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Apple Inc. Fights Pandora and Amazon With Apple Music Discount

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Pandora Media Inc (NYSE: P ) is working on new on-demand streaming music plans, including a $5 monthly option. Amazon.com, Inc. (NASDAQ: AMZN ) is eyeing a $5 plan, too. To prepare for the coming battle for streaming music subscribers, Apple Inc. (NASDAQ: AAPL ) is now offering a $99 Apple Music gift card that effectively drops its price to $8.25 monthly.

Streaming Music Market Is Big, Growing and Worth Fighting For

Apple Music gift card

Until recently, that is.

We haven't heard a whole lot about streaming music services lately. After the initial fuss when Apple Inc. launched Apple Music, all the players have pretty much had their heads down, trying to grow their subscriber bases. There have been occasional spikes of interest over service-exclusive releases, but the market has been relatively devoid of drama.

A few weeks ago, rumors started to surface that Amazon was planning a new streaming music service to take on Apple Music. The intriguing part of this was a report that AMZN was looking to offer a much cheaper service - half the price of the typical $9.99 monthly streaming subscription - that would work only on its Echo smart home speakers.

Next, internet radio pioneer Pandora Media also shook things up with an apparent move toward on-demand streaming. Also, Pandora announced a $5 plan that's clearly designed to attract price-conscious consumers.

The Wall Street Journal reports that Pandora is near to signing deals with record labels that would allow it to stream music on-demand for the first time , competing directly with Apple Music, Spotify and other streaming services. In addition, Pandora's $5 ad-free service would gain the ability to skip songs (not quite streaming on demand, but better than typical internet radio) and listen to music offline.

Pandora is hoping this improved $5 service will kick-start its current 4 million paid subscribers, while the $10 monthly service would convince a chunk of its 80 million free listeners to make the move to on-demand streaming. Of course, it will be hoping to steal subscribers away from other services as well, including Apple Music.

The various streaming music services currently have around 50 million paying subscribers between them, and some industry insiders are projecting that could grow to as much as 500 million by 2019 . So a lot is at stake here.

Apple Music Going Strong, Time for a Boost

Apple Music has been much more successful than many predictions. A few months ago, it passed the 15 million paid subscriber mark . Spotify still is the leader with 30 million paid subscribers, but Apple's service has the momentum.

Apple Inc. naturally wants to keep that strong growth. So as part of its new Mac and iOS operating systems, Apple Music is getting a significant redesign. The new-look software is meant to be more user-friendly and also includes improved personalization of the listening experience.

Now, Apple is also tackling the $5 price that Amazon and Pandora are expected to wave at consumers. AAPL isn't slashing the current $9.99 Apple Music monthly fee. Instead, it's taking a more nuanced approach: It's now offering a $99 Apple Music gift card . Using the card effectively cuts the monthly fee for Apple Music to $8.25, which is a significant savings. Not quite $5, but for just a few dollars more (which is easier to sell than "double the $5 fee") you get a full streaming on-demand experience with no hardware restrictions. In other words, superior to the $5 services Amazon and Pandora are planning to roll out.

Better yet - at least from Apple's perspective - by making this discount applicable only through the gift card, it guarantees a full year of revenue from the buyer. Monthly subscription plans can be dropped on a whim and switched for a competitors. Apple's solution does cut consumers a break, but in return it locks them into Apple Music for the year.

That means it's much less likely they'll also fork over the $5 to try out Pandora. Which gives AAPL another full year to grow the Apple Music colossus and focus on catching Spotify instead of being distracted putting out fires from discount competitors.

As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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