Apple Music Edges Spotify for Paid U.S. Subscribers

Apple Music has, for the first time, passed world leader Spotify in terms of paid U.S. subscribers.

The result is a new watermark in the growth run of two of music streaming’s biggest rivals. It also lifts Apple’s new services strategy designed to offset slowing hardware sales.

In January, Apple CEO Tim Cook told investors the company will be a “leading digital services provider.” Apple’s services pulled in a record $10.9 billion in latest fiscal quarter.

While Apple doesn’t reveal its subscriber numbers, industry sources now put Apple Music’s paid U.S. subscriber base at 28 million. Spotify has 26 million in the U.S. Spotify still has more subscribers worldwide than Apple Music at 207 million users.

Market analysts, some who coined Spotify “the next Netflix,” are watching for it’s next move, cautioning that the world’s leading music-streaming service needs to eventually, if not sooner, step up its competitive game.

In the Growth Years, Cash is King

On the heels of massive music-industry change, Spotify has of yet to yield a steady profit. Seasoned analysts and investors are less concerned about this and more about how the company grows cash flow from the nascent music-streaming segment.

One hitch in every streaming-service profit plan, they say, is the high cost of goods sold, making this less straightforward. Music content is more expensive. Last year’s royalites movement, while good for music creators, brings challenges for the services.

For Spotify, growth means more revenue to buy leverage. Case in point: Spotify announced that it purchased two podcast companies, Gimlet Media and Anchor, with plans to spend as much as $500 million on podcast acquisitions in 2019.

“There is a massive opportunity here for audio to evolve into more personalized, more immersive experience, much like how the video industry has evolved,” Chief Executive Daniel Ek said.

Related story: Spotify Acquires Podcasters Gimlet and Anchor

“We believe that over time more than 20% of all listening on Spotify will be non-music content and we strongly believe that this opportunity in audio starts with podcasts,” he said.

If this sounds familiar, think about Netflix and how its original-content strategy is now tickling investors. It just added 9.6 million new subscribers, a 16% acceleration one year over.

Table: Apple Music-Spotify Comparison (Q4 2018)

Apple MusicSpotify
Founded: 2015Founded: 2006
Public offering: 1980 (Apple Corp.)Public offering: 2018
U.S. paid subscriptions: 28 millionU.S. paid subscriptions: 26 million
Worldwide paid subscriptions: 50 millionWorldwide paid subscriptions: 96 million
Earnings to date: $10 billion (Services)Earnings to date: $1.7 billion

Spotify Acquisitons: What to Know

As market forces intensify, Spotify is making strategic acquisitions. The most recent tell a story of both a business and market evolving:

2019

  • Podcast network — Parcast
  • Podcast app — Anchor
  • Podcast network — Gimlet Media

2018

  • Music licensing platform — Loudr

2017

  • Online music studio services — Soundtrap
  • AI-based machine learning — Niland
  • Blockchain royalties payment — Mediachain
  • Content recommendation — MightyTV
  • Audio feature detection — Sonalytic