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Apple plotting Music and TV+ bundle, but how will that affect music’s average revenue per user?

By | Published on Tuesday 8 October 2019


Apple is in talks with the labels about bundling Apple Music in with its soon to launch Apple TV+ video-on-demand service. It’s a move that could introduce subscription music streaming to a whole new audience but – according to the FT – some at the labels are concerned that it could also cut the amount of money coming into the music industry on a per subscriber basis.

The tech giant is busy expanding its subscriptions business into various other content strands, and it confirmed earlier this year that that would include a Netflix rival. That service is Apple TV+, which is due to launch next month with a five pounds/dollars/euros price point designed to undercut the aforementioned Netflix.

With video, music, news and gaming services all under one roof, it makes sense that one way for Apple to take on its big standalone rivals like Spotify and Netflix is to bundle the different services together. To work, bundling needs to offer a more competitive price point, so that Apple Music and TV+ works out cheaper than combined Spotify and Netflix subscriptions.

For the music industry, of course, streaming is – at its heart – a revenue share game. The music services commit to share a percentage of total revenue with the music industry, more or less distributed based on total consumption share. Across its deals with the record companies, music distributors, music publishers and collecting societies, in most markets the streaming services commit to pay the industry around about 70% of their total revenues.

Because of this, some in the music industry have become obsessed about the so called ‘average revenue per user’ metric, ie for each subscriber, how much revenue comes into the system to be shared with the music community?

Although the standard price point for streaming in North America and Europe is ten pounds/dollars/euros, the average revenue per user on a global basis is quite a bit less than that, even if you ignore users on free accounts, which are obviously much less lucrative.

First, even in mature markets the streaming services offer an assortment of discounts, for example for mobile bundles, family plans, student rates etc.

Meanwhile, a lot of the growth in recent years has been in emerging markets in Latin America and Asia where the top line subscription before discounting will be the economic equivalent of ten pounds, which likely means the local currency equivalent of a few pounds. If the streaming services were to charge ten pounds in those markets they would become a luxury product with a much smaller userbase.

It’s in this context that labels might be nervous of Apple’s talk of bundling music with video, because bundles usually mean discounting, which means yet another factor bringing down the average revenue per user.

Actually, Apple has more flexibility over its TV+ service because of how it acquires the rights to that content, so in the short term it could choose to take the hit itself in a bid to take on Netflix. So offer Apple Music and TV+ for thirteen pounds/dollars/euros, and just accept that the video side would take a two dollar hit. But would Apple be willing to take such a hit on that bundle in the long term if the combination proved popular?

However, arguably the music industry has become far too obsessed by the average price per user metric. While there is an argument that it’s high time the headline subscription price of ten pounds/dollars/euros be increased, the fact that headline price is routinely discounted to reach ever bigger audiences around the world is just a reality of business. And the music industry at large is the key beneficiary as subscription streaming goes ever more mainstream.

The FT says that talks between Apple and the labels over a Music/TV+ bundle are still at an early stage and possible pricing formulas are yet to be properly discussed. But such tricky conversations should be happening soon.

Of course, while Apple is trying to take on both Spotify and Netflix, its main rival as a multi-content platform is Amazon which, more than anyone, has already dabbled with bundling and variable price points. And the music industry has, sometimes reluctantly, worked with Amazon on those bundles and pricing variations.

Although, with Amazon, there is usually an assumption that any new and alternative services will appeal to more mainstream consumers, many of whom are yet to properly engage with streaming music at all. Apple is arguably selling its music service to the core streaming market, which might make the labels more nervous about the impact of a sneaky bundle on existing subscribers and subscription income.

All of which means it will be interesting to see what music/video packages are ultimately agreed by Apple at what price points, and to what extent the tech firm has to take the hit to make that happen.