Just what exactly is Apple up to?

There are a lot of articles analysing Apple’s new music service. (James Cridland’s got a good list of them here.)

The majority of them are coming from tech journalists, and unfortunately, they suffer from a major lack of knowledge of how the music business actually works. They are worth reading, but prepare yourself for a lot of confusing the tray for the meal.

Where most of the current analysis falls down is by treating the three elements of the service, Beats 1, Connect, and the streaming service as unconnected.

1. The Beats deal. Most of the press has been scratching their heads as to why Apple would spend US$3billion to buy a headphone company and a streaming music service with a small subscriber base. The answer is that it’s not about the hardware. They spent US$3billion to buy Jimmy Iovine, one of the most successful label heads/producers in history. They now own the heart and soul of Interscope records, and bagged Dr. Dre and Trent Reznor for good measure. They’ve also got a pretty good brand name that they can use to solve some of the Apple/Apple Corps problems.
There’s only one person in the press who’s twigged what this is about and that’s Lucy England at Business Insider, and even she’s not seeing the whole picture.

2. Apple Music. I’m referring specifically to the streaming service in this case, not the overall package. The conventional wisdom is that Spotify already has the market, isn’t making a profit, so why bother. A significant difference is that Apple Music include iTunes Match’s function that allows you to stream the music you own. This makes the experience seamless between Apple’s music library and your personal music collection. This makes the service very attractive to me, because I’ve got a personal collection of rare and non-mainstream music that I can guarantee is not in the Apple library. A major contributor to Apple’s success has been their ability to make complex things easy to use. If they get this one right, they will give Spotify a run for their money.

However, they’re currently having to recover from a major misstep in this area. Taylor Swift posted an open letter to Apple expressing her displeasure that Apple would not be compensating artists for music played by customers during their three month free trial of the service. Due to this decision, Swift stated that she would not be making her new album available via Apple Music.

Eddie Cue, Apple’s senior vice president of Internet Software and Services, quickly back peddled on on Twitter and announced that Apple would in fact, pay artists for activity during the free trial period.

Considering that non-payment would violate the agreements made with collection bodied regarding mechanical royalties, it’s unlikely Apple’s original position would have stood up even if an artist as powerful as Taylor Swift hadn’t weighed in.

3. Curated Playlists. This is a no brainer, and everyone is try to crack this. It hasn’t been hugely successful for anyone mainly because no matter who’s curated a playlist, if it’s missing the actual voice of the curator, it’s not all that interesting. Ministry of Sound has learned this the hard way as music has moved online.
4. Connect. A place for artists, established and emerging to make their material available. Apple is gunning for CDBaby, Bandcamp, Tunecore, DistroKid, Soundcloud, YouTube, etc. Reportedly, Apple will be giving the artists and labels 73% of the streaming revenue. This is significantly less than the rates paid by services like Spotify, but there could be other elements that would make this enticing to the copyright holders — more on that below.
5. Beats 1 — The general reaction to this has been a yawn, “Internet radio station — nothing to see here, move along.” Ordinarily this would be true, but the big difference here is powerful machine being created by the combination of the first two points. Apple has the world’s most consistent hitmaker in the form of Iovine, and a version of “Introducing” on steroids feeding a never ending stream of new music; only instead of a listening panel made up of staff members, the world becomes the listening panel, AND pays Apple for the opportunity to do that. And as new music from Connect begins to get attention, Apple has the global platform of Beats 1 to promote it. With the potential to have that behemoth backing you as an artist, the 58% share begins to look more attractive when start comparing it to the payout percentages from labels instead of from streaming services. I expect that Apple will begin to make investments in artists both established and new in order to get Connect/Beats 1 exclusives. I imagine that a publishing arm is in the offing. Companies like CDBaby are already offering that as a service for self-releasing artists.
This approach could crack the hard nut faced by the streaming services — back catalogue only goes so far. People crave novelty, and somebody has to provide the new music. Netflix and Amazon have already realised this in the VOD space, and are investing heavily in new, high-quality programmes.
Apart from that, is there more than meets the eye with Beats 1? A live station still feels like a strange choice — does not having to pay mechanical royalties outweigh the major demographic problems caused by time zones?

Pondering that, a bit of my past life in the telecoms world came back to me.

There’s a new technology being rolled out called LTE Broadcast. Basically, it means that an operator can send a live audio or video data stream to everyone within a cell site simultaneously — essentially reproducing the function of linear broadcasting. This is a one-way service, and would most likely be available to users without impacting their data allowance. It’s initially being focussed on venues, mainly for sporting events. The first trial of the technology was in May of last year in Germany, and there have been more since.

In essence, once this technology becomes widespread, Apple and other companies can launch “radio” stations worldwide with the flick of a switch, and without having to contract with companies like Arqiva, or deal with bodies like Ofcom or the FCC.

If all this comes together, Apple have the potential to make streaming services, radio stations, and even the labels obsolete. I’m sure we’ll see some anti-trust suits filed, but Apple currently has $194 billion in cash in the bank, more than enough to survive a protracted legal battle.