Apple Music Cautiously Embraced by Record Industry

A decade ago, Apple Inc helped revitalise a music industry hit hard by online piracy with its iTunes Store. Now, amid a steady slump in digital downloads, the industry is hopeful that the tech giant's new streaming service will give record companies another desperately needed boost.

Apple Music, unveiled Monday and scheduled to launch at the end of the month, will offer subscribers access to a vast library of songs for $10 a month, but has no free on-demand tier unlike industry leader Spotify and others.

Officials in the recording industry are pleased to see Apple throwing its deep pockets and strong brand behind paid streaming, which generally provides more revenue for labels than the free services, which are supported by ads, said Cary Sherman, chairman and chief executive officer of the Recording Industry Association of America.

"We are very hopeful that Apple will not only succeed but that Apple's entry into the streaming business in a major way will actually be a shot in the arm for all streaming services," he said, helping them - and the record companies - make more money.

The trend toward streaming is clear: Paid subscriptions in the U.S. rose 26 percent year-over-year to 7.7 million in 2014, according to data from the RIAA.

But despite the generally positive reaction to Apple's announcement, some music companies are still concerned because of the tough economics of the streaming business, said Sherman. Premium subscriptions offer slightly better payouts to record labels and their artists than free services, but not as much as digital downloads.

Spotify's premium service, for example, generated revenue of less than $37 million in the United States in December 2014, according to an analysis conducted by Audiam, a New York-based firm that helps music companies collect digital royalties.

But Apple's sheer volume of existing users - roughly 800 million accounts on iTunes - could significantly increase the payoff for publishers, said Jeff Price, the CEO and founder of Audiam.

"Those numbers are staggering in comparison to anything that's existed in the market place," said Price. Spotify has more than 20 million paid subscribers worldwide, company spokesman Graham James said.

If Apple is successful, said Ted Cohen, a former music executive, others in the industry may decide to weaken or phase out their free tiers, he added.

"If you get people exposed to the convenience and the ease, then they will believe it's something worth paying for," said Cohen, who is now managing partner of TAG Strategic, a digital entertainment consultancy.

The New York Times reported Tuesday that attorneys general in New York and Connecticut are looking into whether Apple may be taking steps to slow the rise of free streaming services. They are investigating whether Apple worked with the record labels - or pressured them - to stop supporting so-called "freemium" services like Spotify. Such services have a free, ad-supported tier and a paid tier.

As Apple prepares to release its service, rivals in the streaming business remain confident.

Rob Glaser, co-chairman of music streaming company Rhapsody, said he saw few features in Apple Music that set it apart from the pack.

"Apple Music is more of a me-too product than a breakthrough product," he said.

And Apple's splashy entrance may well benefit all streaming companies, said Steve Boom, vice president of Digital Music at Amazon. The company offers its Prime subscribers free access to songs and playlists through Prime Music.

But even with Apple's push, success is not guaranteed. "Consumers still have to ask the next question, 'Now I'm aware of it, am I ready to spend $10 a month on it?'"

© Thomson Reuters 2015