Apple Music on Track to Overtake Spotify in U.S. Subscribers
Apple Music on Track to Overtake Spotify in U.S.
Subscribers
Apple’s U.S. subscriber-account base has been growing
about 5% a month, versus No. 1 Spotify’s 2% clip
By Anne Steele Feb. 4, 2018 7:02 a.m. ET
Months before its hotly anticipated public stock
offering, Spotify AB’s lead in music streaming is shrinking in the U.S.
Apple Inc.’s Apple Music is adding subscriber accounts in
the U.S. at a higher rate than Spotify, and is on track to pass the No. 1
streaming service this summer, according to people in the record business
familiar with figures reported by the two services.
Spotify is widely considered the dominant force in the
streaming world, with Apple at a distant second. Spotify is larger globally and
continues to grow slightly faster. But that the No. 2 streaming service is
quietly gaining ground in the largest music-subscription market in the world
signals Spotify now has significant competition.
The introduction of streaming services has fueled a
recovery for the record industry following years of declines amid plummeting
sales of CDs and, more recently, downloads. Streaming customers pay a flat
monthly fee or listen to ads in exchange for unlimited access to vast music
catalogs; with downloads, consumers pay for individual songs or albums once and
own them permanently. Paid subscriptions, up 61%, were the largest source of
record-company revenue in the U.S. in the first half of 2017, according to the
Recording Industry Association of America.
But music streaming has yet to prove itself as a viable
business as the tech companies operating these services struggle to make them
profitable. Active users and paid subscribers are the most closely watched
metrics as these services grow.
Apple’s subscriber-account base in the U.S. has been
growing about 5% monthly, versus Spotify’s 2% clip, according to the people
familiar with the numbers. Assuming those growth rates continue, Apple will
overtake Spotify in accounts this summer.
Apple’s popular devices have helped add subscribers to
its music service, which is preloaded on all iPhones, Apple Watches and other
hardware the company sells.
One question lingering in the industry is what metrics
Spotify will have to disclose once it becomes a publicly traded company. The
service has periodically released global subscriber totals and just last month
touted a new high of 70 million.
Apple Music told The Wall Street Journal it now has 36
million, up from the 30 million it last reported in September.
But both companies’ numbers are increased by counting
individual users who are part of family plans and people with discounted
subscriptions bundled with other services. In some countries, mobile-phone
plans can include an Apple Music subscription; Spotify offers students in the
U.S. a subscription plan that includes video-service Hulu. Neither company
publicly breaks out figures for the U.S. or any other single market.
In their licensing deals, labels let streaming services
pay lower royalty rates for music when they meet certain subscription-growth
targets. As part of those deals, the services are required to report how many
accounts they have—a number not inflated by multiple users on a family
subscription. They also have to report the number of monthly active subscribers
they have, stripping out people who were signed up in bundle deals but don’t
use the service and are likely to churn.
By one standard, Apple Music has already passed Spotify.
Including people who are still in free or deeply discounted trial periods
leading up to paid subscription, Apple Music has a slight edge on Spotify in
the U.S., according to one of the people familiar with the figures.
Apple Music has three to four times the number of such
trial users as Spotify, according to this person, in part because it doesn’t
offer a free tier. Also, all Apple Music subscribers are entered automatically
into a free initial three-month period. Excluding those trial users, Spotify is
ahead, but by a small amount—and that gap is closing.
Apple’s services segment, which includes Apple Music as
well as the App Store and its payment services, was a bright spot in the
company’s earnings posted last week, with an 18% jump in revenue. It is unclear
how much Apple Music contributed to that increase as the company doesn’t break
out the streaming service’s results.
Launched in 2008, Spotify lets users listen to a library
of more than 30 million songs on demand. It started offering its service in the
U.S. in 2011. Subscribers who shell out $9.99 a month can listen without
hearing ads; users of the free version need to sit through ads and have more
limited ability to pick the order in which they hear the songs they select. As
of June, Spotify said it has 140 million active users world-wide. Spotify has
never reported a profit, but has said it believes it can become profitable once
it has amassed sufficient users, without specifying what that scale would be.
Apple Music, introduced in June 2015, allows users to
stream from a catalog of 45 million songs or play from their own iTunes
library. It has only ever offered an individual $9.99-a-month subscription
tier.
Both Spotify and Apple Music offer $4.99-a-month student
plans and $14.99-a-month family plans, which up to six individuals can use.
Spotify is available in 61 territories, including the
U.S. Apple Music is available in 115.
Next week, Apple will begin selling its voice-activated
speaker, HomePod, which the tech giant has tried to differentiate from
competitors’ earlier offerings by promising better sound quality. The device
has been marketed as a way to listen to Apple Music, which it will play
directly; other music-streaming services can be played only over Apple’s
AirPlay. The introduction of the HomePod has the potential to boost Apple Music
subscriptions.
Write to Anne Steele at Anne.Steele@wsj.com
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