Apple has opened exploratory talks with senior label executives about launching an on-demand streaming service that would rival Spotify and Beats Music, according to three people familiar with the conversations.
The surprising discussions are one part of a two-track strategy to deal with the double-digit decline in U.S. download sales at Apple’s iTunes Music Store, the largest music retailer.
The other approach that iTunes executives Eddy Cue and Robert Kondrk have broached would institute exclusive album-release windows in which digital versions would go on sale ahead of the CD release. Individual tracks would not be available for sale until the CD versions hit shelves.
With iTunes accounting for more than 40 percent of U.S. recorded-music revenue, any decision it makes about its business model will have a significant impact.
But it is the talks around on-demand subscription that will most intrigue the market. Apple founder Steve Jobs is known to have argued that fans would never subscribe to music. But nearly three years after his death, iTunes’ U.S. digital album sales are down 13 percent year to date for the week ending March 16, and digital track sales are down 11 percent for the same period, according to Nielsen SoundScan.
Even as download sales have deteriorated, revenue from streaming services has grown, according to two reports released March 18. The first, from the RIAA, showed that services such as Spotify, Pandora and YouTube generated $1.4 billion in subscription, advertising and licensing revenue in the United States last year, up 39 percent from 2012. That growth, however, wasn’t sufficient to make up for weakness elsewhere in the business, including a 1 percent drop in download sales. The second report, from the IFPI, painted a similar picture on a global scale. Streaming revenue grew 51 percent worldwide, while downloads slipped 2.1 percent.
These figures provide fresh ammunition to those in the music industry who believe streaming services’ all-you-can-listen model has drawn consumers away from download sales, where Apple dominates.