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Beats by Apple to fight Spotify for paid users

by on27 May 2014

Spotify has millions of cash customers

There is no doubt that the time of iTunes and people buying CDs or downloading whole albums is on its way out, slowly but surely.

Many of our older readers might remember vinyl records that were hard to copy and hard to manage. Compact cassettes were a godsend for pirates and mixtape lovers. The final transition to digital audio started in the eighties, with 44KHz Compact Discs. Napster showed the world that there was money to be made in downloading music content and a few years after the government shut it down, because Napster was all about sharing content illegally. Apple took the download idea and came up with iTunes, which quickly turned into a cash cow.

Apple’s iPod was the most popular audio player platform for years and it contributed to the popularity of iTunes and brought music downloads to mainstream users. It took for Apple to get any serious competition in the field. Microsoft did try its luck with Zune and needless to say, it didn’t really change anything.

Spotify is the Netfix of music

Then came Spotify, a music streaming business from Sweden that changed everything all over again. The business model is rather simple. Spotify is to music what Netflix is to for movies and TV shows. You pay a 9.99 USD / EUR / GBP and you can listen to all of the available 20 million songs on any device you happen to own. It is a seamless, cross-platform experience. Back in September 2010 the company had 10 million registered users and about 2.5 million of them where paying to get full access to all content.

In May 2014 this figure grew to 10 million paid subscribers and 40 million overall subscribers. The service is available in 56 countries including all major markets, such as the US and Germany, two gigantic markets. It is currently the most widely available music streaming service the money can buy. The free version lets you listen to the music from your notebook, tablet or desktop and even chose the songs you want, but Spotify will play an occasional commercial here and there.

Free service on a mobile phone means you can play something from the album or playlist you create, but you cannot select an individual song to play. You need to have a premium account for choosing and playing that song, at the max 320Kbps sound quality. There is an option to pay 4.99 USD / EUR / GBP and have ad free unlimited streaming on your desktop, but not on your mobile.

Keep it in the family plan

Still Spotify lacks something that Beats by Apple has and that is a good family plan. Rdio, another competing service also wants 9.99 USD / EUR / GBP for unlimited streaming of 25 million songs but it offers a family plan.

Rdio gives you 20 percent of the second family member and 50 percent of the third family member, which gives you a reasonable discount. Google Music doesn’t offer any family plans it simply wants 9.99 USD / EUR / GBP and is available in 21 countries. iMore has a nice list of all services and features compared, excluding the family plan option. 

Now Beats Music has entered this already crowded market, but it has a partnership with AT&T, something that can help it make a difference in the US. Beats costs 9.99 USD for one person with up to three devices which is not too bad. The key strength, what Apple might want, is that trough the AT&T partnership Beats could offer a competitive family plan. A whole family of five with up to 10 devices combined costs only $14.99 a month.

Compared to Spotify, where five people pay $49.95, Rdio charges $32.99 for 5 people while Beats wants $14.99. This might be the key missing component that Apple was looking for. Apple is not happy about the Beats music leak and it is even questioning the deal, but we believe that Apple has passed the point where it can simply walk away from the deal.

Beats + AT&T + iTunes = Potential

AT&T is the special ingredient of the Apple and Beats deal. This wireless and TV provider has 116 million wireless customers, 17 million connected devices in services 16.5 million broadband connection users as well as 3 million small businesses. Apple can reach all these customers adding Beats to its services and serve this to its existing 800 million iTunes accounts. There is no doubt that streaming and subscription based services are the key to music and video distribution in today’s connected world, the only question is who will prevail.

There is a lot of potential with Beats, iTunes and AT&T in the mix, so $3.2 billion doesn’t sound that much knowing that Spotify would probably cost significantly more as Facebook paid 19 billion for Whatsapp, service that cannot make as much money as Spotify, at least not in the short run.

Just like Google Music, Xbox Music has failed to take down Spotify, it will be a hard task for Apple and Beats, but you cannot blame the company for trying.

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