As Spotify and Pandora struggle, Apple Music lowers its subscription prices pandora internet music

As Spotify and Pandora struggle, Apple Music lowers its subscription prices

June 28, 2017 by Seung Lee, The Mercury News
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Credit: CC0 Public Domain

Apple's latest move to corner the music streaming market came quietly but is expected to reverberate quickly.

Earlier this month, Apple Music unveiled a $99 yearly subscription option, tucked deep in the Music settings inside the App Store. The subscription breaks down to $8.25 a month, nearly $1.75 cheaper than the standard $9.99 monthly subscription used by Apple Music and its two main competitors, Spotify and Pandora.

Digital media analysts said the unusual move by Apple - undercutting its own pricing models - is an effort to pounce on its financially struggling competitors and lure paying customers to its service.

Unlike Stockholm-based Spotify and Oakland's Pandora, whose revenues are heavily reliant on premium subscriptions, Apple has the money and the flexibility to absorb losses while squeezing out the competition, analysts said.

"Apple can afford to do this," said Mike Goodman, director of digital media strategies at Strategy Analytics. "They are not dependent on needing music to turn a profit. It's focused on perpetuating the Apple ecosystem."

The ecosystem added a new member earlier this month at the Worldwide Developers Conference in San Jose, when Apple launched the HomePod, a smart home speaker set to launch in December. Apple labeled the product a smart "musicologist" that can compete with Sonos in acoustic quality and is expected to further Apple's success with digital music.

Since its launch in 2015, Apple Music has shown rapid growth in paid subscribers. Apple said during its WWDC keynote that it has more than 27 million subscribers - including 7 million who came in the last six months.

Apple Music's new yearly rate was first available for months as a gift card subscription only. A $4.99-per-month subscription is available only to college students.

The new yearly subscription pricing may entice younger, cash-strapped and Spotify-using millennials to give Apple Music a try, said Carolina Milanesi, an analyst at Creative Strategies.

"Apple already found that sweet spot of 35-plus age demographic," said Milanesi. "I think they are now going after millennials who don't have as much money as the older crowds."

While Apple Music's subscriber base is less than half of Spotify's, Apple is not feeling the financial crunch Spotify is under.

Spotify has more than 50 million paid subscribers and 140 million regular users around the world, but its net losses doubled from $258 million in 2016 to $581 million in 2017, according to its annual financial statement. While its revenue jumped by 51 percent in the past year, the company has massive royalty and distribution costs, which accounted for 85 percent of the Swedish company's expenses.

"Our financial results for 2016 demonstrate the strong trajectory of our business," said Spotify in a statement. "We will continue to invest relentlessly in our product and marketing initiatives to accelerate reach and enhance the functionality of our existing product."

Apple too has struggled with its own royalty costs, which are higher than Spotify's. Apple has been trying to renegotiate with record labels to lower its royalty rates, according to Bloomberg.

Spotify, which has an impending initial public offering, may be backed into a corner with no room to expand despite its relentless growth in attracting users, according to George Howard, associate professor of management at Berklee College of Music.

"Spotify may have reached an inflection point," he said.

Pandora is in a much worse shape than Spotify, according to analysts. Once the music streaming giant and now a distant third behind Spotify and Apple Music, Pandora received a much-needed $480 million cash injection from SiriusXM earlier this month after losing $343 million in 2016. The company also sold its ticket distribution service Ticketfly to Eventbrite for $200 million this month.

"We're gaining a massive infusion of cash on our balance sheet, which will give us the flexibility and security to pursue our strategy and grow our business in an intensely competitive environment," wrote Pandora CEO Tim Westergren in a staff memo after the SiriusXM investment.

But on Tuesday, Westergren stepped down as CEO, adding more uncertainty to the company's future. Pandora and Apple did not respond to requests for comment.

Howard said the window of opportunity for Pandora to turn around is all but closed. He said one of the best options for both Spotify and Pandora was to get acquired by an Apple competitor.

"They are on death watch," said Howard. "They cannot use music as a loss leader to sell for some higher margins. They fought a valiant war against Apple."

Explore further: Sirius XM buys stake in music streaming site Pandora

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Internet music service Pandora buys radio station, so BMI sues

June 13, 2013|By Ryan Faughnder
  • BMI has sued Pandora over its purchase of a terrestrial FM station in South Dakota.
BMI has sued Pandora over its purchase of a terrestrial FM station in South… (Pandora )

Pandora’s legal disputes with performance-rights organizations are heating up.

BMI, or Broadcast Music Inc., one of the groups that collects royalties from broadcasters to pay publishers and songwriters, is suing the Internet radio giant in response to its attempt to lower its rates by buying a traditional FM radio station.

Pandora revealed Tuesday it is acquiring a terrestrial station in Rapid City, S.D., to make a point about the rates it pays.

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Pandora has said it is unfairly forced to pay higher rates than traditional radio operators such as Clear Channel, which owns 850 physical stations and the Web streaming music service iHeartRadio.

Last year, Pandora, which has 200 million registered users and 70 million active users, sued the American Society of Composers, Authors and Publishers (ASCAP) -- a performance-rights group that competes with BMI -- to lower its payments.

New York-based BMI, in a complaint filed Thursday in New York, said it has proposed a “reasonable” payment rate for Pandora, which the company has rejected. BMI asked the federal rate court to set royalty fees for Pandora.

"BMI has proposed an increase in Pandora's fees consistent with market rates to reflect the explosive growth of the Internet music market," BMI said in its 19-page complaint. “We expect Pandora to claim that it is no different than commercial broadcast radio. That contention is wrong.”

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BMI argues its radio station license that covers terrestrial radio stations will not cover Pandora, even if it owns an FM station. Pandora doesn’t qualify for the lower rates just by buying “a single radio station” in a city with population that it less than 1%t of its Internet audience.

“Pandora’s stunt makes a mockery of performing rights licenses and the rate courts process,” BMI said. 

Pandora disclosed its acquisition of the Rapid City station KXMZ-FM in an opinion piece published by the political news website The Hill and penned by its lawyer Christopher Harrison.

“This acquisition allows us to qualify for the same … license under the same terms as our competitors,” Harrison wrote. “Certain powerful music incumbents see Internet radio as a threat to the status quo. We see Pandora, and Internet radio, as a transformative way to connect listeners with music they love.”

Pandora’s critics argue this is a particularly brazen example of the company’s attempts to stiff music makers.

“Pandora continues to find new ways to give artists and songwriters a raw deal from the bottom of the deck,” the music industry advocacy group musicFIRST said in a blog post.

“We look forward to the court’s oversight of this matter,” said Pandora in an emailed statement. “Disputes regarding the reasonableness of fees between BMI and music users are adjudicated in federal court just as disputes between ASCAP and music users.”

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Twitter: @rfaughnder

ryan.faughnder@latimes.com

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