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Apple’s streaming-music maestros

Apple is preparing to give Spotify its first real competition

By Dan Frommer

Apple has seen its digital music sales fall as free or cheap streaming competition grows, ranging from YouTube—which is testing a new streaming service—to Spotify, which now has more than 60 million active users and 15 million premium subscribers.

Now Apple finally seems to be preparing to fend off disruption. Building on its $3 billion acquisition of Beats last year, it is “actively working to launch a completely new paid streaming music service,” 9to5Mac’s well-sourced Mark Gurman reports. This echoes previous reports, such as last November’s by the FT, that Apple could be building a new streaming service into its platforms.

As Gurman details:

Rather than merely installing the existing Beats Music app onto iPhones, Apple has decided to deeply integrate Beats into iOS, iTunes, and the Apple TV. The company is currently developing new Beats-infused versions of the Music application for the iPad, iPhone, and iPod touch, as well as an updated iTunes application for computers that deeply integrates Beats functionality. A new Apple TV application is also in the works.

Spotify, which has built a strong community around its social music features, has been fine in weathering competition from Rhapsody, Rdio, and Beats Music itself, none of which have gained massive adoption. But Apple has a huge distribution advantage and is reportedly interested in competing on price—Gurman says Apple may charge $8 per month for its service, or 20% less than Spotify—which could quickly make it Spotify’s no. 1 competitor. (Apple declined to comment.)

Either way, a serious entry by Apple could come as the streaming music market is projected to explode. Credit Suisse forecast last year that global streaming-music subscriptions would rise from less than 20 million to almost 150 million by 2025. Streaming revenue is also expected to overtake digital and physical music sales within the next couple of years, and—the optimist’s case—may even drive industry growth again.

The key question is whether Apple can deliver. The company has broadly struggled with many of its cloud-based and social services over the years. Its iTunes Radio product has not put any major dents in Pandora. iTunes Match, another music service, is misunderstood at best. Gurman also reports “internal problems” that may have already delayed the Beats-iTunes integration.

But it would be risky to underestimate Apple here. The company sold more than 280 million iPhones, iPads, iPods, and Macs last year. If Apple can smoothly integrate streaming music into its operating systems, and make paying for a premium subscription as easy as scanning your thumbprint, it could easily be a winner.