Apple Just Changed The Rules Of Telco Music Strategy

Apple today made an announcement that has in an instant turned the tables in the streaming marketplace: it has launched a 6 month Apple Music bundle with mobile carrier EE in the UK. EE is now unique in the western world in having a music offering both for post-pay (Apple Music) and for pre-pay (the MTV Trax Sim). It is a model that other telcos may follow if they want to differentiate for their entire user base.

Most importantly though, Apple Music is thus now available as an iPhone bundle (it is also available to Android users as part of the offer). I have long argued that a device bundle is how Apple can extract maximum value from music (in fact, in 2014 I predicted Apple would eventually launch a music bundle with what was then called Beats Music). Music bundles represented more than a fifth of global music subscribers in 2015 and all of the streaming services are taking telco deals super seriously, not least because they enable them to piggy back on telco marketing budgets that far exceed their own often-measly budgets (there’s not much money left after you’ve paid out 82% of your gross revenue on rights). But Apple does not need the ‘free’ marketing dollars, so just why is it jumping into the telco bundle game?

Apple Just Flicked The Switch On The Next Phase Of Its Content Strategy

Streaming services partner with telcos because phone tariffs are a useful expenditure that has enough margin slack to fund and promote subscriptions. Crucially they also bring consumers into the streaming experience for a year or two at a time. This drives revenue, brand profile and conversions. Although Apple wants all three of those too, that is not why it is now doing a music bundle. (Note that Apple actually launched a bundle with Telstra in Australia in 2015 which was widely understood to be something of a live beta to learn how the model worked from the inside). But by launching a bundle in such a big market as the UK, Apple has gone from beta to ‘live’.

To understand why Apple has decided telco bundles make sense, all we need do is look at the iPhone (and to a lesser degree to the Watch and the iPad). Apple is in the business of music and other content in order to drive its core hardware business. Apple might be gently pivoting towards becoming a services centric organization but that shift will always be firmly within the context of monetizing its installed base of  billion devices. Apple uses music to sell phones, not the other way round. Streaming services use telco bundles to use phones to sell music.

Apple Has Reversed The Polarity Of The Telco Music Bundle

Apple put music centre stage again with Apple Music because it needed to up its content game, not least because since iTunes had stopped being a consumer lock-in…loyal iTunes users were defecting to Android with Spotify as their soundtrack. Now Apple wants to make Apple Music an integral part of the iPhone proposition. The EE bundle is available to Android users too - and will probably be for future telco deals Apple strikes -  but our take is that this is a midterm win-back strategy and that it will eventually switch to iPhone only. Also, this might be a single telco deal right now, but this is exactly how Apple started rolling out the iPhone, striking a series of country-exclusive-telco deals before evolving those into full availability. This is exactly how we expect Apple's music bundling strategy to evolve. Right now streaming bundles work on a territory exclusive basis. Vodafone gets Spotify in the UK so no one else does. MetroPCS gets Napster in the US so no one else does. Traditional telco bundles are telco exclusive but device agnostic. Apple is creating a bundle that will be telco agnostic but device exclusive. It is a massively important distinction because telcos will find themselves simply unable not to stock the iPhone–Apple Music bundle. Which means that any pre-existing telco bundle will suddenly stop being exclusive.

Apple Is Doing Think Different Again

In a stroke, Apple burrows under the fence and builds a palisade within the enemy camp. But if having their entire telco music strategy turned upside down wasn’t bad enough for Spotify and co, this approach also deepens the ties with Apple Music and the iPhone. Apple Music becomes an extension of the iPhone thus giving more Apple users, fewer reasons to use a 3rd party music service. Add its increasingly ambitious originals play into the mix and you have a potent and ambitious strategy that revolves around outfoxing the competition by doing what they quite simply cannot. Streaming music telco strategy has not died, but has just been forced to regenerate. Steve Jobs engrained the ‘think different’ mentality on Apple. It is clear that Tim Cook, for all his parting with the past, retains that ideology. Now everyone else in the streaming market has do their own 'think different' else be left behind.

For more on the global telco music strategy, including lists of deals, regional break downs and total number of bundled subscribers see the MIDiA report: Telco Music Strategy: Ironing Out The Strategic Kinks As Objectives Evolve