Apple iTunes – The Tech War Redefined

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Nov 12, 2014

After the recent launch frenzy kicked off by the Apple (AAPL, Financial) Â iPhones, the war between the tech heads has reached a new dimension, and now they are busy equipping their robust devices with more and more lucrative features. Music is one of the aspects most used in any mobile device. Music can be defined in several emotions of human behavior. It can be your status update; it can portray your moods and emotional situations and so on and so forth. So now the tech giants are focusing their efforts to enhance your music experience on their devices. Let us take a look at what is the latest from the music bastion.

Music Feature Capitalization

Digital music downloads have passed their prime. As The Wall Street Journal recently reported, sales in Apple's iTunes store may already be down by as much as 14% this year. Going by the Recording Industry Association of America (RIAA), the broad category of "streaming music services," this includes everything from Spotify to Google’s (GOOG, Financial) YouTube to Pandora (P, Financial), has seen increased revenue by 28% in the first half of 2014. Now this competition has dented the iTunes clientele considerably. Hence what is Apple doing to counter this dent?

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In spite of an earnings upbeat, Pandora's user growth is struggling against increased competition; so is Pandora headed for the dead end? Furthermore, the service doesn't look appealing against its competitor’s offerings such as Apple and Spotify, even if Pandora's main operating domain is Internet radio.

Though Pandora’s future looks quite murky, it cannot be written off for the very fact that it is still the dominant form within the growing Internet radio market and the music streamer enjoys its fanfare mostly from the automobile sector. It would be rather foolish to discount its decade-old, industry-leading algorithms that have helped users create millions of custom stations that have earned its clientele from across all age group of music lovers. While this may not be enough to keep the company going in the face of stiff and ever-increasing competition, but this is a valuable asset for a company looking to make a strong mark in the music streaming segment.

On-demand streaming implementation is the way to go

Will the majority be charmed by the on-demand, choose-your-own music streaming services, or will people opt in for intelligent services that curate music for them? Services such as Spotify and Beats Music believe in the importance of both, whereas Pandora advocates designing the music selection by the service. With the advent of time and more access to knowledge, thanks to the immense exposure mankind has gained through internet, music enthusiasts are now more specific about what they want to listen to and when they want to listen to it, thus giving the on-demand service an upper hand.

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Spotify has proven this trend change by being able to convert one out of every four of its users into a premium, paid subscriber since last May. Now Spotify sits on a 10 million paid subscriber base which is much higher compared to the 3.3 million subscriber base of Pandora in the same period. Pandora had approximately 75 million active users, which works out to a conversion ratio of 1:23. This clearly suggests the trend shift of listeners to more of on-demand music.

Apple's new music integration ecosystem is under way

Apple has successfully created an ecosystem around iTunes since the program launched; even the very first iPod owners would simply plug in their device and watch iTunes sync every song, playlist, picture and video without needing to ask for. If Apple succeeds in creating a user-friendly platform for the integration of Beats Music, it will gain an upper hand and an edge against its competitors and recreate the frenzy that it had done when iTune radio was first launched. In a mere eight months, the integration of iTunes Radio within iTunes rapidly earned 40 million listeners.

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Google, Amazon (AMZN, Financial), Apple and others have developed their own music streaming solutions for their products, but none of them have yet succeeded as an all-arounder across multiple brands of devices. Apple’s Beats Music intends to bridge this gap with the first successful integration of music streaming into a product ecosystem. When this happens, all third-party solutions will always start one app download in the back operation. Apple is known to take its time to get things right through its elaborate research and development process. This patience will pay off if Apple succeeds in creating the music integration platform to suit across wide genera of mobile devices.

The price war

Pandora's subscription cost stands at $5 per month or $60 per year. However Spotify the on-demand music provider charges a premium subscription fee of $10 per month which works out to $120 a year, quite hefty an amount for a music-based service. This is where Apple stands a chance to turn the table. Previous Reports from iTune suggest that even the most valuable iTunes users only spend about $60 each year.

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Apple apparently wants to complement the iTunes Store and iTunes Radio by providing a complete, on-demand music service. Apple would certainly look to keep the price tag to attractive levels to lure more users into its ambit and if Apple does offer a price economic enough to break the levels of Spotify and need not be as cheap as Pandora, it will catalyze the movement towards streaming and completely revolutionize prices across all platforms.

Our understanding

With the Beats Music working out the equations right for Apple. Considering the success run that the current launches from Apple is enjoying and their seamless integration with iTune, Apple looks all poised to take the war from its devices to its music streaming with equal gusto and this should take the number churn from Apple's business further ahead of its peer group. For now it would be best to wait and watch how the Beats Music set the drums playing ones it is launched for Apple and weather it will become the next revenue earner for the tech honcho.