What’s Next for Apple Music?

Apple’s relationship with music tells a story of a role reversal. In the 2000s, music powered Apple's comeback through the iPod and iTunes, driving the company's market cap from $7 billion to $70 billion between 2001 and 2006. While Apple printed money, the recorded music industry suffered, with revenues dropping from $24 billion to $19 billion in the same period. Steve Jobs positioned Apple to sell the picks and shovels while the music industry chased its diminishing gold.

Fast forward to 2024, and the script has flipped. Recorded music is now more valuable than ever. But Universal Music Group’s CFO Boyd Muir revealed that Apple Music’s subscriber growth had slowed down. Music’s role at Apple has shifted from MVP status to a valuable veteran. It went from Miami Heat era LeBron James to Shane Battier: still an important position, but very different.

With over 100 million subscribers, an estimated $9 billion annually in revenue, and roughly 15% of the global music streaming market, Apple Music remains significant. But Tim Cook has been clear that Apple’s “not doing it for the money” with Apple Music—and the data supports that. iPhone users who subscribe to Apple Music have a higher customer lifetime value, and lower churn in iPhone upgrades, and their habits can inform features for Watch and other hardware products. It’s tough to prove causation or correlation on those findings, but those benefits are why Apple is in the business of streaming music.

But there are a few threats to that position. The first is the potential continuation of Apple Music’s growth slowdown in subscriptions. If the trajectory continues, it could lead to a decline in subscribers. Would Apple ever consider adding a cheaper ad-supported tier? Would Spotify’s new superfan tier work also work for Apple Music? A shift in the business model may be needed to continue growth.

The other threat is AI. What if generative AI can replicate some of Apple Music’s ecosystem benefits more efficiently? Personalized user experiences, behavioral insights, and user stickiness are all benefits that Apple Music offers that AI might be able to offer in the future. The ideal scenario is for AI to augment, not replace, the benefits of a music streaming service. But everything comes at a cost.

For the music industry, Apple Music is too big to fail. Its subscriber base is particularly valuable due to its higher willingness to pay. It’s a core piece of the music industry’s goal to keep raising prices. But music streaming service isn’t too big to fail for Apple.

The key question isn't whether Apple Music will maintain its current position, at least not yet. But how it will adapt to serve both Apple's ecosystem and the music industry's needs when subscriber growth is on the decline and AI-driven enhancements are on the rise?

This evolution has implications beyond Apple. It applies to other tech giants where music plays a similar role, and subscriber growth may also have slowed down. The decisions these companies make can have lasting impacts on the media and entertainment businesses.