Apple (AAPL -3.03%) is adding new users to its music subscription business at an impressive rate, hitting 48 million total subscribers this month. And 40 million of them are paying for the service versus being on a free trial plan.
This is important for Apple as it looks to overtake Spotify (NYSE: SPOT), which had its IPO on April 3. Spotify currently boasts 157 million users, with 71 million of them paying for the service. That's a solid lead, but Spotify will have to grow at a rate equal to or greater than Apple Music if it wants to stay on top.
Apple has some big incentives to grow its Apple Music subscriber base. First, it is under pressure to double its services revenue by 2020. Second, Apple needs more subscribers because it has a growing content lineup that will be released through the Apple Music app. In other words, Apple is going after both Spotify and Netflix (NASDAQ: NFLX).
Apple Music hit 40 million paid subscribers in April. Image source: Apple.
Apple Music Adds 4 Million Paid Subscribers in 2 Months
Apple Music launched on June 30, 2015. Users were invited to try a three-month free membership, after which they could start a $9.99 monthly subscription with the service. The same pricing applies today.
By December 2016, a year and a half later, Apple Music had 20 million paid subscribers. It continued to grow at about that same pace, hitting 27 million paid users in June 2017 and 30 million in September 2017.
However, starting in 2018, Apple Music's growth has suddenly doubled to about 2 million additions each month. Apple Music's 36 million paid subscribers in February mushroomed to 38 million in March and then to 40 million in April.
The sudden surge in subscriber additions came right after Apple bought music-discovery app Shazam in December. Shazam claims its app connects more than 1 billion people worldwide, which provides a large base of potential Apple Music subscribers. Apple also released its first TV show, Planet of the Apps, on the Apple Music app last summer and now has a solid lineup of original content in the works.
Is this enough for Apple Music to overtake Spotify?
Spotify, the world's largest music streaming service, hit 71 million paid subscribers (157 million total) in December. That's about 11 million paying subscribers added in the six months since July 2017 when the company said it had more than 60 million paid subscribers.
Hello 70 million subscribers 👏
— Spotify (@Spotify) January 4, 2018
That means that Spotify fell one million shy of adding 2 million subscribers each month from July to December of 2017. That could be what lit a fire under Apple to step up its game. In addition, Spotify said it expects to reach between 92 million and 96 million paying subscribers this year, according to a filing ahead of its IPO. That means it expects to continue to grow at the same rate or higher.
While there are other competitors in the music subscription business, Spotify is by far the largest. In addition, other players like Amazon Prime Music and SoundCloud don't yet release subscription figures. The closest Amazon came to hinting at its number was in an interview with The Verge when it said it had "tens of millions of active subscribers."
However, Spotify still has no clear path to profitability as it continues to put its primary focus on growth. The company expects to grow revenue by 20% to 30%, to between $4.9 billion and $6.8 billion this year. That's a drop from the 39% revenue growth it saw this past year.
Apple Music is lumped into Apple's services revenue, which saw a healthy 18% year-over-year increase to $8.5 billion last quarter. Apple is still aiming for at least $48 billion in services revenue by 2020 and it's on track to hit that target. As Apple starts to release more original content on its platform, it's sure to get a boost in subscribers that could help it eventually leap over Spotify.
Spotify is also looking for other ways to help it make money, but it doesn't have the same money to throw around on one episode like Apple and Netflix. So instead of trying to produce those shows on its own, Spotify seems to have found a shortcut. On April 11, Spotify announced a $12.99 per month bundle that gives subscribers access to Hulu's video on demand (with ads) and to Spotify Premium. This comes a few months after Spotify launched Spotlight, a platform that adds visual elements to podcasts and other audio experiences.
Spotify still has a comfortable lead over Apple, and it's continuing to grow and work on becoming more of a multimedia company like Apple. However, Spotify isn't profitable and doesn't have Apple's deep pockets. Both services are picking up pace in their growth, but in the future, the quality of TV shows and films on a music app could be what determines the ultimate winner. And Apple seems to be in a better position to take that spot.
