With sales of music downloads seemingly tipping into decline, Apple is reportedly in "exploratory talks" with labels over launching a Spotify-style streaming music service under its iTunes brand.
The report on industry site Billboard even suggests that Apple may be considering launching an iTunes app for Android devices, as it seeks to reverse a recent trend that has seen download sales shrink after a decade of growth.
Figures published this month by industry body the IFPI showed that labels' income from download sales fell 2.1% in 2013, while streaming revenues rose by 51%. Download revenues were still more than three times bigger – $3.93bn to $1.11bn – but it still felt like a tipping point.
Some countries tipped long ago: streaming accounted for 70% of music industry revenues in Sweden in 2013, and 65% in Norway.
It's a shift from music ownership to music access "on demand", but for now Apple remains on the ownership side of that transition, eyeing the potential threat from Spotify, Deezer, Beats Music, Rdio and other companies on the access side.
Apple took its first step into streaming last year with the US launch of iTunes Radio, although it's a "personal radio" service rather than a fully on-demand competitor. If Billboard's sources are correct, the company is now actively preparing to take on Spotify and its rivals more directly.
Historically, Apple has been successful at watching other companies do something not that well, before entering the market with something better. The original iPod, consumer tablets, mobile app stores and the iTunes Store – which was streets ahead of the music industry's early attempts at download stores when it launched in 2003 - are obvious examples.
It's not quite as simple for streaming music, where the established services have been rapidly improving over their short lifetimes – particularly the last year – and where regular new players (Beats Music this year, for example) have brought new ideas and kept competitors on their toes.
How can Apple improve on what those companies have been doing, then? Here are a few ideas:
1. Big catalogue and big exclusives
It's hard to put your finger on how many digital music tracks there are in the world. Most download stores claim a catalogue of somewhere between 25m and 30m songs, while streaming services tend to claim between 20m and 25m.
In truth, Apple can't really make a feature out of having more tracks than rivals if it launches a streaming iTunes, although it could use its corporate muscle to ensure it has some big exclusives that aren't available anywhere else.
Such as? Well, The Beatles most obviously. The Fab Four's catalogue still isn't available on Spotify and other streaming services, having beensold by Apple as downloads since November 2010.
They'd make a useful slab of exclusivity for a streaming iTunes, while Apple's relationships with artists including Coldplay, Beyoncé, Daft Punk, Adele, Justin Timberlake and others might serve it well in trying to secure big albums at the expense of rivals.
Note another recent Billboard report about Apple lobbying for more exclusives on iTunes – albeit the download store – after helping Beyoncé to sell nearly 829,000 copies in three days last December, through an exclusive digital deal.
2. Big distribution through iOS and canny pricing
Like iTunes Radio – accessed through iOS' Music app – an on-demand iTunes streaming service would be preloaded on every iOS device. To put that into context, Apple sold 151.5m iPhones and 74.2m iPads in 2013 – 225.7m new iOS devices – and that's without factoring in iPod touch, Apple TV or Mac sales.
That's a pretty decent base from which to launch a streaming service, with room to try some disruptive marketing tactics on top of it. Apple could make its streaming iTunes free for three months, six months or even a year, bundling the cost into the price of the device.
Talking of price, Apple could try to undercut Spotify and other services once people start paying. As Billboard's label source described the company's early ideas: "When you buy a song for $1.29, and you put it in your library, iTunes might send an e-mail pointing out that for a total of, say, $8 a month you can access that song plus all the music in the iTunes store".
$8 a month would be $2 cheaper than rivals, although note, even this may not be disruptive enough. Venture capitalist David Pakman – who used to run digital music service eMusic – recently called on labels to "allow the price of subscription music services to fall to $3–$4 per month"in response to data showing that's the sweet spot if mainstream music fans are going to pay for a streaming subscription.
Apple is one of relatively few technology companies capable – in theory – of charging that much then absorbing the remaining costs of a streaming service in the price it charges for hardware. A $4-a-month streaming iTunes would well and truly set the cat among the pigeons in the world of streaming music.
3. Better music discovery features
Music discovery is currently a big buzzphrase within the music industry –here's a longer feature on what and why – with streaming services and app developers alike thinking hard about how to make it easier for people to find new music that they might like, as well as to rediscover old music they liked but have forgotten about.
Spotify has improved greatly over the last two years, Beats Music has made discovery a key selling point, and Deezer's CEO Axel Dauchez recently claimed it was part of his company's corporate mission: "We have a common responsibility to generate discovery: to force people to try new artists, new songs," he said at the Midem conference in January. "Investing in new artists is not a marketing tool: it’s an industry need."
What can Apple bring to this area? The company's past efforts – the Genius system within iTunes for providing recommendations based on your previous purchases – have been... average. The company does have a lot of experience in curation: it has editorial teams working on the storefronts for iTunes, the App Store and the iBooks Store, as well as staff building streaming stations for iTunes Radio.
If Apple was serious about on-demand streaming, it would need to go even further. Buy another startup or two with great recommendations technology, perhaps.
Develop a streaming app that provides regular recommendations in response to what you're listening to right now (note, this is crucially different to what you've bought in the past), maybe. Try some new ideas around shared playlists, and feeds of what friends are listening to.
Apple's record on recommendations is mixed – I'm still surprised that the App Store isn't personalised Amazon-style for each iOS user, based on their app habits – but the area of music recommendations is young and constantly evolving. That means Apple – like any company – could come in and offer something new and better than what's gone before, if it puts its mind to it.
4. Bite the bullet and launch iTunes for Android
Apple launching an on-demand iTunes streaming service has been expected for some time, given the wider music industry shifts. What was more surprising in Billboard's article was the claim that it's also considering launching an iTunes app for Android smartphones (and presumably tablets too).
The claim flies against pretty much everything Apple has done with its own apps and services in recent memory, although if you look further back in its history, extending the original iPod and iTunes from Mac to PC might provide a relevant case study.
By July 2013, 1.5m Android devices were being activated every day according to Google, while research firm Gartner claims that sometime in 2014, Android will surpass 1bn active users across all devices. That's a lot of people who aren't currently being supported by iTunes – on their devices at least – and who might thus be a lost audience for any new streaming iTunes service.
In the US, executives at personal radio service Pandora have pointed to its availability on Android, Windows Phone and other platforms when asked how it can compete with iTunes Radio. The bosses at Spotify, Deezer, Beats Music, Rdio and the rest would surely do the same if an on-demand iTunes was iOS-only in mobile terms (even if it was available for PCs running Windows too).
Still, iTunes for Android? There may be potential for some price wiggling – $4 a month on iOS versus $8 on Android? – but given the well-documented enmity between Apple and Google over Android in recent years, this would still count as a shock.
5. Provide a good API for app developers to hook into
One of the trends that's emerging from Spotify, Deezer and Rdio over the last couple of years is that one single streaming music app can't do it all. All three companies have focused on attracting developers to build external apps that hook in to their services – either sitting within their own applications, or separately on the app stores.
(As this article was being written, Spotify announced that it was closing app submissions for its Spotify Apps platform in order to focus more on developers making standalone apps that integrate Spotify.)
If Apple has big streaming music ambitions, it could follow suit: capitalising on the fact that it already has a huge community of iOS developers, and a well-established system of making its APIs available for them to use. Follow suit with streaming iTunes, and it could rely on that community to come up with the whizzy discovery features, or new ways to dig deep into its catalogue of songs. It could also pitch artists and labels on launching better mobile apps of their own that include the ability to stream full albums – and get paid for it.
There's already a thriving community of music developers – epitomised by the Music Hack Day initiative – and the existing streaming services all play prominent roles in its events around the world. It might not sound much in Apple's character to dive enthusiastically into this circuit alongside rivals – perhaps it would rather run its own hack days – but realising that external developers can come up with ideas as good or better than Apple's own software engineers (and then helping and incentivising them to do it) would be an important step.
Think too about a service like SoundCloud, which despite not paying any royalties to musicians for streams of their music, is hugely popular with artists. That's partly because they see its value as a promotional tool to reach new fans, but also because it's really open, with widgets that can be embedded anywhere on the web. 'Openness' and 'web' are two concepts that Apple's critics would suggest the company still isn't geared up for, but they could be key to making an even bigger splash in the world of streaming music.
6. Make music videos part of the service
Until now, the worlds of streaming music and streaming music videoshave been largely separate: Spotify and the rest on one side, and YouTube, Vevo, MTV, Vimeo etc on the other. But there is potential for these two worlds to come together, and it's happening in 2014 outside Apple in any case.
Example one: YouTube's long-rumoured plans to launch a music subscription service to build on its status already as the world's largest streaming music service. It's expected to make its debut imminently. Example two: Scandinavian streaming service WiMP, which recently added music videos to its catalogue of streaming audio.
"I don’t think we have really seen what video combined with audio could be," WiMP's head of strategy Kjartan Slette told Music Week this month:
"We’re still acting like this was the MTV era, we’re simply displaying music videos. But once video enters music streaming – as I am sure it will this year for all the major players – artists get paid as much for a video stream as they get paid for an audio stream. So artists and labels should be thinking how they can benefit from that. How about an album that only exists as a video? If everything is paid the same you can play with the formats, you don’t release an album in the traditional way anymore."
Back to Apple, which already sells music videos alongside audio tracks on its iTunes Store. The potential is there to build on this, and encourage labels and artists to "play with the formats" under the iTunes banner. Music videos would also fit well with Apple's growing "hobby" (in CEO Tim Cook's words) in television with its Apple TV set-top box, where Vevo is already a partner of the company.
Apple has also experimented a lot with live concert streams through its iTunes Festivals in London, and more recently Austin for SXSW. Perhaps it could bundle regular livestreams into the cost of an iTunes streaming subscription, with competitions to win tickets to see the gigs in the flesh to build buzz beforehand.
7. Be the most 'artist-friendly' streaming service
Finally, if there's one claim that's open to competition in 2014 in the streaming music world, it's which service is best for musicians. Spotify spent much of 2013 fending off criticism that the money paid out from streams wasn't enough for artists to survive and prosper.
Cue Thom Yorke calling it "the last desperate fart of a dying corpse"(said corpse being the major label-dominated music industry) or David Byrne asking whether streaming services are "simply a legalised version of file-sharing sites such as Napster and Pirate Bay – with the difference being that with streaming services the big labels now get hefty advances".
That debate has ramped up the pressure on streaming services to show themselves as being more artist-friendly, including Spotify publishing details of how its payouts are calculated, launching analytics to help musicians better understand how their music is being streamed, and allowing them to sell merchandise from their profiles.
See also Beats Music promising that it is "paying the same royalty rate to all content owners major and indie alike" while its chief creative officer (and Nine Inch Nail) Trent Reznor said that "Beats Music is based on the belief that all music has value and this concept was instilled in every step of its development. We want it to be just as meaningful for artists as it is for fans".
As that debate raged, Apple kept quiet in public, but behind the scenes has been stoking the arguments by reminding big artists of the rewards that are still available from download sales. Beyoncé's success didn't hurt in that regard either.
That will present a challenge when Apple launches its own on-demand streaming service. Spotify pays out 70% of its income to music labels and publishers in royalties, and that amount rises as the company's income goes up.
Apple could quite possibly afford to promise to pay out 80% of its streaming iTunes income, especially if such a service helped it sell more iPhones and iPads, where the margins are bigger. But if it wants to disrupt rivals by charging a lower monthly subscription price, the economics will struggle to be sold as artist-friendly – unless Apple quickly signs up (for example) 50m people to pay for its service.
Being artist-friendly may be about more than payouts, though. How can Apple help musicians to sell tickets, t-shirts and vinyl, for example? How can it help them to raise money from their fans in direct donations to fund their next album or tour – imagine, for a second, the waves if Apple were to buy a crowdfunding company like Pledge Music or even Kickstarter for this purpose?
What sort of data could Apple share with musicians to help them plan their tours? These are all questions that established streaming services are trying to answer too, with a clutch of startups trying to help who'd be buyable for – in Apple's financial world – pocket change.
Conclusion: lots of potential, but also pitfalls
If Apple is planning to make any big moves in streaming music, its WWDC event in June would be the most likely time to announce them, as part of the anticipated unveiling of the next version of its iOS software, iOS 8.
Apple could certainly make a big splash in the streaming music world, but it will face much stiffer competition than in some of those historical examples (iPod, iTunes etc) where it trumped established competitors who'd been doing a clunky job.
Labels and publishers – especially in the US – are notoriously leaky, so expect a few more rumours about the dealmaking process and likely features for a streaming iTunes in the coming months.
Apple is sure to be a huge factor in the transition from music ownership to access, but past experience – Ping, anyone? – shows that it's not immune from ending up with egg on its face when trying new musical endeavours.
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