How Apple Is Preparing to Reconquer the Music Industry

Photo by Larry Busacca/Getty Images

Photo by Larry Busacca/Getty Images

There’s no question that the music industry is in flux. According to Nielsen’s 2014 U.S. Music year-end report (PDF), sales of digital albums and digital tracks dropped by 9% and 12%, respectively, in comparison to 2013. Meanwhile, on-demand audio streaming increased by over 60% during the same time period. Apple, which helped usher in a new era in the music industry when it launched its iTunes music store and iPod digital media player over a decade ago, was not immune from the changes in consumers’ music consumption habits. According to insider sources cited by The Wall Street Journal, digital music sales through Apple’s iTunes Store dropped by as much as 14% during 2014.

Of course, Apple hasn’t just been standing idly by and wringing its hands in despair. In 2013, Apple unveiled iTunes Radio, a free streaming radio service. In 2014, Apple purchased subscription music streaming service Beats Music along with the Beats Electronics premium headphone business. Apple also acquired some important human resources as part of the Beats deal. Beats co-founders Jimmy Iovine and Dr. Dre – two record producers with valuable contacts in the music industry – are now Apple employees.

A star-studded pre-Grammy Awards party hosted by record producer and music industry executive Clive Davis earlier this month offered a peek at Apple’s ongoing efforts to remain a dominant player in the music business. As reported by Billboard, CEO Tim Cook, Beats Music co-founder Jimmy Iovine, iTunes VP Robert Kondrk, and SVP of Internet software and services Eddy Cue were all guests at the event. Cook and Cue even received a special shout out from Davis, while dozens of music industry executives made sure to get some face time with the group of Apple executives.

Iovine, Cook, Dre, Cue

Source: twitter.com/tim_cook

The Apple executives’ presence at the exclusive pre-Grammy Awards party highlighted the company’s recent efforts to stay on top of the rapidly evolving music industry. As noted by Billboard, Iovine has been busy meeting with various record label executives over the past several weeks. According to insider sources cited by 9to5Mac, Apple is trying to secure a $7.99 per month subscription fee for a new music streaming service that would be built on Beats Music’s technologies. This would give Apple a unique price advantage in the on-demand streaming market since most competitors, including Rhapsody and Spotify, charge a $10 per month subscription fee.

Although the upcoming subscription music streaming service is expected to be a major component of Apple’s future plans for its music business, the iPhone maker appears to be taking several other steps to secure its music industry throne. For example, according to The Guardian, popular BBC Radio 1 DJ Zane Lowe was recently recruited by Apple to work on the iTunes Radio service.

Besides continuing to refine its free Internet radio service, there are also claims that Apple is seeking special exclusive album release deals from the record labels in order to bolster its digital download sales. According to unnamed insider sources cited by the New York Post, Iovine is using his music industry contacts to strike more deals like the one Apple had with Beyoncé.  In December 2013, Apple was the exclusive retailer of her self-titled album for a week. Beyoncé’s album became the fastest-selling album in iTunes history with 828,773 copies sold in just three days.

Apple iTunes iPhone and Mac

Source: Apple.com

Apple also appears to be initiating a major cleanup and overhaul of the iTunes Store. The company is working to remove duplicates and certain cover songs, according to insiders that spoke with Billboard. The sources also claimed that Apple may start choosing featured artists in iTunes based on sales numbers, rather than editorial preference. The measures appear to be intended to increase the quality of the iTunes Store’s content and boost sales.

All of these initiatives suggest that Apple is gearing up to conquer the music industry for the second time in its history. As stated by a music industry insider cited by Billboard, Apple wants “to be the music business,” and not just a player in it. Perhaps even more important to Apple’s music business plans than its new music streaming service and recent hires, is the company’s proven ability to monetize its large and loyal user base.

“They have the ecosystem, the barriers to market aren’t there; it’s a flip of a switch and everybody can pay with a click,” observed Doug Davis, son of Clive Davis, via Billboard. So while it remains to be seen if Apple can maintain the dominant position it earned after it entered the digital music download market over 10 years ago, the company appears destined to remain a major player.

Follow Nathanael on Twitter @ArnoldEtan_WSCS

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