- Apple Music is about to a hit a major milestone in the US and overtake Spotify in terms of the number of paid subscribers to its streaming music service.
- According to The Wall Street Journal, Apple is adding more paid subscribers in the US per month than Spotify, meaning it will be the most popular paid streaming service by summer.
- But analyst Mark Mulligan pointed out Apple Music has an uneven user base, and that the US is already where Apple has the biggest presence.
- Spotify is still dominant globally and Apple Music will be a more serious threat if it begins to take over in Europe.
- Apple has lots of cash to burn and has shown it’s willing to make big-ticket music purchases to boost its streaming service.
There are lots of music streaming services duking it out for dominance but it looks like the fight has narrowed to two big players: Apple Music, and Spotify.
A report from The Wall Street Journal on Monday suggested we should be feeling worried for Spotify, because it’s about to lose its top spot in the US. Apple Music will have more paying subscribers by summer, according to the newspaper, because it’s adding subscribers at a faster pace. According to figures leaked to the newspaper, Apple Music is growing its paying subscriber base by 5% per month, while Spotify is growing by 2% per month.
There’s no doubt this is a blow for Spotify. The US is the world’s biggest music streaming market, and Spotify has held the lead on paying subscribers for many years.
But the increased competition doesn’t mean Spotify is anywhere close to losing the global battle in music just yet.
The US is Apple’s biggest market
Take a look at Apple’s financial filings and you will see that its home country of the US is by far its biggest and most important market. It reported $35.19 billion (£25.2 billion) in revenue from the Americas during the first quarter, which is 66% more than it made from Europe.
You will also see that “Services,” the part of Apple’s business which includes Apple Music, was up 18% year on year to $8.4 billion (£6 billion) in revenue.
It isn’t too much of a leap to assume that most of the growth in Apple Music came from its biggest market, the US.
“Apple’s userbase isn’t evenly distributed,” MIDiA research analyst Mark Mulligan told Business Insider during an interview about Apple Music. “Apple’s footprint in the US makes it a very strong player, but Spotify is still, in name, a European company so it’s built an audience where Apple hasn’t been strong.”
When Mulligan talks about Spotify as a European company, he’s harking back to its origins. Most users won’t remember Spotify’s early days, but it was relatively late to launching in the US and this was a huge deal at the time. The firm was founded in 2006, became hugely popular in Europe, and quickly overtook competition such as Deezer.
The US was different, and an uphill battle. Spotify delayed its US expansion until 2011, four years after it was founded. At the time, chief executive Ek said it had been difficult to “educate” record executives about the benefits of unlimited music streaming. On top of that, Spotify was unknown in the US, and established radio service Pandora was already hugely popular. Apple, meanwhile, was already well-established in the music business through iTunes. By the time Apple Music launched, Spotify had already done the difficult job of educating US consumers and label executives about music streaming.
Apple Music faces a tougher challenge in Europe
A more interesting test will be how Apple Music fares against Spotify in Europe. Spotify, as a European company, has had years to establish local marketing channels and relationships with carriers for bundle deals.
“Apple has never had a strong market in Sweden, Denmark, and Norway. It doesn’t have a dominant role there, in those markets where Spotify’s grown the strongest,” said Mulligan. “In the markets where Apple is strong it’s making big inroads into Spotify. In others where it hasn’t been so strong, Spotify has the headstart.”
According to the Polaris Digital Music Survey in May 2017, Spotify is consistently the most popular music streaming service in the Nordics after YouTube.
The UK is the obvious next bet for Apple Music
The UK looks like Apple Music’s best bet outside the US. According to MIDiA, the UK is the largest streaming market in Europe, with Spotify the dominant player by some margin.
But Apple Music has tried to make inroads by offering bundle deals through EE, which gives you six months of free Apple Music. EE is the UK’s biggest carrier and that represents a big potential boost to Apple Music’s UK subscriber numbers if even a fraction convert.
Apple also has considerable brand presence in the UK. There are more iPhone owners in the UK than elsewhere in Europe, with iOS market share at 43%, according to Kantar Worldpanel. Compare that to France, where iOS market share stands at just 23%.
All of this makes the UK the next most promising market for Apple Music to conquer Spotify after the US.
Spotify really needs to worry about cash
As with just about anyone trying to compete with Apple, Spotify’s biggest worry will be cash.
Apple is certainly willing to spend money on music services, having acquired streaming company Beats in 2014, and music recognition service Shazam late last year. Its CFO Luca Maestri recently told The Financial Times the company planned to reduce its net cash balanceto zero, though he didn’t precisely explain how. This might mean dividends for shareholders, or it might mean lots more money freed up for acquisitions.
“I’d be cautious about saying that because Apple hasn’t caught up yet, it won’t,” said Mulligan. “I think Spotify is undoubtedly the market leader, but if I were Spotify looking at Apple, I would have concern about Apple and Amazon in equal measure. Both can afford to spend whatever they want to be successful.”