This is an excerpt from a story delivered exclusively to Business Insider Intelligence Digital Media Briefing subscribers. To receive the full story plus other insights each morning, click here.
Apple Music has bestedSpotify in at least one domain: paid US subscribers, per The Wall Street Journal.
Apple Music counted an estimated 28 million paid subs in February, with Spotify just passing 26 million. Apple also reported speedier growth than its chief competitor: In the US, its adding subs at a monthly growth rate of 2.6% to 3%, compared with 1.5% to 2% reported by Spotify.
Here’s what it means: Spotify’s free, ad-supported tier will likely enable it to top Apple Music in overall users – both in the US and worldwide.
Spotify has far more active users worldwide – and international subscribers – than Apple Music, likely in part because of its free, ad-supported tier. As of Q4 2018, Spotify reported 207 million active users worldwide, 96 million of which are paid subs.
Meanwhile, Apple Music, which doesn’t offer an ad-supported option, touts only about 50 million subs worldwide. Spotify’s free tier is likely key to converting users abroad, as it provides an indefinite and low-risk way for users to test the app’s interface and features before financially committing.
Apple’s chief advantage is its addressable base of iPhone users, for whom the Apple Music app is pre-installed. There are an estimated 101 million active iPhones in the US alone, and nearly one billion worldwide, per Strategy Analytics.
And while there’s no free version for users to either settle on or trial at their own pace, Apple Music does offer free three-month trials that are simple to access because the app is pre-installed. Pre-installation reduces friction, encourages sign-ups, and discourages churn. Apple may also stand to lure more subs to its service through features like lyric-based song search and exclusive content launches.
The bigger picture: Apple likely cares less about beating Spotify head-on, and more about how it can leverage consumer willingness to pay for Apple Music to drive uptake across its entire Services segment.
Apple has been focused on inceasing its services revenue as iPhone sales wane.iPhone sales fell 15% year-over-year (YoY) in 2018, while Services revenue (which includes Apple Music) jumped 87% YoY to $US37.2 billion in the year.
We think Apple could bundle together some of its services – like Apple Music, Apple News+, Apple TV+, and Apple Arcade – to boost its recurring revenue and drive hardware sales. Given Apple’s approach with other services – which are largely subscription-based – it’s unlikely that Apple will create an ad-supported option for their Music app. A services bundle, on the other hand, seems logical.
If Apple were to combine Apple News+, Apple TV+, Apple Music, and Apple Arcade (gaming) under a single package price, that could drive considerable sign-ups. That would provide a powerful recurring revenue stream, given the size of its device ecosystem (1.4 billion active devices worldwide), and enhance the value of its devices overall. And if Apple is able to make its services “must-have,” such a media bundle could even drive greater hardware sales for the tech giant.
Interested in getting the full story? Here are two ways to get access:
1. Sign up for the Digital Media Briefing to get it delivered to your inbox 6x a week. >> Get Started
2. Subscribe to a Premium pass to Business Insider Intelligence and gain immediate access to the Digital Media Briefing, plus more than 250 other expertly researched reports. As an added bonus, you’ll also gain access to all future reports and daily newsletters to ensure you stay ahead of the curve and benefit personally and professionally. >>Learn More Now
Business Insider Emails & Alerts
Site highlights each day to your inbox.