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Apple reportedly is close to inking a deal with Beats Electronics for $3 billion, an acquisition that Morgan Stanley analyst Katy Huberty believes is important if Apple wants to further monetize its 800 million iTunes user base and boost revenue in its increasingly important online services division.

Apple's online services segment, which includes iTunes, is often overlooked because it contributes so little to the company's overall revenue. But as Huberty points out in a recent message to investors, online services shouldn't be so casually tossed aside as the segment "is an underappreciated growth and margin lever for Apple." It may be small, but online services revenue is expected to grow and margins are predicted to increase in 2014, driven primarily by rising App Store revenue.

online_services_itunes_apps.jpg
Online services hold promise, but Apple needs to address iTunes, which is losing ground to rival music services. While App Store revenue is increasing, Huberty notes that iTunes revenue is falling as users turn to streaming services such as Pandora and Spotify to meet their music needs. This decline "raises concerns about Apple's ability to monetize the new base of emerging market customers," writes Huberty. According to Huberty's calculations, each iTunes account spent an average of $3.29 in the first quarter of this year, down 24% year-over-year.

declining-itunes.jpg
Huberty believes Apple could reverse this trend and improve monetization with the introduction of a subscription music service. One of the quickest ways to launch a subscription music service under the iTunes umbrella would be to acquire an existing service, something Apple appears to be doing with Beats Electronics and its Beats Music service.
Press reports, including the Financial Times and Wall Street Journal, suggest Apple is considering the purchase of Beats Electronics, which would give Apple an accessories business focused on headphones and a music streaming service. Apple has not commented and we have no knowledge of any pending deals. However, a subscription music service -- whether organically built or acquired -- is a logical extension of iTunes.

Spotify, which is generally viewed as the leader in streaming music, has 10M paying subscribers or about 25 % of its over 40M active user base (MAU). If Apple charges $10 per month, same as Spotify, every 1% penetration of Apple's 800M user base, equates to $960M revenue annually, adding 8 pts of growth to online services and half a point to total company growth.
Apple's acquisition of Beats would bring not only a streaming music service, but also veteran music producer Jimmy Iovine and musician Dr. Dre to Apple. The pair are considered to be the "big prizes" of the acquisition and could help Apple negotiate favorable music deals for a streaming music service.

Looking beyond Beats, Huberty argues that Apple also could bolster its online services with the introduction of a mobile payments option, an area of opportunity recently acknowledged by CEO Tim Cook. The launch of the rumored iWatch also may contribute to Apple's online services as customers bolster App Store revenue by purchasing apps compatible with the new device.

Article Link: Apple's Beats Music Deal Seen as Key to Bolstering Declining iTunes Revenue Momentum
 

ThisIsNotMe

Suspended
Aug 11, 2008
1,849
1,062
iTunes revenue is declining because it focuses on a dying medium (music) instead of video. It took Apple way too far into the game to launch iTunes Radio and they have ZERO focus on a Netflix/Prime competitor which is where future revenues are to be had.
 

musika

macrumors 65816
Sep 2, 2010
1,285
458
New York
As a customer, I say "yay unlimited music!", but as a professional musician with music on iTunes and Spotify, I say "well, there goes my chance at paying rent with this stuff".
 

iMacFarlane

macrumors 65816
Apr 5, 2012
1,123
27
Adrift in a sea of possibilities
iTunes revenue is declining because it focuses on a dying medium (music) instead of video. It took Apple way too far into the game to launch iTunes Radio and they have ZERO focus on a Netflix/Prime competitor which is where future revenues are to be had.

I get the heart of your statement, but . . . you don't REALLY think that music is a dying medium, do you? The most memorable scenes in any movie are usually made all the more memorable by well chosen music to accompany the image. Music goes much deeper than video, it's more primal than the cerebral nature of the spoken word or human interaction portrayed on the screen. Music grabs you in a way an image never can.
 

macrooster

Suspended
May 28, 2014
58
70
As a customer, I say "yay unlimited music!", but as a professional musician with music on iTunes and Spotify, I say "well, there goes my chance at paying rent with this stuff".

If you expect to pay your rent with iTunes and Spotify royalties you need to reevaluate your career in music ;)
 

AdonisSMU

macrumors 604
Oct 23, 2010
6,891
2,466
Why buy music from iTunes when I can stream whatever I want for a small monthly fee with Spotify?

It's better for consumers and artists. It gives artists and labels more control over the product or does it? Music is now like cable. Hmmm... I'm not sure how I feel about that.
 

AbSoluTc

macrumors 601
Sep 21, 2008
4,707
3,335
Why buy music from iTunes when I can stream whatever I want for a small monthly fee with Spotify?

Exactly this. I have Spotify and can stream and have offline tracks. Why buy music I listen to only for a few months over and over and over again when I can can pay a small price for EVERYTHING I could ever want?
 

AdonisSMU

macrumors 604
Oct 23, 2010
6,891
2,466
Exactly this. I have Spotify and can stream and have offline tracks. Why buy music I listen to only for a few months over and over and over again when I can can pay a small price for EVERYTHING I could ever want?

I see the logic from this perspective. If you don't have $10 a month, it's nice to be able to buy the tracks individually rather than have a reoccuring fee. However, needing to store all that music is a hassle IMO. Having both options is nice. For songs that you just like for the moment streaming is great. However, for songs you want to own downloads are great.
 

jabingla2810

macrumors 68020
Oct 15, 2008
2,271
938
How many songs do you buy a year. for 9.99 a month, to me it's cheaper to just buy what I want.

Songs?

I used to buy a couple albums a month.

With Spotify, not only do I get those albums for less a month, I also get to listen to anything else too.

If my friend recommends a band? I've got all their music.
If I hear a song I like on the radio? I've got all their music too.

The benefits of streaming services go far beyond any monetary savings.
 

AbSoluTc

macrumors 601
Sep 21, 2008
4,707
3,335
iTunes revenue is declining because it focuses on a dying medium (music) instead of video. It took Apple way too far into the game to launch iTunes Radio and they have ZERO focus on a Netflix/Prime competitor which is where future revenues are to be had.

I agree. iTunes is too expensive when it comes to rentals. Not sure why they think they can command such a premium when I can get the same thing from Netflix, Amazon or Torrent for cheaper. I'm not going to pay $7.99 for one rental. Nor am I going to buy movies from iTunes until Apple fixes their appleid problems. I don't want a huge library attached to an "ID" that can never change and is nothing but an email address. No thanks.
 

mikethebigo

macrumors 68020
May 25, 2009
2,169
663
iTunes revenue is declining because it focuses on a dying medium (music) instead of video. It took Apple way too far into the game to launch iTunes Radio and they have ZERO focus on a Netflix/Prime competitor which is where future revenues are to be had.

It seems that one of the major reasons Apple wants Iovine is to negotiate content deals with entertainment companies. I don't think they are as shortsighted as you think, and probably most Apple employees use prime/netflix/hulu. They're just getting stonewalled by content providers that don't want to deal with their level of control. Hopefully some acquisitions can help them in this department.

But one amazing thing about Apple is that they have the money to overcome any deficiency if they have to. They could easily buy netflix! Hell, they could buy the cable companies themselves and still only use about half of their on hand cash. Not saying they'd want to, but still...
 

macrooster

Suspended
May 28, 2014
58
70
On average, 1 album a week.

I could save a bit of money by using Spotify but I like to own my music and rarely buy at full price.

This is the point. Lots of people like to own the "records" that they buy. Spotify is ok, but it suffers from outages like every other streaming service (carrier fault) and I consistently find it to be a pain in certain areas where I live (Denver, CO).

I miss owning my music. If I lose my spotify subscription I lose my music. I can totally see the need to want to own what you purchase.
 

Rogifan

macrumors Core
Nov 14, 2011
22,879
28,980
Isn't the issue that Apple is late to streaming music and are now having to spend $3B to catch up?
 

Godzilla71

macrumors 6502a
Aug 16, 2009
536
420
WA state
Great, More analyst expert guessing at work. :rolleyes: need to hurry and get them all out before wwdc and before having to backtrack on all the previous statements when this never happens.
 

Frankied22

macrumors 68000
Nov 24, 2010
1,766
553
Holy **** were still reporting on this thing? Come back to me when and if it actually happens.
 
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