Commentary

Apple Music Shows Future Of Streaming Is Ad-Supported

  • by , Op-Ed Contributor, October 26, 2015
Apple Music’s free streaming audio trial is over for the first wave of users. Some 15 million people took part in the trial and on Oct. 1 had a choice to start paying a monthly fee, forgo the fee and accept ad-supported listening or go to another service such as Spotify, Slacker or Pandora.

What is happening with Apple Music is confirming previous insights into consumer demand and the future of music streaming.

The company and some music label executives pitched Apple Music as so revolutionary that consumers would adopt subscription-based streaming in large numbers. And they were initially right, but for the wrong reason.

Apple Music was quickly awash in a tidal wave of users for a free subscription, but just as the ocean returns to its “tidal” equilibrium, so do listeners. That equilibrium point for listeners is free music and that means ad-supported listening.

Is Second Place In A Small Market Good Enough?

Apple Music appears to have landed 6.5 million of its initial trial users. That makes it the second-largest subscription music service globally after just 90 days. However, it is still only one-third of Spotify’s subscriber base and about one-fifth the total audience it commands including ad-supported listeners.

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Apple wants the kind of relevance it commanded with the iTunes store when it controlled as much as 75% of all global digital music sales. That type of scale will only be possible with a successful ad-supported service in the near term.

Apple does have a hard-to-find ad-support service ad-supported service that could replicate Spotify’s successful “freemium” model of both ad-supported and subscription users. However, the company is not actively promoting it.

Subscriptions -- Fighting Over The 5%

Apple’s subscription focus leaves it fighting over a small premium listener segment representing only 5 percent of the market according to Nielsen. Ninety-five percent of Internet radio and streaming music users have chosen ad-supported listening.

Advertising - 95% Of The Market

The irony is that Apple’s first foray into Internet radio targeted the 95%. iTunes Radio provided only an ad-supported option and quickly captured a U.S. user audience of 20 million in 2013, per CNET, even though you couldn’t choose the song you wanted to hear similar to broadcast radio. The Apple Music free trial with unlimited, on-demand streaming of 30 million songs captured only 15 million listeners in three months, but users knew that a $9.99 monthly charge would eventually kick in. Consumers are sending a message about what they will and won’t do.

YouTube Looming-Tethered To Free Streaming

The largest music listening service globally is YouTube. Statista reports 52% of the 12+ U.S. population listens to music or watches a music video on YouTube monthly. That represents 141 million people in the U.S. alone and its global audience is far larger.

Tech Times journalist James Geddes succinctly sums up YouTube’s popularity. “The most obvious reason why YouTube remains by far the most popular streaming service is that it doesn't cost anything — the service is completely ad-supported.”

When Google Play Music first launched in the summer of 2013, it was subscription only. In June of this year, it added a free, ad-supported listening option. Everyone wants access to the 95 percent. YouTube may launch a subscription music service this year, but don’t expect it to abandon ad-supported listening anytime soon.

Advertising Is 56% Of Streaming Music Revs

The final clue in forecasting streaming music’s future can be found by following the money. MIDIA Research’s Mark Mulligan reported in Music Industry Blog that 56% of U.S. streaming music revenue in 2014 came from advertising. It is the industry’s economic foundation.

Spotify, Slacker, Apple Music and others will compete aggressively for the 5% of users willing to pay $10 monthly subscription fees. These users generate a lot of revenue. However, the feeder for future subscribers and the mass market of consumers will remain the 95% opting for ad-supported listening.

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