Calling the tune

Apple marching to the drum of its own Beats

Apple is marching to the drum of its own Beats. The company's new subscription music streaming and online radio services threaten to upend markets dominated by Pandora, Spotify and Sirius XM. The trio's combined annual revenue would be equaled by just six per cent growth in iPhone sales. This hardware angle is what makes Apple's effort unique.

The rollout of Apple Music and Beats 1, which kicked off on Tuesday with Spring King's "City" as the first song played, is in some ways a return to the $718 billion company's roots. The introduction of the iPod in 2001 by founder Steve Jobs represented a big change in direction for what was once a personal computer maker. The iTunes software and store became central to the strategy of persuading consumers to own multiple Apple devices.

Now, though, song and album downloads are shrinking - including on iTunes, where music sales declined by about 13 per cent in the first nine or so months last year, according to the Wall Street Journal. They are being replaced mostly by paid subscription and ad-supported models. Apple bought the Beats headphones maker and streaming service last year for $3 billion.

Connected cars and homes should keep expanding the appeal of digital music. Of Pandora's 80 million users, 96 per cent access its free service. Spotify has 75 million listeners, 20 million of whom pay. Sirius XM reports more than 27.7 million subscribers. Combined, the three generated about $6.4 billion of sales last year.

If Apple could convert a quarter of its estimated 110 million iTunes music customers into paid subscribers, that would add $3.3 billion of revenue. The company would lose some music sales, however. The average downloader spends about $50 a year, while an annual subscription costs around $120. So the net addition to the top line might be nearer $2 billion.

That's a drop in Apple's ocean, but its financial interests extend much further.

The company hawked 169 million iPhones globally in its fiscal year ending September 27, which produced $102 billion of revenue, a 12 per cent increase from the previous year. If Apple gets streaming music right, more people might buy its smartphones.

Selling only about 11 million more would exceed the aggregate sales of its three big online music and radio competitors. That's how Apple's music calls the tune.