The news this week that Apple Music will soon overtake Spotify in paid US music subscriptions struck a plaintive chord for those of us who are paid to care. Like racetrack touts, my sad coterie of ageing music business journalists are crumpling their tickets in dejection as another would-be competitor to the big tech companies stumbles. Betting the favourite is never fun — and rooting for Apple is like rooting for gravity. But that is where the money is.
I’ve always preferred Spotify to Apple, and have been a subscriber for seven years. I admire the pioneering business model; I appreciate how it rescued the music industry from the pirates; I am accustomed to its tacky user interface; the chief executive Daniel Ek reminds me of a comic book villain. Still, once Apple Music launched in 2015, I feared the company was doomed.
Mr Ek has said he believes music streaming is not a winner-take-all model. In the near term he is correct; Spotify still rules Europe, and there are large tracts of virgin territory in the developing world. Apple, in the main, is not poaching Spotify’s existing customers, and both companies are growing rapidly. But Apple is growing faster. Spotify remains larger, and will approach 100m paid subscribers by the end of 2018. But to justify its $30bn market valuation, it must dominate.
This is not television, with space for multiple winners. HBO and Netflix are complementary services; Spotify and Apple Music are not. One music subscription per household is enough. Attempting to differentiate, Spotify has invested heavily in a man-machine “algotorial” approach to playlist curation. In reality, the artificial intelligence is redundant; when a song goes viral on Spotify’s playlist, it usually pops up on Apple’s within hours, and vice versa. The remaining distinction is the colour scheme: Apple’s is calm and white. Spotify’s is sleek and black.
An enormous amount of money has been lost — excuse me, invested — in growing two nearly identical services. Spotify shareholders are betting on long-term profitability, but the monopoly money they desire will be competed away in a fragmented market. Even in a duopoly, Spotify would struggle against Apple’s larger balance sheet and integrated hardware — and that ignores Amazon’s Prime Music and Google’s YouTube. (You can make fun of Tidal privately.)
Apple, with $127bn in shareholder equity, can afford to lose for longer; perhaps indefinitely, if even a fraction of Apple Music subscribers can be persuaded to buy $150 AirPod wireless earphones. Spotify is a pure play.
If it cannot maintain majority market share, Spotify faces a sad future. As the streaming market becomes saturated, the company will serve a dwindling base of core subscribers, who will pay their monthly fees more out of tradition than enthusiasm. It will make profits, intermittently, but ultimately struggle to earn above its cost of capital. It will rebrand, unsuccessfully, then rebrand again. And then, starved of new investment, it will inevitably begin to shrink.
Meanwhile, Apple, having throttled the competition, will fold its Apple Music segment into a larger business line. For musicians and fans alike, the economics of the industry will grow opaque. Music itself will become a loss leader, first for AirPod sales, and later, one expects, for some fancy new device that skips the ear entirely and goes straight to the brainstem.
Am I alone in finding this future distressing? Another win for the world’s biggest company? Another dreary product launch, with another middle-aged man in bland attire barking at a crowd of feverish nerds? Another bespectacled product manager explaining to us why the world’s first $1tn tech company has boldly chosen to partner with Drake?
I can’t take it. Bring back the pirates.
The writer is the author of ‘How Music Got Free’