Apple Doesn't Want to Compete -- It Wants to Own the Record Business

You didn't have to look too far to spot the action at Clive Davis' pre-Grammy gala on Feb. 7. Ground zero was table 108, where Apple CEO Tim Cook, senior vp Internet software and services Eddy Cue, iTunes vp Robert Kondrk and Beats co-founder and title-less Apple executive Jimmy Iovine were seated alongside former U.S. Vice President Al Gore and former House speaker Nancy Pelosi. 

After a shout-out from the party's host (Davis called Cook a "special human"), music execs lined up single file for an audience with the Apple contingent -- not to mention selfies and overshares about their first Macs.

Cue and Kondrk happily obliged, posing with Universal Music Group chairman/CEO Lucian Grainge and Glassnote founder Daniel Glass, and asking greeters if they already had "met with Jimmy." Goodfellas vibe aside, it was a legitimate business question, since Iovine has devoted recent weeks to meeting face-to-face with senior execs from major labels and the major indies. A nondisclosure agreement preceded every sit-down, but details are emerging about the nature of the talks, which point to a possible spring/certain summer launch of a new music service -- a crucial time for the company as it struggles to adapt from downloads to streaming.

Apple would not comment on its plans (the Cupertino, Calif.-based company bought Beats Electronics for $3 billion in May 2014) for what is believed to be an all-you-can-eat music service with a modest subscription fee. The price being debated: $7.99 per month, down from Beats' now-standard -- and arguably too high -- $9.99 a month, with no "freemium" model. (The sweet spot for consumers, at which profit is maximized for the labels: $3.99 to $4.99, say experts.)

But a source familiar with the talks says the tech giant, which reported first-quarter revenue of $74.6 billion on Jan. 27, has its sights set on more than just streaming. Apple's presence in the music business, says the insider, "is to be the music business; it's not to compete with Spotify." The proof is in the 800 million credit cards it already has on file -- comparably, Spotify has 15 million subscriptions and 60 million monthly users, although the service is growing, headed to an initial public offering.

In fact, integration has begun. Apple TV features a Beats logo, an update to Apple's iOS will include streaming and creative is in the works for new ads starring artists recruited by Iovine. But that may be the extent of Beats' involvement as Kondrk takes the lead on music. Like the Apple-centric design of its offices, the look and feel of Beats is likely to mirror Apple's aesthetic, not the other way around.

Other clues suggest a major scrub to the iTunes store, which will rid itself of thousands of titles including soundalikes and certain covers, all at Apple's discretion, say insiders. Moreover, the disallowed music includes artist rerecordings, favoring original or best-of versions and, critics contend, the major labels that retain those rights. Additionally, featured-artist sliders, previously chosen editorially, may now be determined by sales velocity, leaving some to wonder if iTunes is becoming less like a Tower Records and more of a Target -- limited selection and a focus on hit titles. "Until now, iTunes has been good to the indies," contends one vet. Conversely, an Apple source says such case-by-case house-cleaning to eliminate duplicative and deceptive versions is routine.

Another criticism likely to crop up (besides the botched U2 release): While Apple won the download market, streaming will be a tougher slog. One obvious reason? Owners of Apple products can use Pandora, Spotify or Rhapsody -- they're not locked into iTunes. All the unknowns notwithstanding, Apple, Beats and the music business coming together is ultimately "a game-changer," offers attorney Doug Davis of The Davis Firm, whose title also includes executive producer of dad Clive's gala. "They have the ecosystem, the barriers to market aren't there; it's a flip of a switch and everybody can pay with a click. Their streaming service will see a seamless integration that's cross-platform and convenient, as Spotify has become. As a fan of all-you-can-eat, the industry in general is excited to have more market players."

This article first appeared in the Feb. 21 issue of Billboard.