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We don’t hear directly from Apple (NASDAQ: AAPL) that often. The annual Apple Worldwide Developers Conference is one of only a few times per year that we hear from Apple about new products and tweaks to existing products.
Perhaps the most significant announcement of this year’s WWDC was also the most expected: the announcement of a new Apple music service. Apple certainly did not disappoint.
With Apple Music, Apple now offers a legitimate competitor to the fast-growing Spotify. For $9.99 per month, Apple Music users will gain access to a huge library of music with over 30 million songs.
Though the high-profile battle between Spotify and Apple seems to be capturing the spotlight, the reality is that Apple Music is a real threat to several other companies, too.
First, Pandora (NYSE: P) is very vulnerable here and the market knows it. Pandora stock fell around 4% Monday during Apple’s WWDC and another 3% the next day. Pandora’s premium service Pandora One costs $4.99 per month, making it cheaper than both Spotify and Apple Music, though it already has fewer subscribers than Spotify.
Sirius XM (NASDAQ: SIRI) is also vulnerable. In addition to Apple Music’s library of offerings, the service also includes Beats1, a suite of radio stations curated by DJs. The stock fell around 3% the day of and the day after Apple’s announcements, even though the company’s satellite radio offerings aren’t directly related to Apple’s streaming content service.
Several other streaming services are in the crosshairs. Sound Cloud, Jay-Z’s Tidal and even Google’s (NASDAQ: GOOGL) own premium music offering are also at risk.
Legal Scrutiny
Apple is clearly the juggernaut in the market and the announcement of Apple Music has already drawn the ire of a growing number of state attorneys general. Considering Apple’s history with allegations of anti-competitive practices in the e-book industry, it’s no surprise that Apple’s entry into music streaming is facing scrutiny.
If Apple did indeed tell some of its music licensing partners that they must pull music from services like Spotify in order to be a part of Apple Music, then Apple is, indeed, guilty of anti-competitive practices. Surely Apple knows this. And surely Apple was careful to keep its toes on the right side of the law.
Let’s assume a level playing field, one on which content becomes almost a commodity and competing streaming services offer essentially the same library.
What separates one from the other? I think the answers are “price” and “convenience.”
This is why I think Apple Music is such a big deal.
Spotify currently has around 60 million subscribers including 15 million paid subscribers. Apple hopes to gain 100 million paid subscribers and I think it will achieve this goal by offering a wide range of content and identical pricing with a significant convenience advantage.
Survivors After Consolidation
Apple has one of the most recognized brands and best marketing machines on the planet, more than 800 million credit cards on file, and it plans to put an Apple Music button on every compatible Apple device with the next software update. I consider that to be a powerful market position.
I don’t think the market can bear five similar streaming services – Apple Music, Spotify, Tidal, Sound Cloud and Google Play – and that consolidation is inevitable.
You can bet that Apple will also be one of the last companies standing. And, considering Spotify closed a $526 million round of financing the day after Apple announced Apple Music, it seems likely that Spotify will also be among the survivors.
DISCLOSURE: I personally own shares of Apple.
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