Apple's (NASDAQ: AAPL) current music chief Jimmy Iovine is on his way out, preparing to transition to a consulting role once the last batch of shares he received from the Beats acquisition vests in August. With Spotify Technology (NYSE: SPOT) recently going public, Apple Music will need strong leadership to navigate the competition in the years ahead. Spotify enjoys several advantages over Apple Music, and is even developing its own hardware.
Fortunately, the Mac maker has just found its man.
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A new music chief
Variety reports that Apple has just named Oliver Schusser the new head of Apple Music, reporting directly to services chief Eddy Cue. Schusser has previously worked on the App Store as well as other digital storefronts like iTunes and iBooks. The executive has been with the company for approximately 14 years. Additionally, Variety notes that Apple Music now has 40 million paid subscribers, citing an internal memo. Apple Music currently has around 8 million users trying out the service via promotional trials.
In comparison, Spotify had 168 million to 171 million total monthly active users (MAUs) at the end of the first quarter, including 73 million to 76 million paid subscribers. At those midpoints, there are about 95 million MAUs enjoying Spotify's free tier, which they are free to do for an indefinite period of time. Apple Music is only available as a free trial for three months.
Apple Music is gaining traction
Earlier this year, The Wall Street Journal noted that Apple Music's growth rate is outpacing Spotify's, suggesting that the Mac maker could overtake the market leader in the important U.S. market as early as this summer. The recent figures support this possibility.
Over the past couple years, Apple has maintained a fairly consistent proportion relative to Spotify, having about half as many premium subscribers at any given time. Apple Music's 40 million paid subscribers is now slightly above half of Spotify's roughly 75 million paid subscribers. It might only sound like a few percentage points of difference, but rates of change are incredibly important to investors, who often base investing decisions on long-term extrapolations.
In recent months, Apple Music's growth does appear to be incrementally accelerating while Spotify's decelerates:
For now, Spotify still enjoys a substantial lead over Apple, and it still has several levers that it can pull to reinvigorate premium subscriber growth -- such as improving the free tier, which serves as a marketing funnel for premium subscribers. It's also unlikely that Apple will ever meaningfully compete in emerging markets, where Spotify's free tier is a growth driver.
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Evan Niu, CFA owns shares of Apple. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.