Is Apple Losing the Music Streaming War?
At the end of December, Apple Inc. (NASDAQ: AAPL) counted about 20 million paid subscribers to its Apple Music streaming service. On Thursday, privately held Spotify announced that it had now reached 50 million paid subscribers to its own streaming service.
Spotify, which launched in Europe in 2008 and in the United States in 2011, had a serious head start on Apple Music, which did not launch until 2015. So it’s no wonder that the Swedish company’s numbers are much bigger.
But what really matters is growth, and in that department Apple is falling further behind. Last October Apple said it had about 17 million paid subscribers, a total that rose by 3 million over the next three months.
Last September Spotify announced that it had 40 million paid subscribers, a number that rose by 10 million in five months. Not exactly an apples-to-apples comparison, but the difference in growth rates is abundantly clear.
For Apple, being number two in multi-horse race is fine. For Spotify, being number one is important because the company is almost certain to file for an initial public offering (IPO) this year, if for no other reason than to keep from having to pay a higher coupon on the $1 billion investors pumped into the company a year ago.
The wildly successful Snap Inc. (NYSE: SNAP) IPO is sure to sharpen Spotify investors’ appetites for an IPO of their own.
Also pushing a Spotify IPO is the growth of global revenue in the recorded music business. Revenues rose by $1.1 billion in 2016 to $16.1 billion, the largest growth rate in 15 years. The contribution of streaming music to that total rose by 49% to $5.4 billion. Of the 106.3 million paid subscribers to all music services at the end of 2016, Spotify accounted for 43%.
Spotify is also rumored to be considering a high-quality, lossless premium streaming service for $15 to $20 a month to match an offering from smaller competitors like Deezer.
Amazon.com Inc. (NASDAQ: AMZN) entered the music streaming subscription business last fall and offers a $3.99 monthly subscription to U.S. owners of the company’s Amazon Echo device. Amazon is a formidable competitor that always and everywhere competes hard for market share. It’s impact on Apple and Spotify isn’t clear yet, but underestimating the company’s challenge would be a big mistake for either Apple or Spotify.
Spotify hasn’t won — yet — and Apple certainly hasn’t lost. But barring any major change in the dynamics of the market, in a two-horse race Spotify remains in the lead and the lead is widening.