Apple’s New Adventure In The Post-iTunes Era

Apple’s New Adventure In The Post-iTunes Era
Pexels / Pixabay

Apple’s announcement that it’s shutting down iTunes marks the end of remarkable run — lest we forget just how influential and successful the streaming giant was in its heyday. With the announcement of Apple TV Plus, Apple signals the start of a new era, as it will formally enter the video streaming war later this year. However, the service remains shrouded in mystery.

This is in stark contrast to Disney’s announcement of its own streaming service, Disney Plus, where the price, release date, and even trailers for its exclusive content were released. With its announcement, Disney intent was clear, playing its impressive hand on the table for everyone to see.

Get The Full Seth Klarman Series in PDF

Get the entire 10-part series on Seth Klarman in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues.

Q2 hedge fund letters, conference, scoops etc

According To Jim Chanos, This Is The Biggest Story No One Is Talking About

Jim ChanosWhen a liquidity crisis struck China's Evergrande Group in the summer of 2021, it shook the global markets. Debt payments by China's second-largest property developer by sales were estimated in the hundreds of billions of dollars, and the company missed several payments. Those missed payments led to downgrades by international ratings agencies, but the Chinese Read More

Apple has chosen to keep its cards to its chest, perhaps waiting to see public response to Disney Plus.

In 2001, Apple similarly found itself on the precipice of a bold new industry with the launch of iTunes. A bold innovative strategy formed the foundation of iTunes’ success in the music industry, propelling it to sustained dominance over the past two decades. While the video streaming world is different than the music industry in the early 2000s, there are many things Apple can learn from its success with iTunes.

Setting Sail for the Music Revolution

The fact that it’s over for iTunes shouldn’t discount the monumental piece of technology that iTunes was in its time. In fact, the trajectory of iTunes is a goldmine of knowledge that can be passed on to its technological descendents.

At the turn of the 21st century, music labels found themselves barely afloat, tied to an outdated anchor slowly dragging them into the depths of irrelevance. The rise of peer to peer (P2P) music pirating sites such as Limewire and Napster exposed the costliness of physical music albums – many as high as $15.99. By choosing the comparatively poor audio of pirating sites, consumers showed that they were willing to forgo quality for affordability.

Record companies, wary of lowering the prices of albums, struggled to deal with the music crisis. Luckily for them, Apple CEO Steve Jobs saw things differently: “We are in a music revolution.”

“We believe that 80 percent of the people stealing stuff don't want to be; there's just no legal alternative.” Jobs claimed in an interview with Esquire in 2003, “So we said, Let's create a legal alternative to this. Everybody wins. Music companies win. The artists win. Apple wins. And the user wins because he gets a better service and doesn't have to be a thief.”

Meeting at this intersection of unsatisfied consumers and struggling record labels, Apple’s strategy centered around making the music industry more affordable and accessible while retaining high quality.

Before anything, Jobs first had to secure contracts with the major record labels. If iTunes was to be successful, it was going to need top of the line audio to differentiate from free pirated music, which often had poor, ripped audio. Fortunately, the Apple CEO was the man for the job: He successfully got Universal, EMI, Warner, Sony, and BMG – the top five record labels at the time – to sign off on the ambitious project.

With price being perhaps the most important quality to consumers, the cost of each song had to be taken into account. Again, Jobs played a tremendous role in the standardization of iTunes’ now iconic 99 cents per song, successfully arguing with music execs who wanted songs to be priced starting at $3. Jobs gambled on the fact that consumers didn’t want to pirate music, but were forced to do so by the high cost of the music industry. As we soon found out, he was right.

iTunes also allowed for greater accessibility than other options at the time. At the time, consumers could obtain their music in two distinct ways: 1) by driving to a record store and purchasing the physical album; or 2) by simply clicking download on their desired P2P pirating application and waiting the allotted time. Between the two options, it’s easy to see why pirating music became so prominent. Again, by banking on the fact that most users don’t actually want to break the law, Apple designed iTunes to take advantage of the easy accessibility of pirating sites.

We all know how this story ends: One million songs sold on iTunes within the first week of its release. Later in 2003, the release of iTunes for Windows unlocked the true potential of iTunes and at its peak, iTunes would control over two-thirds of all global music purchases. Much of this success is thanks to being able to provide a cheap, high-quality, and easily accessible product for customers disappointed by the music industry.

Entering the Streaming Battleground

The world that Apple TV Plus enters is vastly different. The video streaming revolution has already occurred, with services such as Netflix and Hulu leading the way. In an already crowded market about to get more crowded, what can Apple TV Plus learn from it’s older and much more successful predecessor?

First, Apple TV Plus can make sure to provide high quality content to its users. This is perhaps even more critical than it was for iTunes, as the competition it will face is fierce. A recent trend amongst streaming services has been their entrance into premium content creation, as both Netflix and Hulu have recently won Academy and Emmy Awards. Therefore it is important for Apple TV Plus to provide quality programming from the beginning.

With confirmed content from stars like Steve Carell, Jennifer Garner, and (of course) Oprah, Apple should have the fire power to compete with other streaming services immediately. What remains unclear, however, is how (or even if) Apple will choose to supplement its original content with licensed movies and series.

Licensed shows are essential to compete with the streaming giants, but with Netflix being so far ahead of the rest in terms of subscribers, it may be best to compete with premium content providers like HBO and Showtime – at least in the short-term. With a well-deserved reputation for quality, HBO is able to charge $15 monthly for its service. Assuming the price is right, Apple could begin to take subscribers from the start.

Price remains the most essential element in Apple TV Plus, just as it did in the days of iTunes. Whereas for iTunes, the price had to be low enough for users to stop stealing music, with Apple TV Plus the price has to be low enough to get users to stop using rival applications.

Disney recently shocked the world by announcing that its streaming service would start priced at a mere $6.99 per month. In order to now compete with Disney – who might be overestimating the power of its content – Apple needs to set a revolutionary price, as it did with iTunes. In fact, some have speculated that Apple TV Plus will unveil itself in the impossible-to-beat price: completely free. It’s unclear how Apple TV Plus would monetize itself in this scenario.

Lastly, accessibility remains a major factor. iTunes rose to its extreme prominence largely due to its ease of access for its users. Of course, we live in a much more digital world than the early 2000s. Because of this, Apple will have to get creative in user accessibility.

Apple is addressing accessibility in a few unique ways. First, Apple announced that it would be launching in over 100 countries, expanding the scope of its service and removing the need to use a virtual private network (VPN) overseas. Furthermore, Apple announced that there would be no ads before any of the content. While allowing for ads allows companies like Hulu to keep the cost of its service down, it tends to frustrate the user. How Apple could make money from no ads and no subscription fees remains to be seen.

However, Apple may be making a mistake when it comes to compatibility. Critically, Apple TV Plus may not initially function with Android or Microsoft devices, which obviously make up a large part of the market. Taking a look back at iTunes, it only truly became a juggernaut when it became compatible with Microsoft. Perhaps this was a simple case of oversight in the announcement, but it could put Apple TV Plus in an early hole against more compatible services.

As traditional cable continues its slow decline, we’ll likely see more major telecom companies joining the world of video streaming content. Apple has a lengthy track record of delivering high-end quality. But in this hypercompetitive world of video streaming, it might take all of Apple’s innovative juices to compete.

By Javier Brugues, Director of Business Development, Media & Communications US West Coast, 

No posts to display