Apple is reportedly considering acquiring streaming-music service Tidal. It should.
Late on Thursday, The Wall Street Journal cited sources who said Apple was in negotiations with Tidal to acquire the streaming-music provider. While the sources said the deal could break down at any time, it makes perfect sense for Apple (AAPL), after evaluating Tidal and who owns it, to take the plunge and acquire one of its chief rivals in the streaming business.
To be frank, Tidal isn’t the success its principal owner Jay-Z had thought it would be. The streaming service is far behind market leaders Apple Music and Spotify, and despite a slight bump in subscribers after Kanye West decided to initially make his latest album available exclusively on Tidal, it’s been overshadowed by its larger rivals.
However, Jay-Z, who acquired Tidal from Swedish company Aspiro in 2015 for $56 million has one, exceedingly important feature that Apple can’t match: artist support. Indeed, he has a slew of well-known artists who serve as his business partners, including Madonna, Rihanna, West, and wife Beyoncé. Tidal, in other words, is owned by some of the most popular artists in the world.
In return, those artists have given Tidal some special treatment. As noted, West offered his latest album, The Life of Pablo, exclusively to Tidal customers for a period before ultimately delivering it to Apple Music. Beyonce’s latest album Lemonade launched on Tidal, but wasn’t available to stream on Apple Music. Instead, Apple customers needed to buy the album on iTunes. That’s just the tip of the iceberg.
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It’s too easy to look at Tidal’s 4.2 million subscribers and relatively low income and say that it isn’t a worthy buy for a company on the magnitude of Apple. Indeed, many have said that Tidal will eventually collapse under the strength of Apple Music and Spotify and its financial health isn’t well enough to justify an acquisition.
But those critics fail to see the music industry for what it is today. Jay-Z bought Tidal and brought on other artists because those artists—along with countless others—are deeply concerned about where the market is headed and how little they’re receiving for their art. They can’t stand that they get a fraction of a penny for each time you stream a track, and they’re deeply concerned about piracy. They want more power. Tidal is the way they’re getting some power back.
Meanwhile, Apple is in a fight for its life in the streaming business. The company was (and is) the top resource for digital downloads, but streaming revenue is starting to take over. In fact, the Recording Industry Association of America (RIAA) announced in March that for the first time ever, U.S. streaming music revenue exceeded music download revenue in 2015. Total streaming revenues exceeded $2 billion for the first time ever in 2015, and the RIAA believes its share of the market will only grow in subsequent years.
Apple is in second place in that market. The company’s chief competitor, Spotify, has more than 30 million subscribers to Apple Music’s 15 million subscribers. Although some artists, namely Taylor Swift and Adele, have kept their latest albums off Spotify because it offers a free, ad-supported way to listen to their tracks, it won’t be easy for Apple’s $10-a-month service to quickly catch up.
Indeed, catching up is what Apple has been doing in streaming. The company’s $3.2 billion Beats acquisition in 2014 was an attempt at that. Then last year, it launched a half-baked Apple Music that it quickly redesigned this year to make more user-friendly.
Although Apple might not admit it, the company has stumbled out of the gate with Apple Music. And at least right now, it has few advantages over the competition.
Which brings us back to Tidal. With bundles of cash, Apple doesn’t need to worry about Tidal’s revenue or how it will grow in the coming years. In fact, a Tidal acquisition would likely be immaterial to the company’s operation.
By acquiring Tidal, Apple could achieve things that are far more important: it could improve its relationship with artists, eliminate exclusivity that has dogged it over the last several months, and put pressure on Spotify to respond. And if Apple’s Jimmy Iovine, who came to the company in the Beats acquisition but has been a titan in the music industry for decades, can prove to artists that the iPhone maker truly cares about them, it might just be able to get some exclusives for itself, leaving Spotify out in the cold.
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Let’s not forget that Apple’s business is slowing down. The company’s iPhone, which makes up the biggest chunk of its revenue, saw its first year-over-year revenue decline ever in Apple’s last-reported fiscal quarter ended March 26, investors are deeply concerned about the iPad’s future, and even Macs saw sales slip last quarter. However, there was one, important bright spot: Apple’s Services operation, which includes Apple Music. That division was up 20% year-over-year, due in no small part to Apple Music.
Apple’s business—especially its music business—is changing rapidly and it’s becoming increasingly important. Not having some of the biggest artists in the world on its side only hurts its chances at growth and success. And frankly, Apple can afford to overpay on Tidal, if it comes to that. And in so doing, it can make the case that it cares about artists—something they’ve been longing to hear from anyone for years.
So, make the move, Apple. You need Tidal.
