Lei Fengnet (search "Lei Feng Net" public concern) : This article translated by Platycodon Hsu from "Apple's Plan to Own the Entire Music Industry" by Neil Cybart , first posted on AboveAvalon on July 12, 2016.
Apple’s obsession with music is still not known - most people only focus their attention on the competition for users of the Music Streaming service between Apple Music and Spotify. However, Apple is more interested in the development of the direction of the music market recognition. The current goal of Apple is to use its own strong capital reserves to control the right to speak in the music industry, and in this process to squeeze the entire living space of the streaming industry.
Music rooted in apple DNAMusic is not only the source of iPod's creativity, but also the reason why Apple first set foot in industries other than hardware and software. The distribution and sale of digital music was once a chaotic market, and Apple decided to enter the market. The reason is that it is believed that its expertise in hardware and software can bring advantages, which other companies do not have. The confusion in the music industry is growing day by day, and Apple sees it as an opportunity to integrate and distribute to create a superior user experience. But it also lacks a condition that is music resources.
In order to allow Apple access to music resources, Steve Jobs contacted Bertelsmann, EMI, Sony, Universal, and Warner, the top five record companies, to explain to them how Apple is going to manage a complete musical experience: from running stores selling songs to selling songs. The entire process is under the control of Apple. Jobs did this to impress record companies and let them understand that no one can do better than Apple to provide a great user experience. However, since the iTunes store was only available on Macs at first, if the actual results disappointed the record companies, this wrong decision would not be able to make up for the lower market share of Macs.
As a result, Steve Jobs's self-promotion was successful, and the world soon accepted a song with a $0.99 Apple model. For the first six days of the iTunes store launch, music downloads reached one million. In the following years, the iTunes store became the first place to purchase music; more importantly, the iTunes store gained a lot of user awareness in the music industry – as long as it comes to music, people first think of iTunes and the iPod. Apple so occupied the music industry.
Acquisition of BeatsiTunes' irresistible dominance has remained so for more than a decade, and it has hardly been challenged. For more than a decade, the music industry's territory has been changing, but it is almost always controlled by Apple. However, under the appearance of prosperity, cracks have gradually emerged. Earlier in 2014, Spotify had recruited 55 million users. Pandora's valuation on Wall Street has been hot, and YouTube has become the first choice for free music listening. Although iTunes's paid download service continues to attract money, changes in the environment are within reach. For a long time, this was the first time that Apple did not stand on the air.
In 2014, Apple purchased Beats for $3 billion, which is almost four times higher than its most expensive acquisition. In doing so, it is actually a recognition that iTunes has faced a crisis. Although Apple management has never publicly acknowledged the intent behind this acquisition, as long as you see Beats founder Jimmy Iovine actually sold a "solution" to Apple, you can know that Apple's model is indeed a problem. What it needs most is a problem.
Occupy the music industry strategyAccording to my observations, following the acquisition of Beats, Apple has always been the ultimate goal of occupying the entire music industry, trying to regain the right to speak in this industry, and its strategy can be clearly divided into four steps:
Turn directions and enter the paid music streaming market;
Use strong capital reserves to control the voice of the music industry;
Seize profit share and seize the living space of the streaming industry;
Create sustainable development environment for independent musicians.
A step in these four steps is difficult, but in essence it is interrelated.
The first step: Turn the direction and enter the paid music streaming market.
The first step in Apple's dominance of the music industry is the most straightforward. It is to work with the copyright owner to transform from the paid download model to the paid streaming model. The paid streaming service is still in its infancy and it pays 9 million users. There is no doubt that this number will increase in the coming years. In 2015, revenue for the US streaming service exceeded the paid download for the first time. Obviously, switching to streaming is Apple's only choice.
Apple's experience in testing water streaming last year gave people an impression of mixed emotions. For those old users who previously had playlists in iTunes, Apple Music was just a headache and a mess. Apple claimed that streaming services can integrate seamlessly with traditional iTunes services. This is bragging. However, for mainstream users who are accustomed to streaming services from the outset, Apple Music is much more accepted. Last month, Apple unveiled an improved version of Apple Music at the WWDC, solving some of the major issues that surfaced last year.
When it comes to Apple's performance in paid music streaming, the most important measure is the number of paid subscriptions. As a result, many people have turned their attention to the grudges of Apple and Spotify, two music streaming giants. Spotify has more than 30 million paying subscribers, which is almost twice that of Apple Music's 15 million paying subscribers. However, Apple Music also demonstrated enough potential to deliver 15 million transcripts in less than a year - Spotify took six years to accomplish this.
Despite some mistakes, Apple has successfully completed its first step in the process of ruling the entire music industry. With Apple Music, it has become the world’s second largest paid music streaming company in just one year.
As shown in Figure 1, Apple Music subscribers have a much steeper growth curve than Spotify. Apple's advantage lies in its prosperous mobile ecosystem, its vast global map, and its mature music streaming market.
Figure 1: Comparison of Apple Music and Spotify paid subscriptions
Observing the growth trend of recent subscriptions will reveal that the analysis has not been easy. Evidence shows that Spotify's large number of discounts and promotions dilute the number of paid users, making it relatively cheap on this scale. Since Spotify has 70 million free users, it is very likely that it is trying to lure users into paying services through discounted promotions, thereby realizing a huge user base.
Considering that there are other competitors, the music streaming industry can still be described as a separatist group. Backed by a large amount of exclusive music, Tidal, founded by Jay Z, has 4 million users and claims to be the third largest payment streaming service. According to this standard, Deezer, Rhapsody, and Pandora are also close behind. In contrast, SoundCloud recently entered the paid music streaming market, but did not set off many waves.
The second step is to use a strong capital reserve to control the voice of the music industry.
The second step in Apple's dominance of the music industry is to use its own strong reserves of capital to make itself more dominant in the face of Spotify, the biggest opponent. By allocating funds from its $230 billion in cash, Apple plans to achieve the following three goals:
Acquiring exclusive music: Apple made a big bet on monopoly music. Through close cooperation with top musicians, Apple realized that monopoly music not only helps promote the sales of Apple Music's paid services, but also facilitates the occupation of media heights for it. Exclusive music can lead to discussions and attract stories. To give an example, it can explain the impact of exclusive music: Tidal has 4.2 million paying users, most of whom are directed at Beyoncé, Kayne West, and Rihanna. (Rihanna) came. At the same time, Apple also signed Drake, Future and Chance the Rapper's exclusive music rights.
Create original content: In addition to focusing on acquiring exclusive music and albums, Apple also showed great interest in cooperating with record companies and musicians and creating other forms of original content. This includes: special feature films (such as Taylor Swift concert documentary), Beats 1 radio program, and even original TV series ("Vital Signs" starring Dr. Dre). The existence of these original contents shows that nowadays, in the music industry, it is necessary to “take the enemy’s victory†and that there are already insufficient musical resources – music and video content are increasingly inseparable.
Funding Musicians: Recently, Apple's behavior is more and more like a record company. People learn that Apple is funding a group of singers to pay for their marketing expenses, although Apple is not so happy to further disclose the details of this relationship. In addition, it also produced MVs for singers such as Drake, MIA, The Weeknd, and Eminem.
All three of Apple's goals are for Apple Music to occupy the focus of discussion in the music industry. It hopes that no matter what happens in the music industry, it can have a relationship with Apple Music. The key to achieving this goal is a large amount of cash flow and just-in-time industry contacts. According to legend, signing Drake’s exclusive copyright costs 19 million U.S. dollars. Obviously, this is the main battlefield for music streaming users. Recently, Spotify hired Troy Carter as global content creation service director, and also took monopoly content as the top priority.
The third step is to seize the profit share and seize the living space of the streaming industry.
After successfully rushing into the paid music streaming industry and focusing on exclusive content and establishing an industry network, the next step in Apple's hegemonic plan is to attack. Apple plans to seize the profit share of music streaming, thus forming a more stable cooperation relationship with the copyright owners, and also hopes to greatly reduce the living space of the streaming industry in this process.
The ultimate goal of Apple is to create a virtuous circle in the music industry. It believes that if Apple Music becomes the biggest source of profit, it will inevitably make the relationship between Apple and the copyright owners more stable; this solid relationship will in turn enable Apple Music to have more exclusive content, cover more singers, and make this service possible. Become better; with better content, Apple Music can attract more users to pay, get a bigger cake in the industry; increase the profit share, copyright parties will have more incentive to cooperate with Apple - one The cycle was thus established. The reason why Apple did not do a free version of Apple Music is to pursue profit share and serve the goal of moving closer to copyright. Apple's practice has been considered conservative, because Spotify has proved to us that the free version can also be used as a tool to promote the sales of the paid version.
By seeking to obtain a large amount of profits from the music streaming industry, Apple hopes to let its competitors lose interest in the industry. Apple's move to compress the industry's living space will further increase the financial pressure of music streaming companies. Having said this, you have to mention the rumors of the acquisition of Tidal. The purpose of Apple's acquisition of Tidal is not related to acquiring its 4.2 million paying users; in fact, Apple is interested in getting the music resources of Jay Z and his friends. Last year's failure to get Beyoncé, Rihanna, and Kanye West, made Apple feel very annoyed. Although Apple Music eventually included these exclusive contents, Tidal’s initial attention and benefits were not what Apple could later achieve. If Apple acquires Tidal and Zhaoan Jay Z, Apple Music will be able to make it more attractive and able to increase its profit share. (You can see my complete analysis of the Apple-Tidal acquisition here , including some of my thoughts on Tidal's current pricing code.)
Step 4: Create a sustainable development environment for independent musicians.
The final step for Apple to dominate the music industry is the hardest and most interesting. So far, our focus has been primarily on Apple’s attempts to control the music industry by attracting the top 1% of musicians and industry giants. These singers are able to open a global tour, no matter what transactions or news they encounter, they can do more or less to exert their power. In fact, they do not need to rely on music streaming to maintain their own development.
However, some people do not have such a wrist, that is, those independent musicians who are trying to find ways to expand their audience and maintain their livelihood. Can music streaming be the answer they are looking for? In this regard, I am not optimistic, because it is not enough to broadcast. The streaming platform can build bridges for small singers to connect with fans and enable their musical works to be realized. Where can the platform go where it should go before the music industry can continue to develop? If Apple can successfully attract the most valuable audience, it will have such a competitive opportunity to maintain an independent music platform and bet that people are willing to pay for it. However, if you look at the growing troubles of the App Store and the increasingly serious livelihoods of independent developers, it becomes clear that Apple is still a long way from achieving this last step.
Potential problems and risksIn achieving the hegemony of the music industry, Apple will face challenges and risks at each step. With regard to the understanding of the user's singing habits, Spotify still embodies the seniority and genius, and cannot be taken lightly.
Regarding monopoly content, copyright owners always have a tendency to think that the more people hear their own music, the better. This may give Apple an added bonus on the monopoly of music. Moreover, the exclusive content spreads across the platforms, which is unfriendly to the user; this is all the more true if one takes into account the premise of monopoly sales during the physical store era. Promoting content monopoly in music streaming may lead to piracy.
In addition, Apple Music’s erroneous decisions in design and user interface may jeopardize the user’s acceptance of Apple’s claimed user experience in the battle for revenue share in streaming services. In the end, in order to maintain the development of independent musicians, the biggest risk Apple faces is that it cannot resolve to provide enough resources. Moreover, in the process of musicians seeking sustainable development, social factors will eventually play an important role, which may also cause Apple's efforts in this area to be hindered.
The possibility of the futureIf Apple can successfully control the music industry for the second time in 15 years, it will surely bring a lot of important and far-reaching impact; it will overcome the delays of several years and succeed from the traditional technology (paid music download). In the transformation, the new business model (music streaming) under the city.
Apple will also be able to use its own user platform to occupy the high ground in the new technology field, and then use the funds as a lever to seek a favorable position in the battle to seize the profit share. This strategy can also build a framework for Apple’s next treasure trove of content - video content. Although some may think that for companies such as Apple, some of the qualities of the music industry make it much easier to control than the video industry; but these two industries are in some ways similar, and Apple will certainly seek development.
From the experience of running iTunes and iPod in his early years, the most important experience Apple has learned is that in an industry that is undergoing profound changes, as long as it focuses on improving the user experience, it can create tremendous influence. If an industry is still in chaos and unknown, then Apple would be much easier to provide an excellent experience that users value. With 233 billion U.S. dollars in cash flow spoilers, it is one of the steps Apple took in the grand blueprint of the music industry. With an attachment to music, Apple is still ambitious.