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How an Apple-Branded Headphone Could Impact Its Services Business

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Doubling services revenues by 2020

Apple’s (AAPL) high-end headphone, which is in development, could come with noise-canceling and wireless pairing capabilities to enhance its appeal and justify its premium price. The new Apple headphone could launch as early as this year.

With a new headphone, Apple appears to be focused on stimulating growth in its Services division in contrast to driving accessories sales. Apple aims to double its 2016 services revenue by 2020. 

The company generated $24.0 billion in services revenues in 2016. Apple’s services revenues increased to $30.0 billion in 2017, which leaves it with an $18.0 billion gap to hit its target of $48.0 billion in services revenues by 2020.

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Growing Apple Music subscriptions

A new headphone is expected to give Apple customers more options to listen to music, which could drive Apple Music’s consumption and subscription. Apple Music is a component of Apple’s Services division, and subscriptions start at $10 per month for an individual account.

There were 38 million paying Apple Music subscribers at the end of March. Spotify (SPOT), Apple’s main rival in the streaming music market, closed fiscal 2017 with 71.0 million paying subscribers. Pandora (P) has slightly more than 5.0 million paying listeners.

Streaming music market heating up

Globally, the streaming music market is heating up with competition. Amazon (AMZN) launched its music service in India in February, and Tencent (TCEHY) helped raise $115.0 million for Gaana, an India-based streaming music service. 

Although Apple Music launched in India in July 2015, Amazon is entering India’s streaming music market. Amazon’s impressive music catalog is backed by major labels such as Sony Music (SNE) and Warner Music Group.

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