Apple Music may secretly be a bigger deal than it appears for Apple.
Jessica Lessin at The Information reports that Apple’s long-term goal for Apple Music is to use it as a hook for subscribers into a video streaming service.
She says Apple is trying to create a healthy base of subscribers through Apple Music, and then it will upsell its subscribers to video content.
It is very hard to make the economics of a video-streaming subscription business work if you’re starting from a subscriber install base of zero – just ask YouTube. Netflix had DVD-rental customers to build from, while Amazon had Prime. Apple Music is, in some ways, Apple’s version of Amazon Prime, which helps explain the $3 billion the company spent to acquire Beats. It also means that the number of paying Apple Music customers the company can maintain after the free trial expires is more important than it may seem.
One way music makes the economics easier is by allowing you to upsell subscribers. Having existing subscription businesses allowed Netflix and Amazon to begin by offering less popular video content. Once they got enough people hooked, they started spending more for better programming.
If this is accurate, it means the success of Apple Music is more important than it would appear at first glance.
Apple really needs Apple Music to be a hit in order to build a subscription base which would help it build a video service.
Streaming video, by comparison, is much bigger. The biggest streaming-video company is Netflix, and it’s valued at $45 billion and did $1.64 billion in revenue last quarter.
Furthermore, if this is accurate, it would make the Beats acquisition, which seemed a bit odd at the time, look super smart. Apple got a company that was profitable off its headphones business, and then it used it as a launching pad for a music service and perhaps a TV service.