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Apple and AT&T both betting on Beats for music streaming

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You wait forever for a digital music announcement, and then two come at once.

Around 7 May the tech press started buzzing about AT&T looking at selling off Muve Music, the downloading service it acquired as part of its purchase of Cricket Wireless in 2013. A lot of the talk focused on Muve’s target demographic of lower-income users, and on Beats Music, the streaming service that launched in January and is discounted for AT&T family plan subscribers.

Then, within a few hours, the press exploded again with news that Apple was on the verge of buying Beats Music’s parent company Beats Electronics for $3.2 billion. This time the speculation focused on what Apple wanted with Beats, which makes high-end headphones as well as offering streaming music. The agreement seems to be that Apple needs to get into wearables – perhaps a headset that can play music without connecting to an iPod – and that it needs to get into music streaming.

With regard to the latter argument, this may be the reason why AT&T is keen to sell Muve. Although it’s true that lower-income, prepaid users are not AT&T’s preferred market, if the company was truly unwilling to invest in attracting and keeping them it would probably not have bought the parent company, Cricket. Instead, the reasoning is likely that the technology behind Muve is getting dated, and AT&T would rather focus its marketing efforts on Beats.

That music downloads are waning in popularity seems to be in little doubt. According to recording industry trade group IFPI, downloads accounted for 67% of digital revenues in 2013, but are starting to see a slight decline in value globally. At the same time, streaming has grown to account for 27% of digital revenues, up from 14% in 2011. In addition, subscriptions to services like Spotify, Deezer and Rhapsody have grown from 8 million worldwide in 2010 to 28 million in 2013.

It may not be a number to set investors’ hearts beating – yet – but the trend is clearly toward growth in this segment. There are a number of ad-supported streaming services, including Spotify’s free-to-play tier and Apple’s iTunes Radio, but the segment is dominated by video services like YouTube. From the consumers’ perspective, streaming services like Beats give them almost all the music they want at all times, without cluttering their phone’s hard drive; and for more affluent or older consumers, paying $10 or GBP10 per month seems a small price to pay for not hearing ads.

Add to that the fact that Beats has been relatively successful at convincing listeners to pay the monthly fee, and it’s clear that capturing that segment of users is a key priority for Apple, whose iTunes Radio has failed to challenge the largest players.

The irony is that Muve Music is one of those players – it had passed 2 million subscribers in the US by 3Q13, compared with analyst estimates of around 2 million paying subscribers for Spotify. Yet the march of technology means that AT&T needed to update its music service, and Beats provides a ready-made alternative, on top of a well-established brand. This is also likely to be Apple’s reasoning behind the purchase.

No wonder Beats co-founder Dr Dre is so happy – it’s not every day your company is shown to be so in demand by hardware and telco partners.


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