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Apple May Be Finding the Music Streaming Business Tough

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Apple has found it hard to negotiate in the music streaming industry

Even before Apple (AAPL) launched its subscription music streaming service at the Worldwide Developers Conference, or WWDC, event a few weeks back, the company has been finding this business a tough nut to crack.

Apple was first involved in a lengthy negotiation with music labels Sony Music Entertainment (SNE) and Universal Music Group over the fees that it should pay them. Then Apple announced that it’s willing to pay the music right holders 71.5% of the subscription revenue in the United States and 73% internationally. This rate is slightly higher than what other music streaming companies such as Spotify pay.

Then more recently, Apple had to U-turn on its decision not to pay royalties to artists for the first three months of the trial period. Taylor Swift’s Tumblr post raised concerns that it isn’t fair for artists to go unpaid for their music for such a long period.

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The fast growth potential of the music streaming market has attracted Apple

These developments show that despite its stature, Apple stature isn’t finding the music streaming industry easy. Plus, Apple will find it hard to monetize its Apple Music service in emerging markets (EEM). These markets are price-sensitive, and music piracy is rampant.

Apple will certainly need to price its music streaming service much lower abroad than the $9.99 that it will charge in the United States. This is because even established players like Baidu (BIDU) and Tencent in China, and Saavn and Gaana in India (EPI), provide free music access.

However, despite these issues, Apple is still willing to take a plunge into the music streaming market because of this market’s huge growth potential. According to a report from the Recording Industry Association of America, the US music streaming market is growing at a much faster rate than the music downloads market. As the chart above shows, the US streaming market is approaching $2 billion in annual sales. It could overtake the music downloads market soon.

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