If Apple wants to sell services, Apple can be very good at selling services.
That should be, but isn’t, the headline for today’s Wall Street Journal article, which is technically about Apple surpassing Spotify in the race to acquire US subscribers for their respective music services. For the record, the Journal’s sources think Apple Music has 28 million paid US subscribers and that Spotify has 26 million.
But the real story is buried several paragraphs in, where the Journal says the quiet part out loud: If Apple can sell a lot of music subscriptions — after starting years after Spotify entered the market — by using offering free trials to its huge installed base, imagine what it can do when it starts selling other subscriptions.
The growth of Apple Music is one of the strongest validations yet of Apple’s strategy to increase revenue by selling services across its devices — a shift after decades of focusing on hardware sales. Last week, the technology company announced new subscription offerings for magazines, TV shows and videogames.
Or, if you don’t trust the Journal, maybe you’d like to hear it from Oprah Winfrey, onstage at Apple’s services launch in March:
There are two different audiences for this argument. Apple is aiming part of this messaging at investors, who are trying to figure out how much money Apple can make by selling things like its gaming service, its news service, and whatever its video service is going to be.
The other group is the people and companies Apple needs to partner with to make these services work, by supplying content and support for said services.
Whether it works or not seems to depend on the audience.
Magazine publishers for instance, seem happy to let Apple sell a bundle of their titles for $10 a month, and then divide up half of that fee among themselves. The theory is that the magazines have been unable to sell many digital subscriptions on their own, and that Apple could convert many millions of customers into subscribers, and that owning a small piece of a very big pie could be meaningful.
Some back-of-the-laptop math I’ve been doing can illustrate the best-case scenario: Say Apple is able to find 10 million subscribers for Apple News Plus — around 20 percent of the paying audience it has signed up for Apple Music. After Apple took its cut, participating publishers would have $600 million in annual revenue to share among themselves.
For context: Time Inc., which used to be the biggest magazine publisher in the US, probably generated around $800 million in subscription revenue in 2017. “A few hundred million dollars of incremental revenue for the publishers, if it scales, is worth the cannibalization risk,” says an industry executive who’s bullish on Apple’s plan and not very worried about people trading individual magazine subscriptions for Apple’s bundle.*
On the other hand: The New York Times and the Washington Post are unswayed, for now, by Apple’s argument and are not participating.* You can see their logic: They are building meaningful digital subscription businesses on their own — the New York Times now has 3 million digital-only subscribers — and they’d rather keep all (or nearly all) of the money those subscriptions generate. (The papers have other reasons to sit out, too, including a reluctance to let Apple come between them and their customers.)
You can see this playing out in other industries, too: Some very big, very successful video services, like HBO, Showtime, and Starz, are willing to let Apple sell subscriptions to their services directly to consumers. But Netflix, whose 139 million paying subscriber total is bigger than all three of those rivals combined, has no intention of participating in Apple’s bundle. “Apple’s a great company. We want to have people watch our shows on our services,” Netflix CEO Reed Hastings said in March.
A totally separate question is whether Apple should be able to use its size to push out its own services, at the possible expense of rivals like Spotify and Netflix. Spotify doesn’t think so and has filed an antitrust complaint with European regulators. In the US, presidential candidate Elizabeth Warren says she would stop Apple from running a store and selling its own services. But for now, doing both things is the core of Apple’s strategy.
* Vox.com, which like this site is owned by Vox Media, is selling some of its content via Apple News Plus.
This article originally appeared on Recode.net.