Apple has finally joined the music streaming party by launching Apple Music. We’re told that it will be available in at least 100 countries, including some in Asia. Much has already been written about the impact it will have on the streaming market in Europe and the US – but what is the outlook for music streaming in Asia?
No international or regional players own the music streaming market – yet
Apple Music will not be entering a crowded market – music streaming services are still relatively new in many countries and there are no international or regional players who have yet secured a commanding position.
Although Spotify was founded as far back as 2006 in Europe, it didn’t launch in Asia until April 2013, and it is still yet to launch in several major Asian territories including Thailand, Japan and Korea. Pandora may have an estimated 80 million users but it is still limited to the US, Australia and New Zealand, so it has no Asia presence and is still far from being a truly international offering. Tidal is perhaps somewhere in the middle – it is currently available in Hong Kong, Malaysia, Singapore and Thailand – which again means it is unavailable in a number of significant Asian markets.
The music streaming market in Asia is rather more fragmented at a country level, with a number of hugely successful national sites, such as MelOn in Korea, Recochoku in Japan and Alibaba-owned Xiami in China. To succeed in these markets, international services such as Apple Music cannot simply roll out their US or European offerings and expect the users to follow – they will need to localise substantially to meet the expectations of local users.
The biggest competitor of all will be piracy
Analysts focusing on Europe and the US have looked in great detail at whether and to what extent Apple will be able to convert users from Pandora and Spotify to Apple Music In Asia, however, the bigger question is whether Apple will be able to convert users from pirate services.
Piracy in Asia remains rampant. If one takes Singapore as an example – where 7 out of 10 young Singaporeans confess to actively engaging in piracy – legitimate streaming services face two key challenges. First, how do you convert users who are accustomed to accessing all of the music they want for free and with few perceived repercussions. And second, even if you do convert those users, how do you convert them at a price point that is profitable for the service, the labels and the artists, when the users are used to a price point of…er…free.
Undoubtedly the launch of services such as Apple Music in the music space and Netflix, iFlix and HOOQ in the video streaming space will help to address the piracy issue but it will take more than these services to fix the problem in Asia – whether that is education about the impact of piracy on creative industries, firmer enforcement against pirate sites or an effort to stem the tide of advertising dollars that fund many of these pirate services.
There will be numerous content and censorship rules to navigate
Music streaming services will have to navigate a dizzying number of local content and censorship rules in Asia. We know that content regulation in Asia has been and remains a perceived barrier to entry for Apple in the video space, with it currently offering only a slimmed down version of iTunes in some countries because of fears that it would have to censor content. Although content rules and censorship will be less of a headache for music streaming than they are for video streaming, regulators will still be watching closely for content that fails to comply with local “community standards” or, in some countries, that cuts across national or government interests. Radio shows with a discussion element will be higher risk than streamed music alone and it is likely for this reason that Apple will reportedly not be offering Beats1, its 24/7 radio show, in every country.
For regulators, meanwhile, the challenge is to balance the need to uphold their local content rules with the fact that these rules are a perceived barrier to entry which is limiting the legitimate offerings available to consumers. And with a limited range of legitimate services on offer, these same users are the ones who are turning to pirate sites or using VPNs to access international services that are not compliant with the local content rules that the regulators are trying to enforce.
Payments won’t be easy
Apple reportedly has 800 million credit cards on file. The key point to note in Asia, however, is that credit card penetration remains low across much of the region. In Indonesia and Thailand, which are quite typical of the more developing markets in Asia, credit card penetration rates are 6% and 5% respectively. A number of counties in the region still operate a cash-dominated society – and without a digital payments infrastructure, that is going to make US or European business models difficult to sustain in Asia. It is for this reason that streaming video services such as HOOQ, a joint venture between Singtel, Warner Bros. and Sony, are looking at deals with local telcos (such as Globe in the Philippines) to bundle streaming video with mobile or broadband subscriptions. Streaming music services will also need to think creatively about how to operate a subscription business model in countries where credit cards are still not the norm.
Despite the challenges, this is the year of online streaming
2015 is the year of online streaming in Asia. Video streaming is already pushing ahead – Netflix will make its first move into the continent later this year with a Japan launch, and regional services such as HOOQ and iFlix have already launched in a number of markets. Apple Music and the enormous Apple marketing machine behind it will go a long way to driving growth in the music streaming market and that will be good news not just for Apple but also for its international and national competitors. Nonetheless, streaming services of all kinds will have to overcome the challenges above before subscription-based streaming becomes a truly profitable business model in Asia.