Digital radio
According to Stephen Bryan of Warner Music Group, “Half of music consumers prefer a leanback, radio style experience” (IFPI Digital Music Report pg 17). Digital radio services such as Pandora Media Inc (NYSE:P) and Slacker Radio continue to grow in popularity. In fact, Pandora accounts for 8% of all radio listening as it gains penetration in automobiles and the growing number of internet connected devices.
The curated experience led to the growth in Spotify, as users can access playlists created by popular music critics and magazines, as well as friends. Not to mention the service also integrates a Pandora-like radio option.
Interestingly, this is an area where Apple Inc. (NASDAQ:AAPL) could have an advantage. The songs the company uses in its commercials often boom in popularity shortly after they start running. Whether this is due to their promotion on iTunes or vice versa, an Apple curated digital radio platform could draw a lot of listeners looking for new music.
More importantly, Apple, as the leading digital music source, has tons of data about the songs people download. Using this information ought to make the creation of a digital radio service straightforward for Apple.
Google Inc (NASDAQ:GOOG), too, has a funnel for curated radio stations based on YouTube plays. Viral videos could give Google a leg up on trends such as the sudden popularity of Baauer’s Harlem Shake, which hit number 1 on iTunes a week after the video sensation exploded onto the scene. Google also has thousands of data points from YouTube music video plays that indicate users’ tastes quite accurately.
Risks
The move into a streaming service will undoubtedly cannibalize iTunes sales. Like I said before, as streaming grows, downloads slow.
The exception appears to be South Korea, where iTunes equivalent MelOn offers both streaming and downloading. While downloads aren’t quite as high in Korea as they are in the U.S., the number of users downloading songs in Korea trounces other popular streaming countries France and Sweden. The marketing geniuses at Apple ought to be able to replicate similar success with iTunes downloads.
The bigger risk is if Apple Inc. (NASDAQ:AAPL) fails to move into the streaming music service area. The company has, by far, the most to lose, as it made up 60% of all digital music downloads last year. If Apple plans to maintain its dominance in the music industry, it must fend off growing competition from Microsoft Corporation (NASDAQ:MSFT) and now Google Inc (NASDAQ:GOOG), who both have designs in the mobile phone market as well.
Apple Inc. (NASDAQ:AAPL) is better positioned than either Microsoft or Google to enter the market, although the latter is not far behind. Nevertheless, it can’t delay progress in the field very long before it starts losing download sales to streaming competitors.
The article Why Apple Needs Music Streaming originally appeared on Fool.com.
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