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Apple’s Music Streaming Service Has Ample Growth Potential

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Apple could benefit from Pandora’s limited international presence

Previously in this series, we discussed how Apple (AAPL) could launch its new music streaming service by next week at the Worldwide Developers Conference in San Francisco. We also looked at the stiff competition Apple will face in this market. But in spite of this competition, Apple will have ample opportunities to grow its music streaming service. Apple will quickly expand its service to a number of countries where competition is less.

Pandora (P) is present only in the United States, Australia (EWA), and New Zealand. Spotify, which is present in 59 countries, is continually expanding. It recently entered Canada and has plans to enter Japan (EWJ). However, Apple could make use of its market heft to affect Spotify’s business.

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Apple’s effect on Spotify

According to a May 14 article in Digital Music News, Spotify is facing pressure from music labels such as Sony’s (SNE) Sony Music Entertainment and Universal Music Group to limit the current access of free ad-supported music to its users. The labels are asking that access to this “freemium” be limited to three months for new users and six months for current users.

The lack of negotiation influence is the main reason Spotify continues to have net losses. According to a May 8 report in the Wall Street Journal, Spotify’s net losses more than doubled from 55.9 million euros in 2013 to 162 million euros in 2014. The above chart also shows that Spotify’s revenues increased at a relatively slower pace, from 747 million euros to 1.08 billion euros in the same time frame.

According to a May 6 report from Bloomberg, Apple could have influenced these music labels to take a similar action against Spotify. Such an action is also being scrutinized by the Federal Trade Commission. For more on Apple, you can read Market Realist’s article Apple and IBM Introduce 3 New Apps for Apple Watch.

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