Apple (APPL) CEO Tim Cook recently confirmed that his company’s streaming music service has captured 50 million paid accounts and is adding another 4 million subscriptions per month, notes Todd Shaver, editor of Bull Market.com.
By almost any standard, that’s amazing growth. But it gives streaming music rivals like Spotify (SPOT) plenty of room to keep chasing the scale they need to start generating profit.
The math on Apple Music is extraordinary. Back in April, the service had 40 million paid subscribers, and we’re confident that that number will rise to 60 million before the end of the year. That’s a huge number at an annual fee of $99 per account.
However, it’s a success that other companies can share. Spotify is the top dog in streaming music right now, with 75 million paid users and the potential to turn that number into 90 million by the end of the year.
Unlike Apple, it also has a free option supported by advertising, and in a world where both platforms host more or less the same song catalogs, “free” is always going to trump the pay-to-play alternative with a significant segment of the audience.
For Spotify, that segment is currently 100 million people who aren’t likely to switch to Apple any time soon. Granted, they aren’t extremely lucrative, but average revenue per user will surge once the company gets serious about replacing terrestrial radio.
After all, terrestrial radio rakes in $28 billion a year from advertisers, so there’s vast space to grow that business without much of a threat from Apple’s paid service.
Moreover, most young adult music consumers will simply sign up for both accounts, switching computer or phone screens with their moods and discrediting “zero sum game” arguments that a win for one company necessarily translates into a loss for the other.
There’s $17 billion in the global recorded music industry to share in any event. As paid streaming relationships become as habitual to heavy listeners as trips to the record store of previous generations, we’re looking for that number to climb.
Ultimately there should be at least $28 billion a year for Apple, Spotify and other players to share. Spotify, in turn, gets the lion’s share of the advertising sales not included in those figures. We’re happy to recommend both companies.
That said, with an annual $6 billion going to each company by the end of this year, Spotify is a pure play growing fast. That $6 billion barely moves the revenue needle 6% for gigantic Apple, where music hasn’t been the core business in years. Buy both and your odds of owning the ultimate winner are high.
