3 Reasons Music Fans Will Return to Apple

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Apple is in danger of losing its music industry dominance. The digital music downloads market that was pioneered by the iPod maker more than 10 years ago has been in a steady decline over the past year as more consumers shift from buying digital music files to subscribing to streaming music services. This overall change in the music industry was highlighted in Nielsen and Billboard’s 2014 Mid-Year Music Industry Report, which found that individual digital track sales and digital album sales fell by 13% and 11.6%, respectively, in the first six months of 2014. During the same time period, on-demand audio streaming grew by 50.1%.

However, while the overall decline in the digital music download market has long been known, it was unclear how much Apple was being impacted by this trend. After all, the tech giant has made a business out of being the exception to many market trends. The iPhone maker consistently takes the lion’s share of the smartphone industry’s profits despite its relatively small market share and an overall increase in low-cost device sales. Similarly, as noted by CEO Tim Cook during the company’s last earnings call, the company managed to achieve 18% year-over-year Mac sales revenue growth in a global PC market that actually contracted this year.

Although Apple has been able to buck trends in the wider smartphone and PC markets, a recent report from The Wall Street Journal suggested that the Cupertino, California-based company has not been as fortunate in the digital music download market. Per unnamed sources cited by the Journal, worldwide music sales through the iTunes Store have slipped 13% to 14% since the beginning of the year. In other words, Apple is losing music fans at a rate that mirrors the declines in the overall industry. However, the company is not surrendering its long-running dominance of the retail music market without a fight. Here are three steps Apple appears to be taking to bring its music fans back.

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Apple is integrating Beats Music into iTunes

Apple got its first subscription-based music service when it acquired Beats Music along with the Beats Electronics premium headphone business earlier this year. Now it appears that Apple has plans to fully integrate the music streaming service into its iTunes brand. Although TechCrunch cited several sources last month that claimed Beats Music would be discontinued, a report by Re/code speculated that it was far more likely that Apple was simply planning on rebranding the service.

Re/code’s theory makes more sense, since Cook has repeatedly cited Beats Music as one of the primary reasons that Apple acquired Beats. “When I listened to [Beats Music] for a while I feel completely different,” Cook told interviewer Charlie Rose in September. “And the reason is that they recognized that human curation was important in the subscription service, that the sequencing of songs that you listen to affect how you feel. It’s hard to describe, but you know it when you feel it.”

Finally, the rumor that Beats Music would be integrated into iTunes was also reiterated by an unnamed source cited by The Wall Street Journal. While Cook’s comments to Rose suggested that the fundamental aspects of Beats Music will remain the same, rebranding the newly acquired subscription-based music streaming service with the iTunes label may help the company garner more users who are more familiar with Apple’s iconic brand.

Source: BeatsMusic.com

Source: BeatsMusic.com

Apple is undercutting the competition

One of the reasons that Apple was able to become the music industry’s top overall retailer was due to the special deals that the company was able to cut with major record labels for its iTunes digital music sales. While $0.99 per song is considered a standard digital track price today, 10 years ago, it was considered to be a bargain for Apple’s iTunes customers, since physical CDs could cost between $12 and $18, reports The New York Times.

Now it appears that Apple is hoping get another deal from record labels that will help it undercut its rivals. But this time around, Apple is hoping to undercut other subscription-based music streaming services rather than physical CD prices. According to sources who spoke to Re/code, Apple is pushing record labels to give it a discount rate that would allow it to offer Beats Music subscriptions for only $5 per month, instead of the $10 per month standard charged by most other competitors.

According to Re/code’s sources, Apple has told record labels that its most prolific iTunes music buyers spend about $60 per year, or $5 per month. So not only would a $5 per month subscription rate let Apple undercut the competition, it would also ease the transition for iTunes customers who are used to spending at a certain level each month. Apple’s position may have been helped by a deal that Spotify was able to wrangle from record labels that allows it to offer its $10 per month premium subscribers up to four additional premium memberships at a 50 percent discount ($5 per month).

Justin Sullivan/Getty Images

Apple may be introducing a new digital music format

Finally, there are indications that Apple may still try to jump-start its faltering music download business with a new music format. In a recent interview with Time, U2 frontman Bono dropped a few hints about a digital music format that “will prove so irresistibly exciting to music fans that it will tempt them again into buying music — whole albums as well as individual tracks.”

He added, per Billboard, that it will be “an audiovisual interactive format for music that can’t be pirated and will bring back album artwork in the most powerful way, where you can play with the lyrics and get behind the songs when you’re sitting on the subway with your iPad or on these big flat screens. You can see photography like you’ve never seen it before.”

While it seems doubtful that a new digital music format could reverse an overall music market trend toward music streaming, it could provide Apple with a stop-gap solution to its declining music download sales while it rebuilds Beats Music as an iTunes subscription-based music streaming service. Either way, it looks like Apple is not surrendering its music industry dominance without a fight.

Follow Nathanael on Twitter @ArnoldEtan_WSCS

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