No, Apple Music Does not Need a Free Tier (Sigh)

Since Apple Music was launched, people have been saying that Apple Music should have a free tier like Spotify. Michael Simon, writing on Macworld, wrote the following recently:

And if you break it down further, Spotify is eclipsing Apple Music. When Apple Music launched in June 2015, Spotify had just passed 20 million subscribers. That means it’s gained some 50 million users in the same span that Apple Music has gained just 36 million. You don’t need to be an analyst to see which number is bigger. In the face of strong competition from the largest company in the world, Spotify has nearly quadrupled its subscriber base, all without a single piece of dedicated hardware.

The reason is its free tier. Unless you’re counting the three-month trial period, Apple doesn’t offer a non-paid level of Apple Music, but its gains in the U.S. only make me wonder why it doesn’t. Along with 70 million paid subscribers, Spotify has more than 140 million active users who listen to its service with ads between tracks. Those are all potential paid customers, and I’m willing to bet that a large portion of Spotify’s 70 million paid subscribers started out on the free tier.

Nope. You just don’t get it.

The reason Apple Music is going to be successful is because it doesn’t have a free tier. People who want free have options: Spotify with ads, or YouTube, or a couple of other services.

As I’ve written many times, Apple doesn’t need to make a profit on Apple Music. They make a boatload of money on iPhones and other hardware; Apple Music is, to them, an extra. If they attract users to the Apple ecosystem, that’s fine. They have enough potential users that they can play the long game and not devalue music by having a free tier.

In addition, with a free tier, Apple would have the problem of ads. Given Apple’s careful attention to its image, they would not want to have to spend the time to vet ads so they fit well with the way they want Apple Music to be. And they certainly don’t want to spend time and money trying to convert free users to paid users.

As Jimmy Iovine said last year: “The fact is that ‘free’ in music streaming is so technically good and ubiquitous that it’s stunting the growth of paid streaming. […] Artists are getting screwed. Period. I don’t see how anybody stands behind it. It’s all of our responsibility to change it.”

As I wrote yesterday, the long game that Apple is playing is around a combination of music and video. Whether their video offering will be part of Apple Music or not isn’t clear yet, but it’s obvious that Apple is preparing a serious video service, that may or may not compete with the likes of Netflix. There’s much buzz about Apple commissioning original content, but not much about whether some or all of the iTunes Store video catalog will also be available to stream.

Look at Spotify’s revenue for the first half of 2017: $2.2 billion, which puts them on track to record about $5 billion in sales for the year.

Now look at Apple’s quarterly revenue for the holiday quarter 2017: $37 billion for the iPhone; more than $6 billion for the Mac; $8.5 billion for services (which includes the iTunes Store, App Store, Apple Music, iCloud, and more). Are they really worried about Spotify?

No, Apple doesn’t want those freeloaders; it doesn’t need them. Apple wants paying customers. They want customers who will pay them for both music and video, and Spotify only has music.