Apple has found what could be a powerful partner in getting its music offering out to more consumers. Even so, the outlook for Apple’s services – and the revenue coming from it – is hardly a slam dunk, even as the company looks to gain more from digital services in light of flagging hardware sales.
Excuse that sports cliché, but this is a story that involves pro basketball (hey, U.S. football is not the only game in town right now), and Apple’s attempt to make its digital services more attractive.
According to Bloomberg, Apple and the National Basketball Association (NBA) have “announced a partnership that includes an Apple Music playlist featuring independent artists from an emerging label. The Base:Line playlist will have about 40 songs with a hip-hop vibe and will be refreshed weekly,” Jeff Marsilio, the NBA’s senior vice president of new media distribution, said in an interview. “The tracks will also be available on the NBA app and website, and will be used in game highlights shared on social media, the NBA said,” the report continued.
Although Apple will operate the playlist, a relatively young label called UnitedMasters, which was founded in 2017, will provide much of the music. That label represents a relatively fresh, if not entirely new, approach to getting music to consumers. As Bloomberg put it, the label “connects about 190,000 independent artists to audiences through direct partnerships with brands.”
More Digital Services Wins Needed
As it turns out, Apple could probably use a solid win when it comes to the services it offers to tie consumers more tightly into the larger Apple ecosystem. The company cannot rely on sales of iPhones and other hardware as much as they could in the past. A brief tour of the landscape shows some of the recent digital services challenges that Apple has faced.
Late last year, for instance, news emerged that Apple News+, the tech giant’s paid news service, has failed to add new subscribers since launching in March. The service attracted about 200,000 subscriptions in the 48 hours after it launched, but the number has stayed at that level since then. Subscribers who use the service have access to about 300 top publications, including the Los Angeles Times and The Wall Street Journal. The service costs $9.99 a month, and features categories like news, sports and entertainment. Apple Music has significantly more subscribers, with a user base of about 60 million.
Many publishers are disappointed with the revenue from the service, as they expected it to be much bigger. Apple takes about half the revenue from every subscriber and publishers divvy up the rest based on how much time a person spends reading content. One publisher said that his company gets between $20,000 and $30,000 a month, which is much less than it planned to receive.
The company hasn’t really been advertising the service, and is reportedly considering adding it as a bundle with Apple Music and Apple TV+. People familiar with the matter said Apple is committed to the service and will continue to nourish it.
The news from the music front hasn’t been entirely positive for Apple, either, signaling other digital services challenges. Streaming service Spotify is beating out Apple Music in terms of subscriptions, for example. Spotify intends to further expand its subscriber base by way of podcasts, having seen a lot of growth following its February purchase of two podcast companies.
Last year, Spotify filed an antitrust complaint in Europe against Apple Music, alleging that the Apple App Store restricts competition from other music streaming services. Spotify claims that Apple makes it hard for competitors to reach App Store users without using Apple’s own payment option, which, it has been widely reported, takes a significant percentage of transactions, at about 30 percent. Spotify has said it was pressured to use the Apple billing system.
Bigger Apple Trends
According to a CNBC analysis, Apple’s App Store had sales maxing out at $50 billion last year – with the assumption that developers get a 70 percent cut – and brought in approximately $15 billion in revenue for the tech firm. Apple does not disclose the total amount of revenue that its App Store brings in per year. However, the tech firm has published other App Store data each January since 2013. That includes the total amount of funds it pays to developers, who receive 70 percent of an app’s purchase price in the first year and 85 percent in a subscription’s second year.
Apple reported that they paid out $35 billion to developers last year, which suggests $50 billion in total sales. The annual disclosure, however, indicates that growth for the App Store could be slowing. The $35 billion figure was just 2.9 percent more than 2018’s $34 billion figure. It also marks a sizable slowdown from the 30 percent growth rate seen in 2017.
The company’s release of the statistics is intended to show momentum in the services business sector, which encompasses subscription content like Apple TV+ and Apple Music as well as licensing revenue and iPhone warranties.
Last year, Morgan Stanley Analyst Katy Huberty predicted that Apple TV+, the new streaming service, would be highly successful and would help Apple’s services offerings grow 20 percent in 2020. The service launched in November at a price of $4.99 per month. Subscribers receive access to TV shows and movies, and shoppers who buy a new iPad or iPhone will get the service for free for a year.
Apple’s App Store reached $50 billion in sales last year, according to a CNBC analysis. Assuming developers get a 70 percent cut, that translates to approximately $15 billion in revenue for Apple — which doesn’t disclose its annual App Store revenue. The tech firm has, however, published other data on its App Store every January since 2013, including the total it pays to developers, who receive 70 percent of an app’s purchase price in the first year and 85 percent in the second year of a subscription.
Per reports by Apple, the firm paid out $35 billion to developers last year, leading to the $50 billion in total sales cited by the analysis. The annual disclosure, however, indicates that growth for the App Store may be slowing. That $35 billion figure is just 2.9 percent more than the $34 billion figure from 2018, and represents a significant slowdown from the 30 percent growth rate seen in 2017.
Apple’s release of the statistics is meant to show momentum in its services realm, which includes subscription content like Apple TV+ and Apple Music, along with licensing revenue and iPhone warranties.
Morgan Stanley Analyst Katy Huberty predicted last year that Apple TV+, the new streaming service, would be highly successful and would help Apple grow its services offerings by 20 percent in 2020. The service launched in November, priced at $4.99 per month. Subscribers get access to TV shows and movies, and shoppers who buy a new iPad or iPhone will get the service for free for a year.
The NBA still has a lot of basketball to play this year, and if Apple can get its music offering into more consumers’ eardrums, that could help with its services proposition going forward.