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Taylor Swift and Apple are getting back together, and Spotify should be terrified

PHILADELPHIA, PA - JUNE 13:  Taylor Swift performs onstage during The 1989 World Tour on June 13, 2015 at Lincoln Financial Field in Philadelphia, Pennsylvania.  (Photo by Dimitrios Kambouris/Getty Images for TAS)
PHILADELPHIA, PA - JUNE 13: Taylor Swift performs onstage during The 1989 World Tour on June 13, 2015 at Lincoln Financial Field in Philadelphia, Pennsylvania. (Photo by Dimitrios Kambouris/Getty Images for TAS)
Dimitrios Kambouris/Getty Images

Over the weekend, Taylor Swift took on the biggest company in the world — and won — in a battle that ultimately reveals how weak the position of Spotify and other streaming music companies really is as they are squeezed between superstar performers and giant platform companies.

The background is Swift's longstanding opposition to free streaming music services paired with Apple's desire to launch a streaming service of its own. Apple's entry into this market, creatively named Apple Music, doesn't have a ton of features that differentiate it from existing competitors such as Spotify. But it does have two big advantages. One is that it will be included on every iPhone, complete with a three-month trial period. The other is that since, unlike Spotify, it doesn't have an unpaid, ad-supported tier, it doesn't violate the terms of Swift's war on free streaming music.

The combination of default presence on phones and Taylor Swift albums don't add up to a particularly innovative, imaginative, or exciting Spotify killer. But you could imagine it working. Except there was one big problem.

Taylor Swift trashed Apple

Rather than winning Swift over with the lack of a free tier, the specific policies around Apple Music alienated her, and she said 1989 wouldn't be available on Apple Music.

"I’m sure you are aware that Apple Music will be offering a free 3 month trial to anyone who signs up for the service," she blogged on her Tumblr page. "I’m not sure you know that Apple Music will not be paying writers, producers, or artists for those three months. I find it to be shocking, disappointing, and completely unlike this historically progressive and generous company."

Swift claimed not to be acting personally on her own behalf, but rather to be speaking for "the new artist or band that has just released their first single and will not be paid for its success ... the young songwriter who just got his or her first cut."

Apple surrendered to Taylor Swift

Over the weekend, this looked like just another spat between a huge music star and the larger forces shaping the industry. But then a remarkable thing happened. Late Sunday night, Eddy Cue, Apple's senior vice president for internet services, tweeted that Swift was right and Apple would change its policy. Apple Music listeners will get a three-month trial period, but royalties will be paid based on listens by non-paying customers.

Swift pronounced herself pleased.

The real loser is Spotify

Nominally, what happened here is Taylor Swift took on Apple and Apple surrendered. But the real loser is Spotify and other pure-play music streaming services.

The basic issue is that any deal a streaming service can make with artists, Apple can make a better one. If artists want to be on a free service that maximizes audience size, Apple can do that. If artists want to be on a pay-only service that maximizes short-term revenue, Apple can do that. If artists want it to be that songs only play if you're holding your phone in your left hand, Apple can do that too.

What Apple needs out of streaming music is:

  1. Artists that people want to listen to
  2. Revenue that roughly covers operating costs

Put those two together, and Apple has a reason for iPhone users to become slightly more loyal iPhone users and for iPhone users to become slightly more likely to extend their participation in the Apple ecosystem to ownership of a Mac, iPad, or Watch.

By contrast, for Spotify and Rdio to survive as independent companies, they have to find a way to actually make a profit at some point. That's hard. And when you're competing with a company that doesn't really have this need, you have a very serious problem.