Apple In Talks To Buy Beats
One motivation for the Beats deal may lie in shifts in music consumption. Subscription services are the biggest growth area for the music industry, with revenues increasing 50 per cent to $1.1bn in 2013, according to a recent report by the IFPI, the global music industry association.How big is this potential deal? Let's look at some numbers.
But downloads fell 2 per cent to $3.93bn – the first annual decline since Apple launched its iTunes store in 2003. iTunes is still the world’s largest music download service.
In their recent financial report, Apple disclosed that they now have 800 million iTunes accounts most of which have a credit card tied to them. According to the Digital Music News, Beats Music has 525,000 paying subscribers as of March 2014. One basic question is how many iTunes account holders would become Beats Music subscribers? Even if only 5% buy in (40M), that would immediately dwarf Spotify's claimed 6 million paying subscribers.
Asymco's Horace Dediu estimates iTunes revenue for 2013 at $23.5 billion with growth of > 18% year over year (iTunes revenue is more than music including app sales). Dediu also points out that, """The iTunes 'empire' of content and services would be ranked as number 130 in the Fortune 500 ranking of companies (slightly below Alcoa and above Eli Lilly).."
In the larger context, global digital music revenues grew by 4.3% in 2013 to US$5.9 billion, according to the IFPI Digital Music Report 2014 (see report) led by growth in streaming services. Yes, iTunes total sales are larger than global digital music sales. Scary, no?
In our tiny end of the pond, LH Labs raised about $1.5M on their combined Kickstarter and Indiegogo campaigns and Pono's Kickstarer campaign topped out at $6M the result of 18,000+ supporters. I bring these examples up because the press, yours truly included, have used these numbers to point to the rising popularity of "better sound quality". Better than what? Better than iTunes and their lossy music download sales.
What does all of this add up to? Wild speculation aside, OK mostly, the recent rumors of Apple going 24-bit with their downloads (see article) fits nicely with a Beats buy, the ad copy nearly writing itself. How many people will continue to pay for lossy downloads when they can stream millions of choices in the same quality for the cost of about one album download per month? How does Apple differentiate its huge stockpile of Mastered for iTunes music downloads? By offering them in high res. And how do we enjoy these better quality versions? With a new pair of Beats headphones.
While CD-quality and HD downloads remain a rain drop in the sea of downloads, this potential deal between Apple and Beats could very well spur Apple's move to HD downloads. If this deal happens, its safe to say we'll see a sea change in the market and a move away from lossy downloads. I say its about damn time.
[Editor's Note: This just in:]