Apple (NASDAQ:AAPL) continues to trail Spotify (NYSE:SPOT) as the streaming music services race to add paid subscribers. However, AAPL just got a big boost, at least in the American market. Verizon (NYSE:VZ) announced that an Apple Music subscription will be included for free with several of its premium cellular plans.
Verizon Expands AAPL Partnership, Offers Free Apple Music for Premium Unlimited Plans
On Jan. 15, Verizon announced that it was expanding its partnership with Apple. Starting January 17, customers who subscribe to Verizon’s Beyond Unlimited and Above Unlimited cellular plans will get Apple Music bundled with their plan for free. That saves the customer $9.99 monthly compared to paying for the streaming music service from Apple.
Customers who subscribe to the less expensive Go Unlimited plan will get a free six month trial of Apple Music –a continuation of a program Verizon launched last August.
What’s In It for Verizon?
The appeal for Verizon is a perk that has mass appeal. The company is the largest wireless provider in the U.S., with a narrow lead over AT&T (NYSE:T) — in Q3, VZ had 153.97 million subscribers compared to the 150.25 million signed up with AT&T. With unlimited data plans sounding largely the same to consumers, bundling a service like Apple Music is a way to stand out from the pack.
It also helps Verizon to sell iPhones. Having the AAPL smartphones in its showroom and being able to offer free Apple Music as a bonus could help to move more iPhones off the shelves.
T-Mobile (NASDAQ:TMUS) offers free Netflix (NASDAQ:NFLX) with some plans. From the perspective of the network provider, streaming music uses considerably less bandwidth than streaming video. That means less strain on its infrastructure should eligible customers take advantage of their free streaming ability.
What’s In It for Apple?
For AAPL, there are three wins here.
The first is the potential to sell more iPhones, at least through Verizon. As everyone knows by now, the company is struggling to keep up the pace of iPhone sales that briefly made it the world’s first trillion dollar company last year.
The second is the prospect of adding more Apple Music subscribers. Since launching in 2015, Apple Music has grown rapidly, but has failed to gain ground on market leader Spotify. Verizon doesn’t spike out how many of its customers subscribe to the Beyond Unlimited and Above Unlimited plans, but with nearly 154 million total subscribers there is potential there for Apple Music to snag some significant additional growth. With increased emphasis on Services revenue to take the heat of iPhone sales, that’s more important than ever.
Of course there’s also the risk that some existing Apple Music subscribers will end up being converted to free Verizon users, diluting the overall subscriber base growth potential.
Finally, Apple’s streaming video service is expected this year. The more subscribers AAPL can hook on Apple Music, the better the odds it can convert them to customers for that video offering as well.
Who Pays for This?
Good question. Neither Apple nor Verizon has come out and said who is actually paying for the “free” Apple Music subscriptions. The most likely arrangement is that AAPL is subsidizing Verizon, offering a discounted rate. However, nothing has been confirmed. The only thing we know for sure is that Beyond Unlimited and Above Unlimited customers won’t be footing the bill — Verizon has not announced any price increases to go along with the perk (although the fine print does note customer are responsible for paying any related taxes).
5G service is beginning to roll out, with the potential to cause churn among wireless carriers as they fight over bragging rights about their next generation coverage. At the same time, companies like Apple are struggling to keep smartphone sales humming. And competition is heating up in the streaming video business, with big new players set to enter the market this year. With so much disruption, look for more of these partnerships in coming months as the various players maneuver for position and look for advantages to lock in customers.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.
