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Apple Inc. (AAPL: Nasdaq) is about to start bundling its music subscription service, called Beats, into its iOS operating system starting next year. This means the service will be available on hundreds of millions of iPhones and iPads. This will put tremendous pressure on the leading music streaming provider, Spotify.
The update can happen as early as March and marks the first time Apple is capitalizing on Beats since it bought the headphone maker and streaming service for $3 billion earlier this year. This will be the first big push from Apple into subscription music and since iTunes started its decline.
By pre-installing application, apps for short, on mobile phone devices is a fast way to reach new customers. When you couple this with Apple’s mobile payment service and fingerprint scanner, new clients can activate subscription services with just one touch.
Right now, Apple’s base of active music leads other services. Apple has 200 million active iTunes clients while its new Beats division has only 110,000 active subscribers. Apple purchased Beats from Dr. Dre in order to shore up its waning iPod and iTunes sales.
Recently Spotify has come under fire from artists like Taylor Swift who pulled her catalog from the service because she was not happy how the company valued her work. In an interview with Time Magazine she stated, “I think that people should feel that there is a value to what musicians have created, and that’s that.” Spotify shot back it had paid $2 billion to artists and music companies over the past couple of years.
Apple has been retuning, no pun intended, their Beats subscription model. It will likely re-launch early next year under the iTunes label. This will be part of a three prong music strategy which includes iPhone Radio. The radio was launched in 2013 and it is geared to challenge Spotify’s market share. Spotify has over 10 million subscribers.
Apple has precedent in bundling software. Recently it reached its vast client base when it bundled iBooks into iOS 8. It was pushed onto devises so customers did not have it download it from the App Store. Apple is not shy from being controversial as well, as it installed U2’s new album on millions of devices. They did it whether you wanted it or not.
Recently Spotify, HTC, Vodafone and Sprint, reached a deal to bundle its subscription services on devices. However, they cannot match Apple gigantic customer base. Apple has sold more than 800 million mobile devices to date.
While this is a big undertaking, it is not guaranteed to be a success. Look at iTunes radio, which has been a flop since being installed on iOS 7 devices. It did not challenge Pandora as the leading internet radio service in the United States.
At this time, officials from Apple have declined to make any comments.
