RBC: Apple is beefing up its music service as it continues to battle Spotify

Apple Music is making big strides in its fight against Spotify.

The music streaming service is negotiating prices, increasing subscribers and developing original content in its attempt to double its services revenue by 2020, according to a recent note from RBC Capital Markets.

According to the note, Apple’s services business will be as large as a Fortune 100 company with an estimated $US28 billion in revenue this fiscal year. Apple Music and iTunes will account for an estimated $US5.5 billion in revenue this fiscal year, according to RBC.

In an attempt to grow its music service and push out rival Spotify, Apple is trying a range of strategies.

  • Lowering prices for yearly subscribers: Users can pay $US9.99 a month for Apple music, or $US99 a year which is a 17% discount according to RBC.
  • Apple is fighting labels for a higher cut: Apple pays out a fraction of the money it earns to the music labels. Currently, the ratio is at 58% but Apple is trying to lower it to 55%. The labels are actually open to the idea, as long as Apple promises overall subscriber growth, according to a story from Bloomberg. Spotify recently succeeded in a similar renegotiation.
  • New social features: At WWDC, Apple announced the ability to share songs and playlists with friends. Users will also be able to see what their friends are listening to on the service with the new update.
  • New original content: “Planet of the Apps” and “Carpool Karaoke” are just the first two shows Apple has produced. It’s hoping to expand the content even further, according to RBC.
  • More Music: Apple has a slightly larger overall catalogue of music, and has struck more exclusive deals than Spotify has.

All these recent improvements have led to an increase of 7 million subscribers for Apple Music this year. Spotify added about 10 million new subscribers from September to March, according to RBC. Spotify has 50 million current subscribers compared to Apple Music’s 27 million.

RBC thinks the improvements to Apple Music could result in meaningful subscriber and revenue growth. The bank has a price target of $US168 which is 14.5% higher than the current price of $US146.81.

Shares of Apple have grown 26.44% this year.

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