All it took was one rumor to set media tongues wagging on Monday afternoon: Apple is reportedly shutting down Beats Music, the hardware and streaming music service it acquired in January for $3 billion.
Citing a handful of unnamed sources at both companies, TechCrunch asserted Beats Music was going the way of the dodo. "The fact that the new iPhones did not come pre-installed with Beats Music, while several other Apple apps came loaded on the 6 and 6 Plus, should have been a red flag," it noted. "There was also nothing said about Beats Music during the Apple Watch reveal, even though the service's radio and fire-and-forget playlists could work well on a wearable."
Tom Neumayr, Apple's PR rep, told Re/Code, the TechCrunch story is "not true."
First off, anyone's who has ever covered Apple knows the company's perfectionist tendencies. Even without Steve Jobs at the helm, it's notoriously secretive about revealing its plans until the very last minute. Beyond that, Beats is currently operating on a subscription model, so one can only imagine how 10 million new iPhone 6 owners would have felt about finding an app they couldn't use pre-loaded on their phones.
What the post also fails to consider--beyond the poor timing, as today news arrived that Apple had quietly updated its Apple TV set-top box with new software--is whether the Beats streaming brand itself serves any function for iTunes--which, of course, it does.
According to Matt Pincus, founder and chief executive of Songs Publishing, a music publishing firm, Apple has every reason to hold onto Beats. "I think what they're going to do is shut down the brand and integrate the service as a functional product with their other suite of [music services]," he told Inc. in an interview. "It's just a component of an overall digital music offering. They don't consider it to be a standalone product."
And the reason for that is simple: The economics of running a Spotify-style streaming music service are incredibly challenging. Seventy percent of the royalties go to musicians and the cost of sales is enormous, says Pincus. Which is why Spotify continues to take ever more funding, despite rumors of an impending initial public offering, and why Pandora seems to be coasting along.
"Spotify has over 10 million users and those are paying subscribers," said Pincus, "and that's a really hard business. They had to raise so much capital to get to that level, and they're going to need so much more." On the flip side, Pandora has 76 million users. "If Spotify can get to that level," Pincus said, only then will it "start to look like a really good business."
Of course, Apple isn't exactly starving for money. "Their problem, in fact, is that they have too much cash," joked Pincus, adding most people would like to know where it's coming from. Plus, whatever Apple would get for Beats probably wouldn't be much considering its subscriber count is in the low six figures.
If Apple is savvy--and with Dr. Dre and Jimmy Iovine now on deck it certainly is--there's no reason it can't make a play for curation and a Pandora-style listening setup with Beats' technology. After all, it's been proven that consumers like nothing more than outsourcing their listening recommendations.
Then again, I could be wrong. Perhaps the rumors are true and all Apple wanted all along were Iovine and Dre--and Beats' billion-dollar hardware business. But that doesn't sound so audacious to me.