Home > Uncategorized > Will DOJ Stop Apple and YouTube from Cross Subsidizing Streaming Services?

Will DOJ Stop Apple and YouTube from Cross Subsidizing Streaming Services?

March 9, 2015

Excellent reporting by John Maples in Hypebot on the self-cannibalizing music streaming services that are all the rage (“Does Music Subscriber Growth Cripple Profitability?) centered around this chart:

You should read the article in its entirety but it ends on an interesting note:

More Pain Coming: Apple and YouTube are expected to roll out on-demand music services in 2015. The pressure to grow–and raise more money to pay for the growth–will increase on every company in the market. As the old adage goes: let the beatings continue until the morale improves.

What’s different about Apple and YouTube is that these are both dominant players in their relevant markets and both could be characterized as monopolies in some parts of the world where their political influence is not felt and where their former executives have not captured the very agencies that are supposed to keep back the crony capitalism.

When faced with the situation that John describes, most competitors will have to pony up more money to stay operating at a loss.  All of the streaming services that John includes in his chart are stand alone companies who one might assume will have relatively equal access to capital–on roughly the same terms.

Apple and Google’s music services will also have access to capital on roughly the same terms–they’ll move the money out of the corporate treasury and into the general account.  So compared to each other, the cost of money for Apple and Google might be about the same.  The cost of money compared to Rhapsody, Spotify and Deezer is not however.

I’d suggest to you that Google has already demonstrated it’s willingness to use its monopoly profits from search to extend it’s monopoly over the video search horizon and now to extend its horizontal dominance even further to music streaming services.  This is particularly alarming given the anticompetitive behavior that Google exhibited towards SMEs like A2IM members and to artists like Zoë Keating.

So I would quibble with John’s conclusion.  It’s not that the beatings continue until morale improves, the beatings will continue until the beatings continue.  All at much lower capital costs and dilutive equity effects than for the independent operators who Google clearly loathes so much.

Don’t expect Apple to be much better.

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