Almost a year after Apple's most contentious publicity play ever -- the iTunes giveaway of U2's Songs of Innocence in September 2014 -- the company didn't come away unscathed following its latest staged event at the June 8 Worldwide Developers Conference in San Francisco.
Predictably, the announcement of the June 30 launch of Apple Music, a combination streaming site (with subscriptions offered at $9.99 per individual or $14.99 for a family), curated 24-hour global radio station (Beats 1, helmed by Zane Lowe) and music-focused social network, made worldwide headlines and choked social media feeds -- thanks in part to a performance by The Weeknd and an appearance by Drake. But 24 hours later, music industry chatter had all but become a shrug.
That could be because the late-to-the-game service doesn't, as critics contend, boast any major innovations to the all-you-can-eat model, an assertion Spotify CEO Daniel Ek hinted at when he posted -- and promptly deleted -- a tweet that simply said, "Oh Ok."
"Underwhelmed" is how one label head described the industry's reaction to the reveal. "And a perceived arrogance" on Apple's part "that seemed not really based in reality."
Another reason: Scores of labels -- namely, the independents -- were left out of the celebration. At issue is Apple Music's 90-day free trial, which effectively cuts out any revenue from streams during that time period. According to multiple sources connected to Merlin, the 650-member-strong global digital rights agency, Apple has stated that no fees will be collected or disbursed from users test-driving the new product. For labels that make 30 to 40 percent of their revenue from Apple, suddenly shutting off that spigot could have catastrophic effects. (The American Association of Independent Music encourages its label partners to "not feel rushed to sign Apple's current offer.")
Furthermore, indies are afraid that Apple, in advertising its streaming app at the iTunes store, will precipitate a decline in downloads, which is, in essence, their bread and butter, as they stand to earn 70 or 90 cents from a download with a 99 cent or $1.29 list price as opposed to the average blended rate of $0.0061 cents from a stream.
Apple senior vp Internet software services Eddy Cue believes fans will continue to purchase downloads. "They've gone down a little bit, not a lot," he tells Billboard. "This is not a crater. Lots of people are very happy downloading, and they'll continue to be for a long time." But Pandora CFO Mike Herring adds that, beyond the numbers (digital track sales are down 10.3 percent so far in 2015), "it certainly seems streaming has already overtaken downloads in terms of consumer mind share."
In a way, that's a plus for Apple, which is looking to keep users in its ecosystem while turning them into subscribers (the goal: 100 million). And it supports a model seemingly already proved by Spotify when the company announced on June 10 that its subscriber base had grown by 5 million to 20 million users, crediting, in part, its self-claimed 26.7 percent conversion rate from free to paid. But it runs counter to declarations by the likes of Universal Music Group chairman/CEO Lucian Grainge and Sony Music boss Doug Morris, the latter of whom said that "free is death."
Wall Street observers, however, tend to side with the "freemium" advocates. “My takeaway from the market is that the overwhelming majority of people want whatever is free,” says Ben Bajarin of market research firm Creative Strategies. “Most are happy with what they’re using -- Pandora, Spotify or free radio."
To that end, Apple is betting big on a curated radio service -- while dismissing its competitors' offerings as glorified playlists -- something even Jimmy Iovine (still title-less at Apple) needed some convincing to get behind. "When [Beats chief creative officer] Trent Reznor suggested it to me, I was, like, 'Oh, God, this is going to be impossible to do.' Then I said, 'Wait a second, we're f--ing Apple. We can do anything. So it was 'Let's go!' There was a hole, like there was a hole in headphones."
Curiously, even streaming rivals like Rdio support the move. "What Apple did is reinforce a view that the right model for free is radio," CEO Anthony Bay tells Billboard. "We're big believers in that -- that the way you get the right audience is on a radio-style experience. This will put more pressure on the whole idea of free on-demand."
Still, it's hard to ignore the perceived failure of iTunes Radio, which arrived with a whimper in 2013. Indeed, one insider privy to Apple's inner workings says its top brass took heed of the flop. "They know they blew iTunes Radio -- it's Apple, they're not dumb."
According to another highly placed source, Apple has been spending money for its radio arm at an astonishing rate. Eight figures to lock in a star artist as curator, with a window of exclusivity to premiere new tracks, is not uncommon, says the insider, adding that it can price out competitors.
While it's easy to mock such free-spending, one major-label executive cautions that haters would be better off taking a wait-and-see stance. "Apple Music is going to take its bumps. It's still early, but it's going to teach the world through advertising that streaming is the future, and anyone bashing it is going to look stupid a year from now."
A version of this story first appeared in the June 20 issue of Billboard.
Additional reporting by Ed Christman, Natalie Jarvey and Glenn Peoples.