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Author: Goofyhoofy Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 204085  
Subject: A new music service Date: 9/7/2012 9:07 AM
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According to several reports (including this one in the NYTimes), Apple is planning, or at the very least investigating the idea of a music service a la Pandora, Spotify, et.al.
http://www.nytimes.com/2012/09/07/technology/apple-plans-to-...

They're already huge in the music business, of course, with iPods and iPads and iPhones full of music in people's pockets, so maybe this is a natural extension. They also already have credit card numbers for monthly billing, for impulse purchases, and an incipient ad service to support a free or freemium approach to the business.

As one person in the article says, "Why do we need another service?" since there is already iHeartRadio, Last.fm and others, and that is all true. We don't "need" another service, but I think I see a reason FOR another service.

One of the problems with Internet radio is that providers are required to pay royalties to artists and songwriters every time a song is played. Entirely fair (although I am told that the rate is "too high" to make it very profitable. That may be true, I wouldn't know, althgh I do know nobody ever complained that their rate was "too low.") Well, one easy way to cut costs would be if you didn't have to pay that rate, or could pay half, or a quarter of what others might have to.

And how would that be accomplished? Well, you don't have to pay a royalty if you're playing your own music on your own device. Could Apple cobble together an app which

1. Allows streams based on your already existing iTunes library, the way Amazon predicts what books you are likely to buy based on your purchase history?

2. Integrates familiar songs from your own library (which they don't have to pay for) with other, newer songs (which they do.) If I'm not being clear, when Pandora sends you a song you already own, they're paying for it all over again. Apple might do this without cost, giving them a pretty fair competitive advantage.

3. Enable the easy acquisition of songs heard in their streams with some kind of "one click purchase" functionality, which would be a godsend to record companies by eliminating a significant amount of friction in the sales process, while simultaneously putting even more sales through iTunes.

Now perhaps this is too clever by half, and Apple would have to pay for the right to trigger sings from your own library, (although I don't see why), I can still see efficiencies and potential for such a business. And if there are such efficiencies, (to turn the quote on its head "What is the purpose of the other music services, except to do something not quite as well, using more bandwidth and paying more royalties, and therefore be less profitable?"

People have been after Apple for years to start a companion "subscription service" to iTunes. This could be it.
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Author: stevenjklein Big funky green star, 20000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 186411 of 204085
Subject: Re: A new music service Date: 9/7/2012 11:07 AM
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As one person in the article says, "Why do we need another service?"…

They might as well have asked (back in 2001), "Why do we need another MP3 player?"

Your raise some interesting possibilities in how Apple might do things differently. This Wall Street Journal article includes some other ideas: http://wsj.com/article/SB10000872396390443589304577636110080...

Apple is negotiating for its own licensing deals with record companies, these people said, because it wants to offer users a greater degree of interactivity than allowed by so-called compulsory licenses used by Pandora and other webcasters…

The licenses Apple is seeking may let it sidestep certain restrictions that typically apply to online radio, including a ban on playing any given song too frequently. Such a difference could make Apple's service more of a direct competitor to terrestrial radio, which typically repeats a small number of hit songs.


The article also mentions that the #1 and #2 companies in this space, Pandora and Spotify, are both losing money.

Unlike those companies, Apple would be offering music stream to promote hardware sales. So Apple could do it at a break-even point, or even a slight loss, and still consider it a success if it helps keep people in the Apple ecosystem.

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Author: maracle Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 186430 of 204085
Subject: Re: A new music service Date: 9/7/2012 4:35 PM
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Unlike those companies, Apple would be offering music stream to promote hardware sales. So Apple could do it at a break-even point, or even a slight loss, and still consider it a success if it helps keep people in the Apple ecosystem.

They could do that...but I've never seen Apple to be interested in giving away anything for free/breakeven the way Amazon and other companies tend to.

I think Apple could have a successful service, after all these services are all essentially commodities. They work similarly, so if Apple can provide a bit of integration with their ecosystem then many customers will use it.

Spotify et al already automagically pull in my iTunes library, but I'm sure Apple can think of some kind of value add.

I'm not sure how many Pandora/Spotify users are interested in purchasing tracks. You can use them offline that way, but the point of internet radio is sort of to not buy the music. So would this kind of service end up cannibalizing sales from people who just buy music through iTunes?

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Author: stevenjklein Big funky green star, 20000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 186433 of 204085
Subject: Re: A new music service Date: 9/7/2012 4:51 PM
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They could do that...but I've never seen Apple to be interested in giving away anything for free/breakeven…

Ever heard of iTunes?

http://www.appleinsider.com/articles/11/12/08/itunes_match_v...

Excerpt:
Analyst Gene Munster with Piper Jaffray said on Thursday he believes the profitability of iTunes Match is similar to the iTunes Store, where Apple operates the business just above break-even. He thinks most of the $25-per-year subscription fee likely goes to music labels in the form of royalties, while the rest covers Apple's storage and delivery costs. (emphasis mine)

There have been numerous reports over the years that iTunes is a break-even business.

Here's another one: http://tech.fortune.cnn.com/2012/05/25/gene-munster-10-thoug...
"Apple runs its services (iTunes, App Store, etc.) at just above break-even."

Oh, and what about iCloud? I don't pay for iCloud storage, syncing, or email. And unlike other free cloud and email services, I don't get advertising.

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Author: maracle Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 186443 of 204085
Subject: Re: A new music service Date: 9/8/2012 12:20 AM
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There have been numerous reports over the years that iTunes is a break-even business.

I hadn't heard that. I did some googling and found a few vague claims from Apple execs. And then a lot of circular references where people extrapolate that the iTunes Store costs 1.3 billion a year to run (assuming all retained revenues are used to operate the store). I would have to say I'm skeptical that it costs 1.3 billion a year to operate the stores.

iCloud is a great point though.

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