francisco, they might finally have got lucky. It's a streaming radio service that superficially resembles the US-based Pandora (200 million registered users), or Sweden's worldwide hit Spotify (6 million paying users, 24 million active worldwide), or Rdio, or Last.fm, or any of a dozen similar "music streaming" services. You don't own or buy the songs, you listen to them in a stream, which can be tailored to your existing tastes. For each play, a little money is handed over (officially, 0.085p per track in the UK, and over 10 times higher, around 0.96c per track, in the US, at least for Spotify).
What the other streaming services have discovered repeatedly is that it's hard to make such a service profitable, because the music costs don't fall as they grow – in web terms, it doesn't "scale". Thus Spotify has put a 10-hours-per-month ceiling on free listening, and Pandora blocks people outside the US from listening.
Steve Jobs always professed indifference to the streaming model; in 2007 he told Reuters "customers don't seem to be interested in it". But that was then. From 7in tablets to subscription music, Apple is perfectly willing to change course if there's money in it.
So how will it make money? First, it further ties people into the iTunes ecosystem – always a bonus for Apple. It will start in the US, where Apple has 54 million iPhone users. (Eddy Cue, Apple's head of services and software, is expected to be at the table with music labels and publishers in Europe and elsewhere almost at once to hammer out deals here.)
Just keeping it in the US, if we assume that 50 million people upgrade, and listen to 10 hours of iTunes Radio per month (about 200 tracks), that's $96.9m per month going to the labels. Pure gravy! Order some fresh flowers!
For a Spotify or Pandora, that would be crippling, but Apple probably makes that in interest on its cash pile; if it sells a few million extra iPhones or iPads off the back of it, it makes a net profit. It will be ad-supported, so that could kickstart its efforts there too. It's win-win already.
Next, people might actually like some songs enough to buy them directly from iTunes (there will be one-click buying). By my calculation, assuming Apple keeps a few cents of profit from any iTunes sale, then in the UK (where streaming costs are much lower) it only needs to make one sale per 50 listens and the service breaks even. Win-win-win.
For the music business, there's a strange element to its relationship with Apple, from which it keeps trying to break free. The labels helped Spotify, which is a great service (and will surely keep the high-end customers who love its social element). They gave preference to Amazon for its MP3 service (and Amazon may announce something like iTunes Radio this week). They've helped Google out with the clumsily-named "Google Play Music All Access" streaming service announced in May – which, unlike pretty much every other Google service, won't be ad-supported; it's paid subscriptions only. (That "scale" problem, perhaps).
Yet Apple keeps being the one which makes digital music work on a wide scale, against all expectation. It will only need deals in a few countries for iTunes Radio to be the biggest streaming music service in the world once it launches officially in the autumn.
The deal Steve Jobs made back in 2003 – when he coaxed the labels into signing up for the iTunes Music Store on the premise that Apple's user base was tiny, so any failure wouldn't have a wide effect – continues to look like one of the best ever made. Reported by guardian.co.uk 14 hours ago.
It's easy to forget that the largest music retailer in the world isn't Amazon, it's Apple: the iTunes Music Store is now 10 years old and has more than 300m outlets – in the form of installations on people's computers, iPhones and iPads. Tim Cook, Apple's chief executive, pointed out that Apple stores details of 575m credit cards – more than any rival internet store. Yet the real killer stat, calculated by Horace Dediu, founder of the Asymco consultancy, is that iTunes is adding about 500,000 new accounts every day.
Almost from the inception of the Music Store, the music business has long had a love-hate relationship with Apple. It loves the fact that it finally made digital music into a moneyspinner (where before file-sharing meant money was pouring down the drain), but hates the power Apple has come to wield.
But with iTunes Radio, announced last week at Apple's Worldwide Developers Conference in San Francisco, they might finally have got lucky. It's a streaming radio service that superficially resembles the US-based Pandora (200 million registered users), or Sweden's worldwide hit Spotify (6 million paying users, 24 million active worldwide), or Rdio, or Last.fm, or any of a dozen similar "music streaming" services. You don't own or buy the songs, you listen to them in a stream, which can be tailored to your existing tastes. For each play, a little money is handed over (officially, 0.085p per track in the UK, and over 10 times higher, around 0.96c per track, in the US, at least for Spotify).
What the other streaming services have discovered repeatedly is that it's hard to make such a service profitable, because the music costs don't fall as they grow – in web terms, it doesn't "scale". Thus Spotify has put a 10-hours-per-month ceiling on free listening, and Pandora blocks people outside the US from listening.
Steve Jobs always professed indifference to the streaming model; in 2007 he told Reuters "customers don't seem to be interested in it". But that was then. From 7in tablets to subscription music, Apple is perfectly willing to change course if there's money in it.
So how will it make money? First, it further ties people into the iTunes ecosystem – always a bonus for Apple. It will start in the US, where Apple has 54 million iPhone users. (Eddy Cue, Apple's head of services and software, is expected to be at the table with music labels and publishers in Europe and elsewhere almost at once to hammer out deals here.)
Just keeping it in the US, if we assume that 50 million people upgrade, and listen to 10 hours of iTunes Radio per month (about 200 tracks), that's $96.9m per month going to the labels. Pure gravy! Order some fresh flowers!
For a Spotify or Pandora, that would be crippling, but Apple probably makes that in interest on its cash pile; if it sells a few million extra iPhones or iPads off the back of it, it makes a net profit. It will be ad-supported, so that could kickstart its efforts there too. It's win-win already.
Next, people might actually like some songs enough to buy them directly from iTunes (there will be one-click buying). By my calculation, assuming Apple keeps a few cents of profit from any iTunes sale, then in the UK (where streaming costs are much lower) it only needs to make one sale per 50 listens and the service breaks even. Win-win-win.
For the music business, there's a strange element to its relationship with Apple, from which it keeps trying to break free. The labels helped Spotify, which is a great service (and will surely keep the high-end customers who love its social element). They gave preference to Amazon for its MP3 service (and Amazon may announce something like iTunes Radio this week). They've helped Google out with the clumsily-named "Google Play Music All Access" streaming service announced in May – which, unlike pretty much every other Google service, won't be ad-supported; it's paid subscriptions only. (That "scale" problem, perhaps).
Yet Apple keeps being the one which makes digital music work on a wide scale, against all expectation. It will only need deals in a few countries for iTunes Radio to be the biggest streaming music service in the world once it launches officially in the autumn.
The deal Steve Jobs made back in 2003 – when he coaxed the labels into signing up for the iTunes Music Store on the premise that Apple's user base was tiny, so any failure wouldn't have a wide effect – continues to look like one of the best ever made. Reported by guardian.co.uk 14 hours ago.