Monday, June 10, 2013

Apple iRadio marks the end of music industry in its current form

Written for Start2Cloud.
Today, Apple officially unveiled its new iRadio service - free internet radio broadcasting personalized stream of songs funded by advertising. At first glance, it is not no breakthrough; there are already numerous similar services on the market - let’s name for example Spotify, Last.fm, Musicovery, Google Play Music All Access, and especially the founder of this segment, the Pandora service. Yet this step is very important, and it is because of the one who makes it.
Apple's new service iRadio
Apple iRadio is a classic proof of the claim that if two people are doing the same thing, it's not the same. The importance of iRadio is not in its innovativeness (by the way, Pandora offers a similar service for 13 years), but in the power of the Apple brand, which can accelerate, and eventually promote this significant change in the mass market. No one else has the power to force changes in the habits of millions of music listeners so dramatically and quickly, just like Apple. Apple is not only the market leader in IT and consumer electronics, but also the number one in online music sale. Its iTunes Store is since April 2008 the largest music retailer in the United States, and since February 2010 the largest music retailer in the world. Apple will compete in the new market not only with other steaming music competitors, but also with itself. It will cannibalize its own sales of online songs - the more audience Apple manages to get to its iRadio, the less songs it will sell.

Apple is however forced to take this step, because it can not ignore the ongoing general music industry transition from sales of albums and tracks to sale of services. Sales of songs has been declining since 1999, and during this period fell from $ 38 billion to 16.5 billion last year. If Apple did not build its position in emerging markets in time, surely someone else would, and Apple would have missed its chance. By the way Apple is not the first company which decided to cannibalize its existing markets. A similar step was made by Internet bookstore Amazon.com, who reacted to the decline in sales of paper books by developing its own e-book Amazon Kindle, effectively accelerating the paper books decline.

Market of the new music industry will combine revenues of two major markets: Market of sales of tracks/albums and radio advertising market. The size of the second market is estimated at $ 14 billion per year (ie, only slightly smaller than the current market of sales of songs), and in addition, this market has not yet been affected at all by the digitization process. We should underline the word yet, because this is what can Apple change quickly, because of its great market power. In fact, it can change the radio advertisement market in a very similar way to how the company has influenced the music industry with its iTunes Store. As a result, Apple may substantially speed up the already long-going process of extinction of the music industry in its current form, based on sales of music tracks, and contribute to its faster transformation into a new form based on the sale of subscription services and services funded by advertising.

Recall on this occasion one more interesting thing: Apple enters a new market for the first time since the death of its co-founder Steve Jobs. As we can see, surprisingly, it is not the smart TV market, or the market of smart watches, which were so widely speculated about. It is very likely that Apple is working as well as products for these markets we mentioned, but apparently it has been unable to progress in these segments fast enough, so the streaming service came out first. In any case, all this development only confirms the closed and secretive nature of Apple’s business.

Crowded but growing market of streaming music
Therefore Apple is now entering a crowded, but growing market of streaming music and will compete with established players such as Pandora, Spotify or Google Play Music All Access, and also in addition with classical music radio stations - and indeed with itself. But regardless of who will ultimately be the winner of this battle, one thing is certain. The year 2013 will be written in history as the year when the music industry actually died in in its current form and was replaced by significant new services based on the new paradigm of personalized services.

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