With the announcement of Apple’s acquisition of Beats Electronics now in our rearview mirror, many are trying to figure out what exactly the company bought with its $2.6 billion. Some have speculated that it could be the premium headphones or the potential of the streaming-music service that attracted Apple to Beats, but during the Code Conference last week, CEO Tim Cook confirmed that the unique talents of the company leaders were also a major factor in acquiring the firm.
The skills of Beats CEO Jimmy Iovine and co-founder Dr. Dre are legendary in recorded music. But this is a watershed moment for digital music. Apple might have hired talent from the music industry, but it hadn’t put someone of Iovine’s caliber in a leadership position. Nor has anyone in digital music, for that matter. The operating mode has always been technologists first, music second, with extremely mixed results.
Let’s face it: Most technology companies consider creative content an asset to exploit. Sure, the music business is a business at its core, but those from the industry would never treat music as a means to gather audience, like it seems their streaming brethren do. And although Eddy Cue says there has been no reset since the end of the Jobsian Era, hiring two guys with resumes like Iovine and Dre sure seems like the beginning of a new Apple.
None of the streaming-music companies have a leader who built one of the most dominant labels in the past 20 years, like Iovine did. Nor do they have someone who invented a new music genre, developed the talent, and then blew it up for a commercial audience, like Dre did. That’s a massive difference between Apple and Spotify, Google, Amazon and any other tech company dipping their toe into music.
So we know about their impressive resumes, but what will the new talent actually do at Apple? It’s no secret that streaming services in their current form are stuck in the mud, with only a fraction of music customers subscribing to one of the current offerings. It’s high time for a new approach to the current business model, price points and offerings.
Technologists have infamously clashed with execs in the music industry about, well, everything. And while music execs might have the same saber-rattling with Iovine and Dre, they also have a working relationship built up over decades. Iovine also understands music culture and customer desire, something in short supply at both digital firms and labels. Perhaps he will be as equally unsuccessful in talking sense, but he represents the best chance at changing the model, having sat on the other side of the table for decades.
How will Apple function differently? Let’s use iTunes Radio as an example. The product was envisioned as a stopgap. Instead of trying to build a compelling offering that would get customers to switch from Pandora, iTunes Radio was primarily designed to help boost sales of tracks. I’m assuming that the people at Apple are smart, and knew that customer demand of track sales was going into the toilet, especially when attached to a streaming product. So they balanced that desire with the fact that both Apple and the labels had to protect track sales.
Based on his track record, Iovine will not be hedging any bets, nor will he build a generic music product that is limited by the current deal terms mandated by the labels. He’s an all-in kind of a guy who is not known for making compromises.
Beyond the gravitas of Iovine and Dre, there’s another talent coming on board in Beats Music CEO Ian Rogers, a talented digital marketer who has spent a great deal of his career figuring out how to exploit new media channels to build revenue streams for artists.
Rogers understands technology and how it can be used to help artists market to fans. From his days building the Beastie Boys’ website to his time as CEO of Topspin, he has been on the leading edge of new ways to communicate directly with fans. And there has never been a better potential platform for artists and fans to connect than streaming services.
He represents Generation Next of digital-music execs, those who understand the life cycle of artists, marketing, customer demand, and the technology that powers all these. Rogers has built a vastly different streaming service from anyone else in the space, one that has a more balanced approach between those disciplines.
Rogers will reportedly continue to run Beats Music as a standalone business that will complement iTunes revenue. I’m assuming that he’ll get premium iTunes Store placement and access to the 800 million iTunes accounts — most with credit cards on file — which means a click of a button will allow a customer to easily sign up for the service, something all streaming services crave. And Apple is sort of a homecoming for Rogers, who famously sports a tattoo of the NeXt logo, which he got back in college when he used the computer to stream music.
Despite this talent infusion at Apple, streaming music still remains a tough business. In its current form, the product is too expensive. A huge catalog of music can cause more customer problems than it solves. Customer-acquisition costs are astronomical. And churn, the rate at which customers quit a service, is the bomb under the table that threatens the model.
It’s far from certain that the new guard will succeed where others have been stymied by awful deals, customer apathy and technical hurdles. But in this new world, where the content experts and technologists must partner to succeed, turning over the keys to three disruptive forces of nature gives digital music a fighting chance.
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