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

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.