In a new interview with Billboard, Apple Music lead Jimmy Iovine said the tech giant's streaming service subscriber count has hit a fresh high of over 30 million subscribers, climbing from 27 million subscribers in June. But Apple (NASDAQ: AAPL) investors shouldn't be impressed.
Though the 3 million jump in subscribers over a period of just a few months is notable, Apple Music hasn't gained enough traction to threaten streaming music leader Spotify -- at least not yet. Looking ahead, Apple investors should hope the company can kick its Apple Music efforts into high gear, as services are becoming increasingly important to the company's business.
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Falling behind Spotify's growth
On the surface, Apple Music's increase from 27 million subscribers in early June to "well over" 30 million subscribers in late September may seem impressive. After all, this easily trumps pure-play streaming music company Pandora's (NYSE: P) 4.9 million paid subscribers.
But here's where Apple's 30 million subscriber count begins to lose some of its zest. Between the beginning of March and the end of July, Spotify's paid users increased by 10 million, from 50 million to 60 million. In other words, not only does Spotify have twice as many paying subscribers as Apple Music. But based on the two companies' most recent updates on subscriber growth, Spotify seems to be growing faster.
And Apple Music's recent boost to its paid subscribers looks even less impressive when the company's recent iOS 11 release is considered. The new software gave customers a reason to rethink their music subscription as Apple brought new features, including the ability to listen to friends' shared playlists (a popular feature on Spotify), to Apple Music with the new version of iOS. A spike in new paid Apple Music subscribers, therefore, should have been expected.
Last, Spotify is also garnering a big lead over Apple when it comes to its free user base, or users who listen to an ad-supported version of Spotify but don't pay a subscription fee. As of this summer, Spotify said it had more than 140 million monthly active users when including both paid and free users. Beyond Apple's three-month trial period, the company doesn't offer a free version of Apple Music.
Why streaming music is key
While streaming music may only represent a fraction of Apple's business today, it encompasses an important and growing aspect of the tech giant's business.
Its services segment, which includes revenue from Apple Music, the App Store, iTunes, Apple Care, Apple Pay, licensing, and other services, is one of Apple's fastest-growing segments. Services revenue was up 22% year over year in the most recent quarter. Thanks to strong segment growth, Apple's services business accounted for 12% of trailing-12-month revenue, up from 9% two years ago.
Furthermore, Apple has seen a boom in all paid subscriptions across its services offerings, suggesting consumers have a strong appetite for digital subscriptions. In the third quarter, total paid subscriptions climbed to 185 million, up 20 million in just 90 days. This bodes well for subscription-based streaming music services.
Finally, another reason Apple should be acting aggressively in streaming music is because of the industry's undeniable growth. Paid music subscriptions in the U.S. jumped 50% in the U.S., according to recent data from the Recording Industry Association of America (RIAA). Even Pandora, which has lagged behind peers in releasing new features, saw paid subscribers increase 24% year over year in the company's most recent quarter.
By prioritizing Apple Music, Apple could better position itself to take advantage of a fast-growing market while simultaneously giving customers more reasons to keep buying its products. But based on Apple Music's growth so far when compared to Spotify, the company may need to double down on the service.
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