Apple, Spotify Streaming War Heats Up

Execs from both sides, including Jimmy Iovine, trade words and share company visions

With three months in the books, has Apple Music asserted its dominance or floundered in the streaming music wars? Credit: JONATHAN NACKSTRAND/AFP/Getty Images

Upon launching in late June, Apple Music was supposed to take over the streaming-music business and save musicians everywhere. Thanks to a three-month free trial period and Apple's marketing power and prolific advertisements, including a TV commercial co-starring Mary J. Blige, Kerry Washington and Taraji P. Henson, the service racked up a respectable 11 million users. But after the first wave of free subscriptions expired in late September, and with top rival Spotify ramping up its own features to maintain its 20 million paid-subscriber base, it's unclear whether even Apple can sustain this momentum.

"All I can tell you is it's going really well," Jimmy Iovine, who founded Beats Music with Dr. Dre, tells Rolling Stone. "By anyone's measures." Iovine sold his company to the technology giant last year for $3 billion, then joined the company as an Apple Music executive.

Record executives are optimistic, too. "Let's say by the end of the year, they've got 15 million subscribers, which is probably a realistic number. That means in a matter of months, they've gotten to half of Spotify's [paid] subscription base and that took Spotify eight years to get to," says a source at a major label. "I don't know how you shit on that."

Still, some have been harshly critical of Apple Music's features — it's packed with expert playlists, curated radio stations, an always-live radio channel called Beats 1 and an artist-created service called Connect, but many of these are hard to find compared to, say, Spotify's more intuitive interface.

Larry Kenswil, a former Universal Music digital executive who is now an entertainment attorney, doesn't see any particular streaming service having better features than any other. "You have curated playlists, as opposed to playlists put together by a computer or by friends — it's unclear yet which of these things people gravitate towards," he says. "One service doesn't stand out as being superior."

As for Apple Music's strong subscription numbers — which dwarf Tidal's recently announced 1 million — Kenswil says it's because the service is packaged with iPhone and iPad software updates: "They updated iTunes mandatorily, in a way that forced people to use it. It wasn't much to get them to use it. No other service has had that advantage."

Iovine favorably compares Apple Music, which costs $10 per month after the free trial, to Spotify's freemium model, which allows users to stream any song for free if they listen to ads. Spotify has paid $3 billion to rightsholders, but Iovine argues Apple's $10-a-month model is more fair to artists.

"My issue is with unlimited free music," he says. "We have a three-month free trial and it's working. The freemium model is great for the companies that are using them to build massive audiences ... but it's happening on the back of artists. And on top of that, it’s a lousy way to experience music."

Spotify contends the freemium portion of its service is the only way to attract new users — unlike Apple, which can introduce new products to its massive iPhone user base through mandatory software updates. "When we have limited our free tier in the past, the direct result was a drop-off in the rate of subscriber growth," says Jonathan Prince, Spotify's global head of communications and public policy. "It'd be a lovely thing to get everyone to pay for music again, instantly, but there’s just too much free music out there for that to work — you've got to offer an attractive free product to get people on board, and then make it worth their while to subscribe."    

The acrimony between Apple and Spotify over streaming music has been building all year. Spotify has lobbied Congress, among other things, against Apple's policy of charging its standard 30 percent fee on all App Store subscriptions; the company argues it must charge $13 per month, rather than the standard $10 for purchases on its own website, to make up the difference. Although Apple's policy is most likely legal, Prince says: "We welcome Apple's competition, just like we welcome Deezer and Rhapsody and everyone else, but Apple's trying to use its control over iOS to make it harder for everyone else to compete, and that hurts consumers, drives up prices, stifles innovation and will be bad for music. Growing industries need healthy competition."

A source with knowledge of Spotify's business model says the company has seen no change in user numbers or growth as a result of Apple's launch.

Still, record executives, as well as artists like Taylor Swift, have spoken out against free music-streaming on YouTube and Spotify over the past year. Apple Music does contain free options, including iTunes Radio and Beats 1, but they aren't on demand. "If you pick the song, you should pay," says Anthony Bay, chief executive of Rdio, which, like Apple Music, Tidal and others, charges a monthly fee for the on-demand portion of its service.

In jumping into the on-demand streaming business, which accounted for more than $1 billion in revenue last year, according to the Recording Industry Association of America, Apple Music promised to boost royalty payments to rightsholders such as artists and record labels. (The service also acquiesced quickly to Swift's early-summer demand that artists be paid for the three-month free trial periods.) But that only has an impact if Apple Music's subscriber numbers remain strong. (Iovine would not provide updated user data.)

"It's a net positive for everyone," Bay says. "Apple coming in, in a lot of ways, legitimized for people that streaming is real. They raised the bar in terms of awareness."