Apple Music has one big weakness in its fight against Spotify
APJimmy IovineApple Music's big problem is that its new subscribers just don't stick around, according to new research by Cowen.
Though Apple Music still lags behind Spotify's 30 million paying subscribers, it has recently picked up some growth momentum and is sitting at 15 million paid users. But its issue might not but picking up new subscribers, but rather keeping them.
In a note last week, Cowen's John Blackledge and Tim Arcuri wrote that Apple Music's subscriber churn rate of 6.4% per month is almost three times that of Spotify. That means that even though Cowen's survey suggests that Apple Music will add nearly as many paid subscribers as Spotify in the next year, roughly three-quarters of those could quit the service, the analysts write.
This could be one reason Apple might be sniffing around an acquisition of Jay Z's Tidal music streaming service. Tidal has relatively small user base of three million, but has secured a series of high-profile exclusive releases because of Jay Z's personal relationships, and the equity some artists have in the company. Apple has gotten its own exclusive windows on album releases, such as with Drake, but the combined force of Jay Z and Apple's current dealmaker, legendary music exec Jimmy Iovine, could give them a more comprehensive slate.
For "exclusives" to stop people from canceling their Apple Music subscriptions, they have to feel like there isn't significant downtime between one and the other, that there is a steady stream of releases they don't want to miss. Apple Music is not there yet, but it could be a potent weapon against Spotify if it were to team up with Tidal.
The analysts also note that Apple Music is just now entering its second year of operation, and that new subscription businesses generally experience higher churn rates. That said, having almost three times the cancellation rate of your biggest competitor might say something about the value people think they actually get from the service.