Apple recently announced its purchase of Beats Electronics, for a reported US$3 billion.
Beats Electronics was started by Dr Dre and Jimmy Iovine, and includes the signature headphones range and Beats Music, an online streaming service. With music streaming services gaining popularity, arguably it was only a matter of time before Apple made a move into that territory to take on the likes of Spotify, MOG and Rdio.
Streaming technology is not new, I’m sure many of us remember Realplayer, but contemporary services such as Spotify, Rdio and MOG are the latest significant intervention in music consumption. Fuelled by faster and mobilised internet connections, streaming services are the heavenly jukebox for computers and post-PC devices like smartphones and tablets.
Naturally, streaming services are not without their controversies. Spotify continues to be on the receiving end of critical blows concerning royalty payments to artists, which has led some notable high profile acts such as Radiohead’s Thom Yorke to pull music from the service. And Twitter controversially bought and shut down Australian streaming music service We Are Hunted. Just as iTunes is not alone in the pay-for-download market, Spotify is not the only streaming service.
At first blush, Beats Music, which only started in 2012, is yet another streaming service and has much in common with its brethren. Where it appears to really stand out from the crowd is in its curatorial capacity: like similar services, Beats has deals with all the major labels and streams the majority of their portfolios, but it employs a sophisticated personalisation system that mixes algorithmic and human choices. As Trent Reznor puts it, it’s:
like having your own guy when you go into the record store, who knows what you like but can also point you down some paths you wouldn’t necessarily have encountered.
Beats aims to respond to your tastes more accurately than its competitors. When you have more than 20 million songs at your fingertips, discovery and recommendation systems become increasingly important. Apple CEO Tim Cook is invested in Beats because he believes it’s “the first subscription service that really got it right”, evangelising “how important human curation is”.
The deal represents Apple’s first foray into the market for streaming music. (iTunes Radio doesn’t count as it’s not on-demand), and it’s unusual for Apple to make such a large, not to mention high profile purchase. Historically, the tech company has preferred to absorb smaller companies and integrate their products into its brand.
Why now, why Beats?
Although Spotify has yet to turn a profit, on-demand streaming services are touted as the future of music consumption. Given the steady increase in Spotify’s consumer base, this is plausible especially with younger audiences seeking legal music services but constrained by limited disposal income. There will, of course, always be those who prefer to own music, just as there are still those who swear vinyl is the only way to listen to music.
Music consumption models, however, are far from consistent across the globe; for example, 91% of Sweden’s digital music income is derived from streaming, while German and Canadian consumers prefer to download their music. The differences between individual nations aside, the popularity of streaming is rising and in order to maintain its position Apple had to venture into the streaming market to keep the record labels on side if nothing else.
According to The Wall Street Journal, “one major record company makes more per year, on average, from paying customers of streaming services like Spotify or Rdio than it does from the average customer who buys downloads, CDs or both”. That is not to say that Apple would simply buy up any old streaming service, there has to be a reason that it selected Beats over Rdio or Spotify.
Bringing the experts back
It was Apple - a technology company - that came to the aid of the recording industry as it struggled with 21st century consumer behaviours. In a 2007 interview, Doug Morris, then-CEO of Universal Music responded to queries as to why the recording industry was so behind the eight-ball:
There’s no one in the record industry that’s a technologist … That’s a misconception writers make all the time, that the record industry missed this. They didn’t. They just didn’t know what to do.
Since then, technologists have led the recording industry’s new distribution platforms. Rdio and Spotify were both founded by technologists and entrepreneurs. Perhaps the tables have turned and the new platforms required a (re-)intervention of music industry professionals? The credentials of Beats Electronics founders Jimmy Iovine bring together technology and music expertise.
As part of the deal, both Dre and Iovine are taking senior positions within Apple. Iovine had reportedly been trying to push subscription-based models to Steve Jobs as early as 2003 and while a move towards streaming did not happen in Jobs’ lifetime, Apple has now jumped in with both feet. So what does this mean for the future of music distribution?
Apple, Dre and Iovine have declined to share any details as to the future of their collaboration so any thoughts are purely speculative at this stage. It is, however, worth noting that to date iTunes has offered a number of exclusive releases, and Apple has begun exerting pressure on record labels to sign exclusive distribution deals. For example, Coldplay’s latest album Ghost Stories is exclusive to iTunes (pirated versions are of course available via the usual suspects) and the band declined to add its latest offering to Spotify’s catalogue.
Combined with the Beats streaming service as well as Apple’s own hardware, it is likely Apple will attempt to block out its competitors and (further) lock in consumers. At present, Beats Music is only available in the USA, but Australia will be the second country to have access to the service courtesy of Beats’ acquisition of MOG.
The digital music ecology is evolving at an advanced pace and accurate predictions are difficult to make. One thing, however is sure, as the physics of the media space change, we shouldn’t expect the winners to remain constant.