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Subscription music service expected to boost iPhone experience, but not Apple's profits

Apple is expected to announce a new subscription streaming music service at WWDC next week, but investment bank Piper Jaffray expects that the pay-to-play Spotify competitor will bolster the iPhone ecosystem much more than it will pad Apple's bottom line.

Analyst Gene Munster of Piper Jaffray issued a note to investors this week, a copy of which was provided to AppleInsider, in which he said he expects a $10-per-month music subscription service from Apple will not benefit the company financially in any meaningful way.

For example, he said if Apple were to match the 15 million subscribers currently held by Spotify — an achievement he said is "highly unlikely" — it would add less than 1 percent of the company's revenue in 2016.

At $10 per month, if Apple were to gain 15 million subscribers for a subscription music service, Piper Jaffray estimates it would account for less than 1% of its 2016 revenue.

In fact, Munster doesn't think that any of Apple's services will truly move the needle, including the existing Apple Pay, or the anticipated subscription TV service. But that doesn't mean those services aren't a key part of the Apple ecosystem and experience.

"Given Apple's large revenue base from hardware, it will be difficult for these services to add meaningfully to the model as demonstrated above," Munster wrote. "However, we believe that the continued build-out of these offerings adds incremental ways for Apple to keep customers on the iOS platform and continued hardware loyalty does matter for the model."

Apple is widely expected to announce a $10-per-month streaming music service to compete with the likes of Spotify next week, at its annual Worldwide Developers Conference, which kicks off with a keynote presentation Monday at 10 a.m. Pacific, 1 p.m. Eastern. The latest rumors suggest that the service will not outright replace Beats Music at first, and the two will operate concurrently for a time while Apple works out the kinks on the launch of its new product.

For years, Apple's iTunes Store has dominated the digital music market with traditional sales on a per-song and per-album basis. But in recent years, consumers have flocked to streaming music services tied to monthly subscription fees.

The overall iTunes business, however, remains a small part of Apple's financial success, which has been largely driven by the success of the iPhone, and to a lesser extent, the Mac and iPad.

Piper Jaffray has maintained its "overweight" rating on shares of AAPL with a price target of $162.



10 Comments

mathteacher 10 Years · 35 comments

It makes sense. All the other services of Apple serves the same purpose. OSX is free, iWork suite is free, 5gb of iCloud is free or not expensive with other data plans. All these services are building the ecosystem, Individually these services are not contributing to the profit. The new member of the ecosystem will be the Music streaming service.

jason98 14 Years · 768 comments

Quote:
Originally Posted by sog35 
 

People were saying the same thing about the App Store.  Idiots.

 

Idiots are those who going to ship $120 annually for "nothing".

tokyojimu 17 Years · 531 comments

Meanwhile, iTunes Radio still doesn't work right, often hanging after it plays a commercial.

jungmark 13 Years · 6927 comments

[off record]. "You know what will frakking move the needle? An Apple TV Set!" gasped an exasperated Munster as he was led away wearing a straight jacket.

schlack 11 Years · 732 comments

Quote:
Originally Posted by jason98 
 

 

Idiots are those who going to ship $120 annually for "nothing".

I don't understand what you mean, "for nothing".

 

I used to pay $10/month for Spotify and it was amazing value. I now pay $100/yr for Beats Music and it's amazing value.

 

If you are referring to ephemeral nature of a service, then I assume you feel like cable TV, movie theaters, restaurants, car leases, and virtually anything that doesn't persist past the month of payment provides "nothing"?