Apple’s Premium Music Service: The Biggest AAPL Strategy Shift in Years

It’s no secret that Apple Inc. (NASDAQ:AAPL) has been cultivating a premium music service ever since its $3 billion purchase of Beats Electronics last May. Beats, primarily known for its stylishly branded headphones and bass-heavy dynamics courtesy of Dr. Dre, caught the eye of AAPL CEO Tim Cook more for its nascent subscription-based streaming music service than anything.

According to Billboard, Apple’s been tweaking and perfecting the premium Beats music service since then, and a widescale launch can be expected by this summer at the latest.

Anyone with AAPL stock should take time to understand the broader implications of this move, which represents one of Apple’s biggest strategy shifts in years.

What it Will Look Like

The new Beats Music service is rumored to be an “all-you-can-eat” model, wherein the consumer pays a monthly fee for the ability to stream all the music they can possibly devour. Billboard reports that AAPL is still figuring out what to charge for its premium music streaming service, but it will likely be closer to $7.99 per month than Beats’ current $9.99 monthly fee.

Streaming music leaders Pandora Media Inc (NYSE:P) and Spotify are market leaders in the area and would appear to set the price range: Pandora’s premium service costs $4.99 monthly; Spotify’s premium offering goes for $9.99 each month.

The Billboard report also cites sources claiming that the AAPL premium music service launch could coincide with major changes in iTunes — changes that would ultimately cut short the “long-tail” that Apple and iTunes pioneered by removing “soundalikes,” covers and re-recordings, instead favoring content owned by the major labels. The article goes on:

“Additionally, featured-artist sliders, previously chosen editorially, may now be determined by sales velocity, leaving some to wonder if iTunes is becoming less like a Tower Records and more of a Target Corporation (NYSE:TGT) — limited selection and a focus on hit titles.”

Why it’s Happening

As someone who supports and enjoys the originality of independent music, I mourn for the smaller artists who will be hurt by these changes. As an owner of AAPL stock, however, Apple is only fulfilling its fiduciary responsibility to shareholders.

AAPL, as it turns out, actually has a major problem on its hands, and that problem is streaming music. When AAPL bought Beats, iTunes average revenue per user was dwindling rapidly, falling 24% in its most recent quarter, as consumers flocked to services such as Pandora and Spotify. With Google Inc (NASDAQ:GOOG, NASDAQ:GOOGL) and Amazon.com, Inc. (NASDAQ:AMZN) also crowding the online music space, Apple is going with an all-hands-on-deck approach.

Not only will Apple’s new premium music service replace revenue lost from declining iTunes downloads, but by partnering closely with labels and launching a multi-platform attack, AAPL wants to redefine the music industry entirely.

Again.

What it Means for AAPL Stock

If all goes to plan, Apple’s premium music service will be the next phase of evolution for the tech powerhouse. AAPL could easily throw the new-look Beats service on every Apple device during its next iOS update, instantly putting it in the hands of millions of loyal consumers and locking in another stream of revenue.

Beyond that, possibilities abound. Integration with the Apple Watch and Apple TV would seem natural, but AAPL’s rumored plans to produce an electric car could even be relevant here. Beats radio in an Apple car isn’t much of a stretch, but AAPL’s automotive R&D could also come in handy in the headphones market as it learns how to make more efficient batteries.

Imagine roaming around a Wi-Fi-enabled public park with wireless headphones on, casually listening to streaming music. Imagine, because one day you won’t have to.

With this new era on the horizon, AAPL stock sounds like a buy to me.

As of this writing, John Divine owned shares of AAPL stock, GOOG stock and GOOGL stock. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/02/apples-premium-music-service-biggest-aapl-strategy-shift-years/.

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