I want to write a series of blogs about Apple Music’s ambitious China launch because it is exceptionally interesting to me. This blog post has some of my initial thoughts, just barely scratching the surface. I’ll come back with more observation and thoughts quite soon. Stay tuned! 🙂
Finance and Strategy (ish)
Apple Music, the most trendy type of service provided by the biggest company on Planet Earth, is coming to the country with the largest population. Isn’t that intriguing?
I just got the news a few days ago on Chinese website, Sina. Apple Music is launching in China, at last, after all the epic fail(s) of pretty much every other streaming music service providers out there. Oh boy, Apple certainly dreams big. Not only that the enforcement of Chinese copyright law is a complete disaster, but also because there are already lots of options for streaming music out there in that land, legal or not. Spotify hasn’t been able to launch in China for years! Have you ever wondered why?
Now, what’s interesting about Apple’s case is that, while Spotify, as a company, struggle to break even, Apple has got tons of cash sitting there doing virtually nothing. Compared to Apple’s value sets that they always talk about (the innovation, radical thinking, and unconventional approach, blah blah blah. You get it), when it comes to finance, it seems that Apple is actually quite conservative. But really now I see why they need the cash for – to fund the project they know that they won’t make any profit.
Let’s take a look at the numbers.The subscription fee for Apple Music in the United States is $9.99 per month, in the United Kingdom is £9.99 ($15.16), in the Euro Zone countries is €9.99 ($11.20)… And guess what they set the price for China? CN¥9.99. What’s that in USD terms? $1.57. One dollar and fifty-seven cents, respectively, for monthly subscription. In my own experience living in China, 9.99 is not even enough for a decent lunch in the city. Now, I guess the first-world folks are all super mad at us.
Great news for the Chinese folks, bad news for Apple. At the end of the day, a dollar and fifty-seven cents per month is never really a business, especially when you are obligated to pay huge amount of royalties, and by that I mean, some serious cash, to songwriters and right holders every quarter. Even if you have a huge user base, like Spotify does, I’m really scratching my head to see how Apple can make Apple Music a profitable business. The only way I can think of is that, maybe those Cupertino folks never expect it to be profitable! One thing for sure, though, is that Apple is DESPERATE to get some good o’ market share for its music service. I mean, let’s be real, Beats Music was a joke after all, and sure everyone at that company was terribly embarrassed. But this time, the game has changed:
1) Apple Music pretty much carries the same kind of variety as iTunes Store, which is insanely attractive.
2) The price is so low to the point that almost everybody in China is able to afford it. There IS value attached to the exceptionally low price, aka major potential gain of market share, and sure this price is well matched to the average earning v.s. purchasing power of the currency in China (won’t even mention the crazy inflation out there).
3) And with the gigantic population count, if everything goes smoothly, Apple can soon become the largest streaming music service on Earth!
But how’s that gonna continue working if you don’t make a profit? Ah ha! That’s when the $203 billion cash on hand becomes handy. If anything happens, Apple can always pay. This is why all the other services failed. They are simply not able to feed themselves with such awfully thin profit margin, not to mention matching people’s different purchasing powers in other territories. I mean, Spotify struggles even when it charges $9.99, which is a price that people in other parts of the world may not even be willing to paid for. Apple, on the other hand, has the financial foundation to fund whatever business and do whatever they want, even if it is, virtually, throwing dollars into the Pacific Ocean.
Sina Tech on Apple Music’s China Launching http://tech.sina.com.cn/mobile/n/n/2015-09-30/doc-ifxifmki9632675.shtml
CNN on Apple Music’s China Launching http://money.cnn.com/2015/09/30/technology/apple-music-china
CNN on Apple’s cash on hand http://money.cnn.com/2015/07/22/investing/apple-stock-cash-earnings/