If you want to know how well the iTunes Store is doing these days, all you have to do is listen to what Apple executives said about it in the second-quarter earnings call yesterday:
Of course, the quarter brought another round of blockbuster sales for the iPhone, so, really, who cares if marginal businesses like the iPad, the iTunes Store, or the amorphous “other” are in decline? At the end of the day, these are barely material compared to the iPhone juggernaut.
Still, Apple seems deeply concerned that its media business based on digital downloads is on the wrong side of consumer trends that favor streaming. In particular, Apple has embarked on a frenzy of activity that indicates big plans to reinvent its role in digital music, a market where it risks going from pioneer to roadkill.
But why bother? At this point in history, why does the music business matter to Apple’s business?
The answer is that it doesn’t. Apple doesn’t need to be in this game any more. And instead of expending extraordinary resources figuring out a new plan, the company should just ditch music sales completely, or at least let them whither away naturally.
We don’t know yet just how far sales of media such as music, video, and books fell in the most recent quarter. Sales from the iTunes Store are tucked into the “Services” category, which reported revenue of about $5 billion in the second quarter, up 9 percent from the same period a year ago.
“Services” got some boost from Apple Pay, which didn’t exist a year ago. But more importantly, it includes the App Store, which is on a genuine tear, growing 29 percent from the same period a year ago. With that kind of growth, we can easily infer that once again, sales of media such as music, videos, and books fell at least for the third straight quarter.
Following its big antitrust loss over its e-book agreements, Apple isn’t talking much about that business. And with video, the focus has been on finding partners for Apple TV. It’s music where Apple seems to be grappling the hardest to save a place for itself.
Over a decade ago, of course, the music business was everything to Apple. The development of the iTunes software, and the creation of the iPod, and launch of the iTunes Store with its 99 cent digital downloads was the combination that catalyzed the company’s epic turnaround.
Even more, it represented the very best of how founder Steve Jobs liked to view his company: an enterprise that sat at a unique intersection of creativity and technology. A lifelong music lover, Jobs infused the company’s DNA with a deep love and appreciation for music.
That was then. Music was essential for getting people to give the iPod a look, and signing up to use the iTunes Store.
But how many people this past quarter bought an iPhone because it was a great way to experience the iTunes Store? More likely, those people downloaded Spotify or Pandora and just streamed music via subscription services.
And that’s just fine. Or it should be. But instead of letting its music business quietly fade away, Apple is making a full-court press to turn it around.
A few years ago, it created iTunes Match, a subscription service that let you play any song you had downloaded on any Apple device you own. And later, it created iTunes Radio, the Pandora rival. Neither excited users all that much.
Last year, Apple paid $3 billion to acquire Beats to snag its Beats Music streaming app and music giants Jimmy Iovine and rapper Dr. Dre to play unspecified roles in helping the company rethink its approach to music.
Supposedly, a relaunch of a Beats-like music streaming subscription service will be unveiled in June at Apple’s Worldwide Developers Conference. The redesign is reportedly being helmed by Nine Inch Nails frontman Trent Reznor. And to develop curated playlists, the company has hired famous British DJ Zane Lowe.
And let’s not forget that after its controversial deal to give all users a free copy of U2’s last album, the band’s singer Bono says he’s working closely with Apple to develop all sorts of new music formats and experiences to drive music sales.
Throw in the time that Apple executive Eddy Cue is probably spending negotiating with record labels, and it’s hard not to see this all as a colossal waste of time.
Much of it seems to replicate features already available elsewhere. It seems unlikely that Apple is going to introduce anything that represents a radical departure from what Spotify and others provide, even if it manages to cobble together a slightly better music-discovery algorithm. Perhaps the most radical thing Apple could do would be to give away a free streaming service to iPhone buyers and pay all the royalties to labels out of its considerably massive treasury.
Instead, it seems to be pushing for a slightly lower subscription rate, at $7.99 per month rather than the standard $9.99.
And even if Apple’s new music service does get some traction, what is the upside here? As business propositions, streaming music services are the crappiest of the crappiest. Spotify remains unprofitable. Pandora has eked out a profit, but seems in constant peril over potential hikes in royalty payments. Giving away a free service would likely bring out the hounds of antitrust investigators in Europe.
Going forward, Apple has the App Store to convince people to hand over their credit card information that is essential to the future of service like Apple Pay. But if Apple doesn’t need music to drive revenues, or profits, or sales of hardware, then it’s hard to see what’s left.
Again, I suspect it’s difficult for Apple to let go because of the historic and emotional ties to music than run throughout the company. And let’s face it, it’s exciting to rub shoulders with your musical heroes and get to produce events like the iTunes Music Festival.
But one of the extraordinary things about Apple is that has been extremely unsentimental about letting old businesses fade away. Few tears were shed about the decline and fall of the iPod as the iPhone soared past it.
Apple needs to be in the music business today about as much it needs to sell iPods. It should be content to leave that to other third-party developers.
I understand it’s not an easy call. But making a shocking break with its past, ditching the music business, would require the kind of boldness and courage that Apple has demonstrated it can muster.