Apple Isn't Changing Music Streaming—Record Labels Are

Last week I started writing a post about Apple's new streaming service, which will likely debut in June. I was convinced their product would be the clear winner in the music streaming game—but now I'm not so sure.

Let's set the scene.

Apple transformed the music industry with iTunes. As financial analyst Toni Sacconaghi told the New York Times, "They’re used to being a shaper rather than a responder." Because the company dominated digital downloads, it held the trump card in negotiations with record labels and other industry stakeholders. Its impact on sales was profound (and not universally positive): in 2000, Americans bought 943 million CD albums. In 2007, they bought 819 million digital singles and only 500 million CDs. iTunes made a powerful and permanent dent in physical music sales.

Then Apple spent too long resting on its laurels.

While they were relying on an increasingly outdated music model, Spotify snagged 60 million active users. Pandora and iHeart Radio took first and second place for music streaming market penetration. Apple's iTunes Radio gets points for brand awareness, sure, but it's a virtual copy of Pandora (ads and all). The streaming landscape has been getting more and more crowded. Apple's acquisition of Beats last year muddied the waters even further.

When we finally started getting juicy details about Apple's new service, though, I was sold. The product, which will be released on iOS and Android, will blend components of Beats with Apple's features and aesthetic. The kicker was its rumored price tag: at $7.99, this offering would have been $2 below the $9.99 standard set by Spotify, Rdio, Pandora, and others. It's a small discount, but with streaming's plethora of very similar services, I think it would have sealed the deal for the Cupertino fruit company.

That all changed, though, when the record labels got involved. They put the kibosh on the new price—and, perhaps for the first time, Apple couldn't fight back. The company lost some of its power within the industry, and now Apple needs the labels as much as the labels need Apple. It needs more exclusive releases like Beyoncé's surprise album drop in 2013. According to the New York Times, Jimmy Iovine is using his sway to make headway, and it certainly helps that the subscription service won't have a free tier like Spotify's. But it remains to be seen whether Apple can shift the balance of power back in its favor.

For now, record labels have levelled the playing field. For services like iTunes and Spotify, robust catalogs are crucial—and that's where labels can exert their influence. While many are quick to call them a dying breed, their dealings with Apple prove this is anything but true. After all, they still have a seat at the table.