Thursday 8 December 2016

Apple to overhaul music service that's not proving to be a key revenue stream

Alex Webb, Lucas Shaw and Adam Satariano

Published 05/05/2016 | 02:30

Year-old Apple Music service to get a new look this summer
Year-old Apple Music service to get a new look this summer

Apple is planning sweeping changes to its year-old music streaming service after the first iteration of the product was met with tepid reviews and several executives brought in to revive the company's music strategy departed.

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Apple is altering the user interface of Apple Music to make it more intuitive to use, according to people familiar with the product who asked not to be identified because the plans aren't public. Apple also plans to better integrate its streaming and download businesses and expand its online radio service, the sources said. The reboot is expected to be unveiled at the company's Worldwide Developers Conference in June. The changes will be accompanied by a marketing blitz to lure more customers to the $10-per-month streaming service. An Apple spokesman declined to comment.

As iTunes sales stagnate and rival Spotify continues to draw in new subscribers, Apple is attempting to reclaim its dominance. It acquired Beats Music two years ago in part to rethink its approach to the music business by blending its technological expertise with the entertainment industry experience of Beats executives such as Jimmy Iovine.

But the combination hasn't yet fulfilled its potential. The deal sparked a rare culture clash within Apple that led to the departure of several key managers and, most important, created a product that many critics say doesn't meet Apple's own lofty standards.

Apple is still struggling to integrate its employees and unite the streaming and downloading businesses into a cohesive music strategy, said the people.

Following a management shakeup, the service's new look is being overseen by content head Robert Kondrk and Nine Inch Nails frontman Trent Reznor. Design chief Jony Ive's team also has provided input, along with Iovine and Eddy Cue, the senior vice president in charge of Internet services.

Apple CEO Tim Cook is banking on services like Apple Music to reignite growth as the company's stock plunges on concerns about slowing iPhone sales. Many analysts argue one of the biggest threats facing Apple's business is an inability to develop strong internet-based tools to go along with its beautifully designed hardware. Other services such as iCloud, Maps, Photos and Siri, also have faced criticism for being inferior to competitors. "When it comes to software, Apple performs with less elegance than it does when it comes to hardware," said Colin Gillis, a New York-based BGC Partners analyst. "Apple Music is underwhelming. They have subscribers because of their platform.

If you have that kind of subscriber base, you should have millions of subscribers."

Apple dominated the transition from physical to digital music. But when Beats was acquired, iTunes was in decline. To Iovine and other Beats executives, the remedy was obvious: the company should downplay iTunes and plough money into the on-demand streaming service that Beats built.

Apple executives agreed with the plan, calling off development of some products in favour of the new streaming service. After the Beats acquisition in 2014, Apple scrapped the international rollout of iTunes Radio just a few hours before an event where it would have been announced. Employees who had been working on the project for more than a year were told it would be rolled into a new streaming service based on Beats.

But once Apple Music was released last June, the response was mixed. Reviewers praised the depth of the catalogue, but criticised its confusing interface. "The app's design is cluttered with too much information and difficult to navigate," wrote CNET.

Apple has been reluctant to promote the service to customers who make purchases a la carte, not wanting to undermine its profitable download business. The download store gives Apple an advantage when artists such as Adele refuse to make new music available through streaming. But that can frustrate customers who spend $10 a month to have unlimited access to Apple's streaming music library. Even with Apple Music, revenue from album and song purchases from the iTunes Store have stayed steady at nearly $3.5bn, according to sources.

That's almost three times the revenue generated from streaming subscriptions.

Iovine, the longtime producer and music industry insider, has become the biggest champion for streaming at Apple, pushing executives such as Cue, who oversees all of Apple's internet services, to invest more. While Iovine holds no official title - he's just "Jimmy" in Cupertino - he's tasked with the music product's success. When Taylor Swift bashed Apple last year for not compensating artists enough for Apple Music, Iovine negotiated a truce. Now, Swift appears in ads for Apple. He also helps organise concerts for Apple and meets with artists to solicit exclusive tracks. He scored rapper Drake's latest album as an exclusive, but fell short with Kanye West's 'Life of Pablo', which went to rival service Tidal owned by Jay Z.

While Iovine's connections make him valuable, they're also a source of friction inside Apple. There were times when they were in the middle of negotiations with an artist's managers and labels while, unbeknownst to them, Iovine was carrying out his own separate discussions, according to sources.

Several current and former staff members said product development has been harmed by a complicated leadership structure. Iovine is Apple Music's top executive, but Kondrk largely runs the day-to-day operations from Apple's offices in LA and Cue provides oversight from Cupertino. Reznor has a strong influence on the look of the app.

Some Beats employees found it hard to cope in the new culture. New product ideas - even in early stages - require a lengthy approval process, which includes sign-off from a vice president like Kondrk. Apple sees the process as a way to maintain quality, but to Beats employees it was bureaucratic.

Some Beats executives left Apple, including former Beats Music Chief Executive Ian Rogers, who departed in August to become luxury giant LVMH SE's group digital officer.

Other departures include product head Ryan Walsh; chief designer Ryan Goodman; vice president for engineering Bobby Gaza and senior visual designer Jackie Ngo.

Even though the terms of the deal provided financial incentives for employees to stay for at least a year, Ngo, Goodman and others left within months. The departed staffers either wouldn't comment or didn't respond to requests for comment. Several longer-term Apple employees also left. Rogers's departure last August was particularly troubling for many on the team. A skateboarder who got his start by building a website for the Beastie Boys, he was seen as being able to strike the balance between artists and engineers. After heading up Beats's entire streaming business, his responsibilities at Apple were reduced to overseeing Beats One radio and editorial content.

Of course, tension in an organisation can be healthy. An Apple executive close to the culture clash said the combustion was intentional, a bid to throw together different people to create something groundbreaking. The results will be on display in June at the developers conference, which will mark the first anniversary of Apple Music. (Bloomberg)

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