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Apple Music to contribute less than 1% in revenue, analyst says

The new service may not be a big moneymaker, says analyst Gene Munster, but Apple has other reasons for getting into the streaming music market.

Apple Music may not contribute much to revenue, says one analyst. But that's not the point. CNET

Apple Music is not likely to add much money to the company's coffers, according to Piper Jaffray analyst Gene Munster.

In an investors note released late Tuesday, the analyst said Apple Music would add less than 1 percent (around $1.8 billion) to the company's revenue in 2016. And that's only if the new music streaming service were able to match Spotify's paid subscriber base of 15 million, which Munster thinks highly unlikely.

On Tuesday, Apple officially turned on Apple Music, a new service that offers streaming music with playlists curated by "music experts," a 24/7 radio station called Beats 1 and a social feature called Connect that puts together musicians and their fans. Free for the first three months, the service costs $9.99 per month for an individual plan and $14.99 for a shared family play. Apple Music faces competition from rival services such as Spotify, Tidal, Rdio and Rhapsody.

So, if Apple isn't going to generate a lot of sales from Apple Music, according to Munster, what's the point of the service? Well, Apple doesn't necessarily introduce individual new products or services with the goal of making lots of money. Instead, the company sees new products and services as a way of luring users into the Apple ecosystem. By offering a "compelling music experience," as Munster puts it, Apple hopes to sell more iPhones. Selling more iPhones means more users who will purchase items from iTunes and potentially buy other Apple products and services.

"Apple Music matters because music is fundamental to the mobile phone experience," Munster said. "Interestingly, Apple Music will also be available on Android and Windows, which doesn't matter from a revenue standpoint, but could help Apple attract incremental iPhone buyers from competitive platforms."

What is Munster's opinion so far of Apple Music? The analyst gave it a grade of B+. He said he found the experience as advertised as far as the smooth integration with streaming radio and iTunes with the additional option of the Beats 1 live radio station.

"Our only criticism is the dynamic formulated playlist option in the previous Beats app and other streaming music services like Spotify and Songza did not find the way into Apple Music 1.0," Munster added. "As a footnote, we were among many who experienced the 'iCloud Music Library can't be enabled' error message, preventing streaming songs to be added to 'My Music.' After toggling the 'iCloud Music Library' tab on and off five times, we were able to add streaming albums to 'My Music.'"

Other users have reported problems with Apple Music, including the inability to access Beats 1. Initial glitches are to be expected with a brand new service, especially as lots of people give it a whirl. Eager to make sure Apple Music picks up an audience, Apple will certainly be on the lookout for any issues that need to be resolved.