Apple is reportedly making a move into mobile content that could impact AT&T’s foray into streaming music. The iPhone maker is expected to pay $3.2 billion for the Beats premium headphones and streaming music service. It’s a smart move for Apple, since Beats headphones target the same high-end consumers that tend to buy iPhones, and the $10/month music service is succeeding where Apple’s free iTunes Radio is not.
One big reason for the success of Beats’ streaming service is its partnership with AT&T. AT&T offers its customers a free trial of Beats Music, which converts to a subscription after 3 months. The Beats subscription is billed through AT&T’s charging policy and shows up on the customer’s phone bill.
“Most of Beats subscribers now come from AT&T,” said Rajeev Chand, managing director and head of research at Rutberg and Company, adding that he believes Beats currently has roughly 200,000 subscribers. Chand thinks there is a decent chance that Apple will retain the AT&T relationship if it buys Beats. “Apple and AT&T have a longstanding relationship as AT&T was the first to launch iPhone, so that would speak to Apple retaining the AT&T relationship but perhaps extending it to other operators and platforms,” he said.
Apple could try to tweak the Beats/AT&T deal to favor iPhone users on the AT&T network. From early access to new music to preferential pricing, there are many ways Apple could favor iPhone users.
On the other hand, Apple could try to make Beats available “over-the-top,” through an app pre-loaded on iPhones, effectively cutting AT&T and other operators out of the picture. Tying Beats to hardware was an unsuccessful strategy for HTC, but HTC owned a stake in Beats before the launch of the streaming service, when Beats was focused on audio quality rather than content.
If Beats abandons the carrier partnership model, it will open a door for its competitors here. Already Spotify has partnered with Sprint, and some have speculated that if Apple buys Beats, Spotify will become an acquisition target as well.
Follow me on Twitter.