Apple, Google, and the Streaming Stakes

Apple and Google, the two companies that have most changed the fortunes of the music industry, are shifting their weight in preparation for the future of streaming-based music. Apple’s iTunes is facing serious challenges to its download model and considering innovation. Google’s YouTube, which introduced all of the benefits of music streaming to the world (endless choice, on demand accessibility, playlist creation, and cross-device functionality), is also due for an update. As faster computing power is empowering both buyers and sellers of recorded music, once novelty services like Spotify are for now taking center stage. Other services, such as Dr. Dre’s Beats, are pricking the industry apart. Monetization may remain a problem, but digital listeners today are becoming more likely to subscribe than to buy, which allows new players to seize opportunity.

It must be remembered that the launch of iTunes Radio was meant to bolster Apple’s track sales. It has not, as a 13% dip in Q4 2013 orders show. The Pandora-like service may have attracted some following, but it appealed mostly to passive listeners who rarely interrupted their radio stations to purchase songs: just over one in a hundred users followed through with a buy. Now, speculation is that Apple will bring on its own on-demand streaming service—one where users can freely stream any song within its catalogue without restriction, as Spotify allows.¹

It is not clear where this new service will leave iTunes. A new interactive platform would attract a more “lean-forward” than “lean-back” listener². iTunes Radio, for instance,  combined discovery and purchase, but unfortunately delivered content mostly to a passive audience. To emulate Spotify, a tool that is meant to dig deep into certain artists or genres, Apple would need to add in-demand functionality.  The platform is already installed on millions of computers, and iTunes already recommends music, displays charts, and shows playlists.

Google’s YouTube, of course, has become the world’s biggest platform for music streaming. Musicians, labels, and music publishers use it mostly for promotion, while owners of all composition, video, and video synch rights to a song can claim ad revenues from their own YouTube channel.  However, as Spotify and Beats steal the limelight, the income generating value of the service may diminish in relative terms, especially if subscriptions continue to grow worldwide.

In the meantime, it appears that YouTube may be building a more advanced derivative service called “YouTube Music”, which will better address the current expectations of music creators, delivery curators, and music fans. Set to the so-called UX standards, it would include an audio-only option to save bandwidth on slower connections or mobile devices,  maintain the massive catalogue of its parent, clean duplicates and unofficial uploads from search results pages, and organize content by artist, album, or featured playlists. Users with accounts could save original playlists and histories across multiple devices, and would receive detailed recommendations based on their activity. A paid subscriber account could freely access content without the interruptions of advertisements, and, like Spotify or Google’s All Access, could download music and video for offline access³.  At the moment, Google maintains YouTube and Google Play as separate entities, but may very well benefit from the synergy of the services.

Moving Forward

Apple and Google are challenged to convert their successful histories into sources of competitive advantage. While a greater size can lead to a less agile response, both companies have existing platforms upon which to launch great streaming services into the market. For instance, Spotify, Beats, and Rdio require significant user investment to learn the interface, build playlists, and make customers comfortable with the experience; not so for iTunes and YouTube.

Streaming services remain at the mercy of mobile connections and the smartphone experience. That is why Beats Music has recently inked an agreement with AT&T to bundle services with data plans, and Spotify has announced a partnership with Sprint⁴. Verizon Wireless remains uncommitted, but is likely fielding offers from several companies.  Apple and Google operate a sizable majority of mobile hardware, which presents a quick channel to market penetration. And partnerships with telecoms may soon become even more significant if the auto market adopts service providers like is expected to happen to Volvo with AT&T in 2015.

Apple and Google may be resting in the shadows as the current streaming industry thins itself out through competition. But both enjoy very deep pockets of readily available cash and have a history of being innovative. They could be the ultimate winners of the streaming stakes if they made it their priority.

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