Tidal wave: Why Apple should (or shouldn't) get deeper into the music biz

I started getting texts about Apple talking to Tidal sometime around midnight last night. Now, that's partly because I've long followed the streaming wars — and partly because everyone's response was something along the lines of, "huh?"

My colleague John Abell and I felt the same, albeit for different reasons. He doesn't see the move as a good fit — he considers an Apple-owned Tidal to be as out of left field as, say, an Apple-owned Beats. For me, I see how the alignment makes sense, but if I were controlling the company’s purse strings, it still wouldn't be my go-to choice.

John and I, as we so often do, got to debating the issue.

Word of this was first reported by the Wall Street Journal, whose anonymous sources said the talks may result in no deal. And neither company has said a word about it.

But it's an intriguing possibility, and — depending on how you look at it — brilliant or lame.

First, John's case:

JA: Some inconvenient truths:

• There's no money to be made in the streaming music business. Nada. Zero. There's simply no way to pay a hefty tax to labels, compensate artists and have enough left over to write home about.
• The material impact to Apple of Beats + Tidal would remain zero, still banished to the nebulous world of "other" along with cables and Apple Watch.

Apple's streaming competitors (chiefly Spotify and Pandora) will whine some more about Apple's big-footing. They should be thanking Apple for delaying their inevitable demise.

Why? Because Apple is subsidizing an unsustainable business instead of playing a burn-the-forest card it alone holds.

Apple should withdraw, let Spotify own everything and tap its fingers together menacingly as it waits for streamers to go out of business by losing pennies on every dollar they take in. Then, in five years or so, Apple has great leverage with now desperate labels. That's iTunes 2.0.

I gather you don't agree, Katie?

KC: I agree and I disagree. Yes, streaming is not in-and-of-itself a money-making enterprise — a reality that every player in the game knows too well. Even Apple gets that: as Quartz noted, “The platform has been experimenting with much more than audio itself. It’s partnering with artists, sponsoring their careers, and signing deals all over the place for exclusive content.” Spotify’s Daniel Ek made similar comments about his platform on stage at Cannes a couple weeks ago. If there’s money to be made in this field, it’s in the ecosystem built around music streaming.

And yes, I don’t think Apple has any illusions that they can make up for slowing iPhone sales with a new Drake exclusive. (And, as Mark Mulligan said, if Apple buys Tidal for its roughly $440M value, that’s 23 Drake exclusives.)

However.

• Apple clearly wants to play the same foundational role in the streaming world that it did when it introduced iTunes. There is at least some element of its emphasis on Apple Music that is, in my opinion, about both brand perception and pride. In that sense, the Beats and Tidal acquisitions fit perfectly: they capture similar audiences and they’re loaded with star power.
• Speaking of star power: This is Tidal’s most attractive selling point. Exclusives are a big game right now and one of the biggest differentiators between services. Tidal, thanks to its celeb-heavy ‘ownership’, has scored exclusives from Beyoncé, Kanye, Rihanna, Jay Z (duh), and others — and there are 19 A-list musicians with a stake in the company. Apple Music has been playing the exclusive game as well, and very successfully: Drake’s album, for example, sold over a million albums on iTunes in five days, while simultaneously being only streamable on Apple Music. If you consider what a win Beyoncé’s “Lemonade” was for iTunes, imagine what could have happened if that exclusive stream was on Apple Music instead of Tidal.

That said, while I understand Apple’s interest in Tidal, I think on its own it’s not that important of a move. Tidal is small potatoes in the scheme of things. What’s most interesting to me is that it starts the consolidation of music services — which brings me to the second point where I disagree with you, John. :)

Streaming services are going to get snatched up. Apple would be crazy to wait for its competitors to crash and burn, because that won’t happen — Google or Amazon or Facebook will get to them first. As Daniel Ek also said at Cannes, “We're in the space where there's more than a billion people around the world who care about music. That means all of the big guys will care about it in one shape or form." I would expect Pandora and Spotify to get grabbed by someone sooner rather than later, and Tidal would have too — Apple is just beating others to the punch.

JA: I see — build on that fabulous U2 marketing bonanza :)

Let Google and Facebook and Amazon fight over the scraps. 100% of nothing is still nothing, unless music is such a differentiator that this loss leader brings new customers to what you really want to sell. Will music sell more Android devices or get Facebook more members or improve Amazon Prime Music to the point that retail revenues surge? I don't think so.  

It's also a cultural fit. Apple may see itself as burnishing the brand by cozying up to rock stars, but that isn't its brand. And focussing on non-material businesses like this highlights an obvious question Apple would rather not discuss: Does Apple think they will become material — which says horrible thing about what the iPhone company thinks of its core prospects?  

But the bigger picture you draw is of Apple as (more of) a media player. If that's the idea, go all in and buy Pandora. Or think even more different: Buy or become a label and license to other streamers to keep the lion's share of the money that is made in the business. Steve Jobs, in exile, bought Pixar because that company had great computer tech, and he turned it into a leading studio. Content creation is where it's at. Just ask Amazon, Netflix, …

KC: I’m glad you brought up U2. Because when you say “cozying up to rock stars” isn’t Apple’s brand, I think that utter flop of a marketing stunt proved otherwise — it showed that Apple had lost some of its edge (no pun intended), and it also shows how important the right artists are for their brand. It’s snapping up star-riddled companies to get some of that cool factor back, I think.

Apple’s head of original music content, Larry Jackson, recently said the company wants to be “at the intersection of all things relevant in pop culture” — and even though it’s certainly not there yet, I think you’re 100% right that they’re thinking bigger about Apple Music. Part of that is getting tight with artists. Your point about buying or becoming a label is, I believe, exactly (part of) the plan: Apple has already been involved with major music videos from Taylor Swift, Drake, M.I.A., and the Weeknd, and look at what they’re doing with Chance the Rapper: he has no label and there was no download option for his latest album. Just an Apple Music stream. As Jimmy Iovine said, “We'd like to be a home where artists can do their thing.” They want to own the entire relationship between artists and fans. I can completely see why Tidal fits with that.

JA: You get the last word, but I don't think Apple has what it takes to be get into the A&R game. That isn't what their engineers signed up for, or what customers crave. Honestly, I think people care about as much about which streaming service they get music from as what studio made their favorite movie.

So this is a game about content, and you don't win the content game by retailing someone else's. But can Apple become an innovation factory for creatives in music the way Amazon has become in original programming? I don't think they can, and I don't think they should try.

I'd never buy an Apple product because Rihanna (for example) owns one, is associated with the brand or does their commercials. But as colleagues have been telling me for years, about all sorts of things: "You are not the demographic they care about."

KC: "But can Apple become an innovation factory for creatives in music the way Amazon has become in original programming?" That's a great question, and I'm not sure the answer is 'yes'. But I think they — and the other big players in tech — are going to try, and they're the ones with the capital to experiment. If Apple Music does end up purchasing Tidal, it won't be the last case of a tech giant grabbing a music service; it will be the start of the next phase in streaming. 

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