Apple Music on Track to Overtake Spotify in U.S. Subscribers, Sources Say -- Update
February 04 2018 - 5:39PM
Dow Jones News
By Anne Steele
Apple Music is on the verge of overtaking Spotify AB in U.S.
paid subscribers, a sign that the music-streaming world's dominant
force is facing growing competition ahead of its hotly anticipated
public stock offering.
Apple Inc.'s streaming-music service, introduced in June 2015,
has been adding subscribers in the U.S. more rapidly than its older
Swedish rival -- a monthly growth rate of 5% versus 2% -- according
to people in the record business familiar with figures reported by
the two services. Assuming that clip continues, Apple will overtake
Spotify in the world's biggest music market this summer.
Apple's music-streaming service has been quietly gaining ground
in part thanks to the popularity of the company's devices: Apple
Music comes preloaded on all iPhones, Apple Watches and other
hardware the company sells.
Globally, however, Spotify remains in a league of its own, with
nearly twice as many paid subscribers than No. 2 Apple, and
slightly faster subscriber growth. Other players in paid streaming
music include Pandora Media Inc., Amazon.com Inc. and Alphabet's
YouTube.
The introduction of streaming services has fueled a recovery for
the record industry following years of declines amid plummeting
sales of CDs and, more recently, downloads. Streaming customers pay
a flat monthly fee or listen to ads in exchange for unlimited
access to vast music catalogs; with downloads, consumers pay for
individual songs or albums once and own them permanently. Paid
subscriptions, up 61%, were the largest source of record-company
revenue in the U.S. in the first half of 2017, according to the
Recording Industry Association of America.
But music streaming has yet to prove itself as a viable business
as the tech companies operating these services struggle to make
them profitable. Active users and paid subscribers are the most
closely watched metrics as these services grow.
One question lingering in the industry is what metrics Spotify
will have to disclose once it becomes a publicly traded company.
The service has periodically released global subscriber totals and
just last month touted a new high of 70 million.
Apple Music told The Wall Street Journal it now has 36 million
paid global users, up from the 30 million it last reported in
September.
But both companies' numbers are increased by counting individual
users who are part of family plans and people with discounted
subscriptions bundled with other services. In some countries,
mobile-phone plans can include an Apple Music subscription; Spotify
offers students in the U.S. a subscription plan that includes
video-service Hulu. Neither company publicly breaks out figures for
the U.S. or any other single market.
In their licensing deals, labels let streaming services pay
lower royalty rates for music when they meet certain
subscription-growth targets. As part of those deals, the services
are required to report how many accounts they have -- a number not
inflated by multiple users on a family subscription. They also have
to report the number of monthly active subscribers they have,
stripping out people who were signed up in bundle deals but don't
use the service and are likely to churn.
By one standard, Apple Music has already passed Spotify.
Including people who are still in free or deeply discounted trial
periods leading up to paid subscription, Apple Music has a slight
edge on Spotify in the U.S., according to one of the people
familiar with the figures.
Apple Music has three to four times the number of such trial
users as Spotify, according to this person, in part because it
doesn't offer a free tier. Also, all Apple Music subscribers are
entered automatically into a free initial three-month period.
Excluding those trial users, Spotify is ahead, but by a small
amount -- and that gap is closing.
Apple's services segment, which includes Apple Music as well as
the App Store and its payment services, was a bright spot in the
company's earnings posted last week, with an 18% jump in revenue.
It is unclear how much Apple Music contributed to that increase as
the company doesn't break out the streaming service's results.
Launched in 2008, Spotify lets users listen to a library of more
than 30 million songs on demand. It started offering its service in
the U.S. in 2011. Subscribers who shell out $9.99 a month can
listen without hearing ads; users of the free version need to sit
through ads and have more limited ability to pick the order in
which they hear the songs they select. As of June, Spotify said it
has 140 million active users world-wide. Spotify has never reported
a profit, but has said it believes it can become profitable once it
has amassed sufficient users, without specifying what that scale
would be.
Apple Music allows users to stream from a catalog of 45 million
songs or play from their own iTunes library. It has only ever
offered an individual $9.99-a-month subscription tier.
Both Spotify and Apple Music offer $4.99-a-month student plans
and $14.99-a-month family plans, which up to six individuals can
use.
Spotify is available in 61 territories, including the U.S. Apple
Music is available in 115.
Next week, Apple will begin selling its voice-activated speaker,
HomePod, which the tech giant has tried to differentiate from
competitors' earlier offerings by promising better sound quality.
The device has been marketed as a way to listen to Apple Music,
which it will play directly; other music-streaming services can be
played only over Apple's AirPlay. The introduction of the HomePod
has the potential to boost Apple Music subscriptions.
Write to Anne Steele at Anne.Steele@wsj.com
(END) Dow Jones Newswires
February 04, 2018 18:24 ET (23:24 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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