Streaming music: Apple follows others into the booming bit of the music industry

Streaming music: Apple follows others into the booming bit of the music industry

Jun 15th 2013 |From the print edition

“CAN’T innovate anymore, my ass,” growled Phil Schiller, an Apple executive, as he helped unveil the firm’s new offerings at its annual conference on June 10th. He was addressing the growing ranks of doubters who say Apple has peaked since the death in 2011 of its former boss, Steve Jobs (its share price has fallen by 20% so far this year). The sceptics were not swayed. Among Apple’s modest innovations were a new operating system, iOS 7, and a music-streaming service that resembles what rivals already offer.Ten years ago Apple set the beat for the music industry when it popularised the sale of digital music through its iTunes store. It remains the largest online music retailer, but now it is copying other firms that have come up with a new musical act. Streaming is an “all access” service which lets consumers listen to songs without buying them, so long as they are willing to sit through advertisements or pay a monthly subscription fee. Apple’s iTunes Radio, as it will be called, will launch in America this autumn.

Three models for streaming services have caught on. Online radio services such as Pandora recognise people’s musical taste and use algorithms to play similar songs (iTunes Radio will do the same). “On demand” services such as Spotify and Deezer let people search large libraries and play specific songs. Sites such as YouTube and Vevo offer music videos, which are among the most-viewed content online.

Streaming services are trying to turn one of piracy’s main attractions—unlimited consumption—into a business. Labels and artists, originally worried that streaming would hurt digital downloads, have started to sing a different tune. Fees from streamed songs are a small fraction of those from downloads (let alone from physical CDs), but if a song catches on, it can be played obsessively, and all those pennies in the jar add up. Spotify is now second only to iTunes as a single revenue source for the main record labels.

Ever more firms are steaming into streaming. Google and Microsoft have launched their own services—without much success, analysts say. Worldwide, there are more than 30 providers with at least 20m paying subscribers. Streaming services accounted for $1 billion, or 15%, of revenues for America’s music industry last year, up from around $650m in 2011. They are even earning money in places like India and Russia, which were not previously seen as strong music markets.

Streaming may well become the dominant form of music consumption within a few years. The risk for Apple and the record labels is that it will cannibalise digital downloads, but this may be inevitable. Long-term, “the digital download is going to be like the cassette,” predicts Russ Crupnick of NPD Group, a research firm.

Mobile-device makers are keenly adopting music streaming as a way to differentiate their products. But the providers of streaming services also have their sights on an even bigger music-player: the car. Americans spend around two hours a day listening to radio, much of it while they commute. As streaming services become integrated with cars’ infotainment systems, drivers will use them more. And then the battle will not just be between streaming and downloading providers, but with radio stations, which risk getting tuned out.