The biggest hurdle to the adoption of subscription services by the masses is the difficulty in subscribing. Third party players would have to give up 30% of their subscription fee to the App Store if they allowed the ability to subscribe with one button in the app. Profit margins are small to begin with. Since that equals the total income most subscription stores have to operate, this is a financial impossibility. So they have to direct people out of the app to subscribe…without actually saying so in the app. This tiny little hurdle causes a very large number of people to give up on subscribing.
Now that Beats Music will be integrated into Apple, that 30% margin is all within the company. This will likely lead Beats Music to be the first significant app to have subscription occur with one button. It simultaneously makes the billing seamless and nearly invisible (as most people view app purchases now). It also puts nearly every other streaming service at a strategic disadvantage and will likely make Beats Music equal Spotify in paying customers in 18-24 months. Google Play is the one exception, so it’s no surprise that they’ve stepped up their advertising recently.
EDIT: As Ben Patterson pointed out to me, Beats Music already offers in-app subscription. It should also be noted that ad-free radio play subscriptions on Pandora and Slacker are also offered in-app. The reality of the marketplace for full on-demand subscription is that in-app purchases severely cuts into profit margins on a business that’s already got tough margins.
2) FREE SUBSCRIPTIONS TO COLLEGE KIDS
Anyone who’s ever bought a Mac in July or August probably knows that college students get some nice bonuses from Apple when they buy their computer for school. It can be a rare discount on their computer. Recently, it has also meant a $100 gift card to use in the iTunes store. Giving little bonuses to new college students via Apple stores is in the company’s DNA.
This means that it’s a pretty easy transition to give freshmen college students a free year of Beats Music for buying a Mac. Music as a loss leader is something my friend Moses Avalon spoke about a decade ago, though he predicted it would occur with a car purchase. That may still happen, but we’re very close to this happening with a computer purchase. Possibly as soon as next month. This, however, is a good thing. Since the aforementioned iTunes relationship is seamless, getting people hooked for a year and then moved into a paying relationship of $10/month will barely be noticed by them. When this happens, Beats Music will be everywhere on college campuses.
EDIT: Moses reminded me he did mention computers as well, though it was all around files on hard drives instead of subscription cloud streaming.
3) HITS WILL MAKE EVEN MORE MONEY
One of Beats Music’s selling points is that they focus on “curated playlists”. This is a sound strategy as the sea of music available is just overwhelming for the average music listener. While they technically have every song that other streaming services have, those get little use in favor of the focused attention on the playlist. So the flipside to a system focused on curation means the lion’s share of the revenue will only land in the hands of the curated.
While the depth of playlists is very extensive in the Beats ecosystem, you’re probably still talking about maybe 500,000 songs in total that have been selected for any playlist. In a world of these services having 30 million + songs, this means that only about 1-2% of the songs will take in the bulk of the money. That’s largely true anyway, but the gap will get even more exaggerated as Beats Music grows. This also means that the average musician will still have difficulty making a living just by natural virality. Curators will gain influence and a label or artist will need to convince the curator of a song’s merits. Curators become the new radio programmers, and the new music begins to look like the old music business.