Apple music grows and wants to pay labels less

File picture: Regis Duvignau / Reuters.

File picture: Regis Duvignau / Reuters.

Published Jun 24, 2017

Share

Washington - In the two years since its release, Apple Music has been

gunning for Spotify's top spot a top the music streaming world, playing the

upstart as it rushes to occupy territory as an ambitious, new competitor.

It's made some important strides. Apple has aggressively

converted 27 million subscribers, and has bolstered its catalog with exclusive

online television. And in yet another sign of Apple's momentum, the company is

said to be renegotiating its deals with record labels, offering a smaller cut

on the promise it will continue to deliver ever more eager listeners.

Given that progress, what is the number two streaming player

doing hawking its service on daily deals site Groupon alongside coupons for

cargo shorts and couples’ massages? It's part of the land grab, analysts say.

Read also:  Hey, Siri! How will Apple keep up? 

"A lot of the deals on Groupon are from companies that

perhaps have seen better days," said Rafi Mohammed, a pricing consultant.

"But on occasion Groupon does do a high-profile deal with a major

company."

First time customers can sign up for Apple Music and get

three months free, if they grab the Groupon deal. Afterwards, subscribers are

automatically renewed for a regular membership, at $9.99.

The free trial is the same as the one Apple offers on its

own site. Experts say that rather than giving off a whiff of sales-desperation,

Apple's Groupon move is the latest sign of the company's aggressive play to

reach new streaming customers.

"Apple Music is growing fast but not as fast as

Spotify," said Mark Mulligan, a digital music market analyst. "It

needs to widen its acquisition funnel to attract more users. Groupon is just

one example of this strategy."

Apple's consumer base is limited to people who already own

Apple devices, whereas Spotify's potential audience is anyone with a Smartphone.

But within the ecosystem of Apple products, this can work to Apple's advantage,

Mulligan said.

"Over the next couple of years Apple is likely to

strengthen its position due to its ability to market directly to iOS device

owners and to give increased priority to Apple Music within its devices.

In effect Apple has an inbuilt advantage within the iOS

ecosystem and by the same token, the ability to limit the reach of

Spotify." As Apple Music has built up a dedicated following, the company

is said to be negotiating to reduce the share of revenue it doles out to record

companies, according to Bloomberg.

Apple currently offers record labels 58 percent of streaming

revenue. The terms of the new deals would bring down the cut record labels

receive closer to Spotify's, which offers 52 percent, signaling that Apple no

longer has to appease the industry with bargain rates. The renegotiated terms

would depend on Apple Music delivering a growing base of streaming subscribers.

With nearly 30 million subscribers, up from 20 million in

December, Apple is aiming to unseat the 50-million customer market leader

Spotify. Pandora, which has long offered Internet radio, recently launched a

premium, on-demand streaming service to compete with Spotify and Apple, and

hopes to amass 6 million to 9 million customers by the end of this year.

Using free and discounted trial offers is common for music

streaming services, Mohammed explained. In addition to Apple Music's

three-month deal, Spotify, Pandora Premium and Amazon's Music Unlimited all

currently have promotional offers ranging from 30 to 90 days.

Spotify also has a deal running on Groupon. "I would

view the Groupon partnership as just a signal of Apples's aggressiveness to

become the king of the streaming market," said Muhammad. "Apple

really needs to make a splash."

While Groupon has been associated by some businesses and

critics as devaluing a company's brand, since customers armed with a coupon are

less likely to return and pay full price, Muhammad said that Apple has

explicitly shaped the deal as a one time-offer, managing the consumer's

expectations.

"Groupon isn't really going to affect its brand. The

way they framed it is it sets the expectation that this is a good deal, but you

shouldn't expect to capitalize on this again," he said. "You are not

devaluing the product because you are very up front."

WASHINGTON POST 

 

Related Topics: