The Apple-Beats deal talks were just the starter pistol. Industry execs eye the competition ahead.
This article first appeared in the May 24th issue of Billboard Magazine.
Talks continued at press time over Apple's bid to buy Beats Electronics for a reported $3.2 billion. But the ripple effects are already being felt among players in the growing market of streaming music providers - which is set for a period of rapid consolidation during the next 12 months, say industry executives.
The deal may spur tech giants like Google and Amazon to make bids of their own for the likes of Spotify and Rhapsody -- the biggest and first on-demand music streaming subscription services, respectively -- as they seek to make their digital platforms more attractive to consumers. Google and Amazon declined to comment.
Insiders told us that rivals like Spotify and Rhapsody would not be surprised to see Apple, which took a tentative first step into the market by launching iTunes Radio last summer, roll out a competing service. The belief is that there's still plenty of room for growth given the market is still quite small. "I've always assumed they would eventually offer on-demand streaming," a source told Billboard. "We're not fighting over market share here. It's still such a small market that's growing fast."
The market is indeed small, with fewer than 5 million on-demand subscribers in the US by most estimates. Of that total, Beats had fewer than 200,000 paying subscribers in its early months (although it is projected to grow to 1.5 million users by the end of its first year).
Ninety percent of the value of an Apple-Beats deal is attributed to Beats' headphones and speakers, which brought in roughly $1 billion in revenue in 2013. Still, label executives believe the fledgling Beats Music streaming service (which sources value at more than $300 million), will play a crucial strategic role in Apple's plans.
With more than 800 million credit cards on file and a seamless relationship with millions of iPhone, iPad and Mac owners around the world, Apple is positioned to grow market share quickly. That could pose a challenge to Spotify, the streaming market leader, with 6 million paying subscribers worldwide.
There are a lot of smaller players who could be ripe for consolidation -- including Rhapsody, Rdio, Slacker and Songza, say several executives. And some speculate that Apple's moves could affect Spotify's plans for an initial public offering this fall. (Ek declined to comment, as did Apple and Beats.)
Whatever happens, "this raises the game a notch," says a senior label executive. "This is a huge statement from Apple about the strategic value of music to their business. Their rivals are likely to follow."