Music

HAPPY APPLE MUSIC DAY?

HAPPY APPLE MUSIC DAY?

JUNE 30, 2015  BY

This is a massively important 24 hours for the music industry. No pressure.

Apple Music will officially launch at 8am PST (4pm UK time/CET) today as part of the iOS 8.4 update, ushering in the biggest change for mainstream music consumption for over a decade.

Beats 1 – the exciting worldwide ‘live’ music radio station featuring Zane Lowe in Los Angeles, Ebro Darden in New York and Julie Adenuga in London – will begin broadcasting an hour later.

Will it bring the good times back to music? Or badly damage labels’ most reliable sources of income?

The jury is out. Time to hold your breath and tightly cross those fingers.

One oft-overlooked danger of Apple Music is the impression it might make amongst mainstream consumers who are still happily picking up one or two CDs a year.

These are the forgotten customers; an audience whose occasional commercial flirtation with music still contributes a jumbo chunk of revenue to the international business.

Physical music sales made up 46% of total record company income across the world last year, according to the IFPI – and even that stat doesn’t tell the full story.

When you omit licensing income from broadcast, sync and digital radio – ie. only counting sales/downloads/on-demand streaming platforms – physical music brought in 53% of total label revenues in 2014, according to MBW estimates. ($6.82bn vs. digital on-demand’s $6.08bn.)

As you can see below, the CD might have left its heyday in the rear-view mirror, but it has ridden the storm of download’s ‘dominance’ and streaming’s ascendance – maintaining its position as the most lucrative contributor of the record market seven years after the launch of Spotify and over a decade since iTunes arrived.

Physical

Even when SoundExchange (digital radio collections in the US from Sirius, Pandora and others) is factored back in to 2014’s figures, physical still made up 50% of last year’s total global recorded music income.

If Apple Music’s mainstream play – its three-month free trial – attracts these consumers away from CD, it will be vital to the industry that they are coaxed to ultimately pay the same as they are doing now… or more.

One big concern, therefore, is how Apple Music consumers convert into paying customers.

If a user decides to pay $9.99/£9.99/€9.99 a month, that’s potentially good news.

But if they buy a $15 family deal for up to six (!) people, or if Apple launches discount telco bundles in the coming months, the ARPU of the service will inevitably be lessened.

On a more positive note, Apple Music will launch in 100 countries around the globe today, which may (to be confirmed) include the likes of China, where per capita (per head) spend on music amongst a 1.35bn population is currently woeful. (Same goes for Russia.)

Can Apple Music, backed by a megabucks marketing blitz, tempt these consumers into paying a little extra?

We’ll wait and see what the price points are around the world, but an improvement in these territories could make a huge difference to the global record industry’s overall health.

One leading US industry figure made it very simple when talking to MBW last week.

“Apple needs to spend a billion dollars on marketing. That’s what we’re looking out for. Anything less, and music’s not as important to Apple as they say it is.”

As for the income coming into labels and publishers from Apple Music over the next six months, the signs look good – compared to current market rates, at least – with a few important caveats.

On the face of it, Apple will pay an average of 71.5% of all royalties to rights-holders in the US (58% to labels, 13.5% to publishers) and 73% in other territories.

That’s higher than Spotify’s approximate 70% payout across its service.

However, we’re still waiting for confirmation that indie publishers have licensed Apple Music: they were gravely concerned over a stipulation in Apple’s contract that said the Cupertino company would receive a two-year, 50% discount off minima rates if a user signed up to a discounted mobile telco bundle.

PRS For Music, negotiating on behalf of UK indie publisher body IMPEL, is yet to make an announcement.

And then, of course, there was the drama of Apple Music’s royalty-free three-month trial amongst independent labels.

Apple eventually rolled over (after Taylor Swift gave them a shove) to offer indie labels $0.002 per stream during this promotion – which is just slightly behind Spotify’s freemium per-stream payout of $0.00225.

(Blended across its paid and free tiers, Spotify’s per stream payout rises to around $0.007.)

However, Apple’s $0.002 is a pre-tax figure – meaning a further 25% will come off in VAT in some EU territories.

The remainder then has to be shared with artists. Depending on the contractual generosity of a given label, that could really bite.

There are also other worries over Apple’s executive A&R power – ie. when it wants to plonk an artist into worldwide notoriety on its platform… and not plonk one.

This one-hit global influence could sideline talent which has traditionally been grown through a territory-by-territory strategy.

(Speaking of which: how on earth do you plug Beats 1? Do you plug Beats 1?)

Then there’s royalty wariness about Beats 1: how will it pay out? Are plays counted as ‘performances’ as with a traditional broadcaster?

If so, why is Apple seemingly only striking direct deals with rights-holders and leaving CMOs out in the cold?

“WE WANT TO SEE APPLE SPEND A BILLION DOLLARS ON MARKETING. THAT’S WHAT WE’RE LOOKING OUT FOR.”

US INDUSTRY BIG CHEESE

Plenty of quibbles, then. But now is not the time for cynicism.

This is launch day! Get yer flags out!

The great white hope that a streaming revolution would save the music business is about to get its ultimate litmus test.

Frightening fact: We’re hours away from discovering if colossal scale and Fortune 100-level marketing really can make music-on-demand sustainable… or if it will be the global music biz’s great final mistake.

Reasons to be cheerful: Jimmy Iovine suggests that Apple Music’s arrival on iOS, Mac and Windows today will reach around a billion potential customers.

When you consider that an estimated 600m people are still pirating music globally every year – despite all the legal options now available – Apple’s launch of a consumer-friendly on-demand service, with an inescapable marketing drive behind it, will be a tempting pathway back into legitimacy.

(Too much aggressive exclusivity, Pharrell, could push consumers back the other way – but let’s stay upbeat.)

Apple has the muscle to make all of this happen.

It’s become a tired comparison, but it’s no less true: Apple turned over $182bn in 2014. That’s over 12 times bigger than the recorded music business.

It has even more money than that in cash reserves, and it really, really likes music; more so than any other entertainment medium.

Twelve years ago, as iTunes began to roar, Steve Jobs made his distaste for Cloud-based music services very clear.

“People have told us over and over and over again, they don’t want to rent their music,” he said.

“The subscription model of buying music is bankrupt. I think you could make available the Second Coming in a subscription model and it might not be successful.”

Well, the Second Coming of Apple’s relationship with the music business begins today.

An entire global industry – not to mention a workforce faithfully continuing Jobs’ legacy – finds itself in the strange position of hoping that the father of Apple was completely, emphatically wrong.Music Business Worldwide