Google Inc (NASDAQ:GOOG) is not well-known for charging for the services it provides. However, the company has lately been leaning towards enabling publishers and developers to generate more revenue. Google Inc (NASDAQ:GOOG)’s recent music subscription offering will help the company to earn more, but the impact on its revenues is likely to be minimal. However, it does pave the way to make Google’s assets, Play and content ecosystem to be even more prominent outlets among its massive Android user base. The market speculation on Apple Inc. (NASDAQ:AAPL)’s entry will increase competition significantly, and might negatively impact the likes of Pandora Media Inc (NYSE:P).
Google’s Music Offering
Google Inc (NASDAQ:GOOG)’s new all-you-can-eat monthly music service offering, Music All Access will provide users with a sizable catalog of millions of songs to listen to for a monthly fee of $9.99, after a one month trial. And this can be a much bigger, addressable market that is largely dominated by iTunes and other smaller services, including Spotify and Pandora Media Inc (NYSE:P). As the Android ecosystem gets bigger, this will be a more compelling offer for users on Google Play.
Mobile footing is phenomenal
Google Inc (NASDAQ:GOOG) disclosed that more than 900 million Android devices have been activated across the globe, and research firm e-Marketer stated that 44% of smartphones in the U.S. run on Android. According to Canalys, 60% of all smartphones, tablets and notebooks shipped in 1Q13 were Android devices, and iOS had only 19%. And the market for music streaming isn’t small either, an estimated 96 million U.S. consumers stream music on mobile devices each month, according to e-Marketer.
Thus, the addition of the Music Offering represents a big market for music streaming in the U.S. and across the globe. In addition, it enhances the Google Play store and competes with rival firms as well. Three major music labels, Sony, Warner Music and Universal have all signed up to partner with Google Inc (NASDAQ:GOOG). Increasingly the music labels are finding newer outlets to monetize their music content and reduce their dependence on Apple Inc. (NASDAQ:AAPL)’s iTunes as newer monetization streams including Google Music come forth as distribution channels. The large number of A la Carte music buyers on iTunes will be enticed to pick-up a subscription as well.
Google’s increasingly large number of hardware offerings has led to a solid growth in store size for the Play Store. Google Play now has more than 675,000 apps, games and a lot of music and movies, making it a solid contender with iTunes.
Competition from Apple and Pandora
Numerous investors and media have widely touted that Apple Inc. (NASDAQ:AAPL) will be launching its own Internet Radio service in its upcoming developers’ conference. The iRadio, if launched, will be a great complementary offering and a natural stepping stone for Apple Inc. (NASDAQ:AAPL) as its content sales revenue from iTunes has increasingly contributed to its total revenues.
A free, ad-supported music streaming business sounds about right for Apple Inc. (NASDAQ:AAPL). However, if it intends to roll out an all-you-can-eat streaming model with paid subscriptions, Apple’s massive installed user base will likely pick up the company’s offering. Apple did sign deals with a number of music studios, including Warner Music Group, and is on the lookout to sign more.
Apple’s online store gets a lot of traffic from users who download and purchase a lot of apps, games, music, movies etc. Just recently, Apple’s app store, which has more than 850,000 apps, crossed 50 billion app downloads from Apple fans across 155 countries.
When news of a potential Apple music streaming business on the open, shares of Pandora Media Inc (NYSE:P) went down by ~10% immediately. Apple’s entry could be a major knock-out blow for the money-losing Pandora Media Inc (NYSE:P), as Apple boasts half a billion users on iTunes. And Apple can craft a very compelling Internet radio offering because of all the purchase transactions data it already holds.
Pandora Media Inc (NYSE:P)’s 70 million active users is a fraction of both Apple’s users, as well as Google’s users across Android, Search and YouTube, but Pandora does have more than 200 million registered users on its Internet radio platform. Smaller competitors like Spotify have only ~24 million users, and both Pandora Media Inc (NYSE:P) and Spotify are solid candidates for being acquired by a bigger tech firm, which might include the likes of Amazon.com, Inc. (NASDAQ:AMZN) or Microsoft Corporation (NASDAQ:MSFT).
The Bottom Line
The chances of Apple unloading a subscription-based music streaming model might look slim, because it will cannibalize existing sales from iTunes. However, the small amount of cannibalization that might stem from a monthly offering will be offset in the long run. A subscription-based model will both benefit users and increase Apple’s revenue run-rate of $16 billion on iTunes alone.
Even though a lot of users listen to music on YouTube, Google’s entry into the music streaming business is a great move for Android-based OEMs and takes it head-to-head with iTunes, Pandora and also Amazon.com, Inc. (NASDAQ:AMZN) MP3. However, it won’t be a complete game-changer for Google’s revenues but will make consumers stickier on its platform for the long-haul. The competition in the music streaming business is likely to increase a lot in the near-term.
Ishfaque Faruk has no position in any stocks mentioned. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple and Google.
The article Music Streaming Competition Getting Heated? originally appeared on Fool.com and is written by Ishfaque Faruk.
Ishfaque is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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