- Apple Music surpassed streaming music pioneer Spotify in paid U.S. subscriptions, a positive sign for the iPhone maker's rapidly expanding services business. Apple Music had more than 28 million paid subscribers as of February, compared to Spotify's 26 million in the U.S., people familiar with the matter told The Wall Street Journal.
- Apple Music's expansion isn't limited to the U.S. Its worldwide monthly growth rate of about 2.6% is higher than Spotify's 1.5% to 2%, sources told the Journal. The Apple Music app comes preloaded on Apple hardware including the 101 million active iPhones in the country, according to researcher Strategy Analytics.
- Spotify is still dominant globally with 207 million active users including 96 million paid or free-trial subscribers. Apple, which doesn't offer a free ad-supported service, has around 50 million paid subscribers worldwide.
While Spotify helped to pioneer the market for on-demand streaming music, a key weakness for the company is the lack of exclusive content that might compel listeners to stick with its service over competitors. Streamed music has become a commoditized product with distributors competing on price or other bundled services. Amazon, for example, offers a free tier of music to its 100 million subscribers of Amazon Prime. Apple doesn't bundle services yet, but its expansion into magazine content, TV streaming and video games gives the company the flexibility to potentially combine services in the future as it looks to build out its services category.
Still, Spotify faces a major threat from Apple and even filed an antitrust complaint with European authorities, a group that hasn't shown much sympathy for big U.S. tech companies like Google and Facebook. It's unclear how a favorable judgment could help Spotify unless the company also improves its services and boosts the value proposition for subscribers. To do that, Spotify is working to build out its exclusive content, such as through a partnership with comedian and talk show host Ellen DeGeneres announced in December. The company also is making a push into podcasting with several acquisitions that will help to round out its content library, and is running a promotion to bundle its service with streaming TV provider Hulu.
Apple Music's growth comes as the tech giant stakes its future growth on services that keep people engaged with its hardware devices like the iPhone, whose sales have slipped as the smartphone market matures. Apple's services business, which includes Apple Music, the App Store and Apple Pay, showed healthy growth of 19% to $10.88 billion in the final three months of 2018, putting the company on track to reach its of annual goal of $50 billion in services revenue by next year.
However, Apple Music isn't expected to boost overall company profits because costs associated with paying labels, publishers and artists means the service has a gross margin of roughly 15%, the lowest of any of Apple's services, according RBC Capital Markets data cited by the Journal. However, Apple Music could be a key part of keeping consumers engaged in its ecosystem of services and devices, generating longer-term loyalty.