European regulators are investigating Apple for its plan to bundle music streaming with its existing iTunes platform. The speculation is that Apple will release their music streaming service, which is based on Beats Music, in June. Assuming subscription only, with no ad-supported tier, European regulators are “said to be concerned that the company will use its size, relationships and influence to persuade labels to abandon free, ad-supported services such as Spotify, which depend on licenses with music companies for their catalogues.”
Spotify argues that its free ad-supported tier is critical to turn users into paying subscribers. 25 percent become subscribers currently, much higher turnover than other streaming services. Remember that Spotify’s ad-supported tier pays out less when a free user listens to music vs. a paying subscriber. Beats Music (and now Tidal) do not offer a free tier and are looking to catch-up to Spotify’s 15 million users. Now that Apple is involved, regulators are scrutinizing what the new licensing landscape might be.
Increasingly, the chatter from the music labels is for less support of free ad-supported streaming. We know the story well, artists are unhappy by the payouts from Spotify, yet it is their music label that pays them according to their contracts. The Financial Times points out:
streaming may be losing money and artists struggling to get by, but the labels have weathered the digital storm remarkably well. For instance, Universal made operating margins of 11 per cent in 2013 — nearly twice what they were a decade before.
At a time when sales remain stagnant, the profitability of intermediaries such as Universal gets ever harder to explain.
The most transparent service will be the one that pulls ahead.