Will Beats Music Measure Up?

Beats Music is a new subscription music service that is an offshoot of the wildly popular hardware company (mainly headphones) founded by Jimmy Iovine and Dr. Dre. Beats Music is a logical extension: if people love the headphones so much, maybe they’ll extend the affection upstream and into content selection. Recently launched (January 21), the early numbers for Beats Music are in....

Beats Music is headed by Iovine, Dre and Luke Wood (pictured). If anyone can deliver numbers, it’s these guys. The proverbial “people with knowledge of the situation” report that in the first month, about 28,000 people signed up for the service that costs $9.99 a month. Doing the math at lightning speed in my head, that’s about 1,000 subscribers every day. My SAT math score, BTW, was quite good.

That subscribing pace may quicken because AT&T is in the mix. Beats hammered out a deal with AT&T with the latter offering 30- and 90-day free trials to Beats Music starting January 31. As those freebies expire, at least so far, about 70% of the trial listeners are turning into paid subscriptions. (AT&T simply adds the charge to the monthly phone bill.) As many as 750,000 subscribers signed up for the trial subscription and 70% of that (once again, doing the math in my head!) might bring in 525,000 subscribers. That number ties in nicely with Iovine’s comment in a January interview that ““My first goal is 500,000 people and we’ll kill ourselves to get there.” Note that Beats Music is strictly a pay-only service, unlike some of its competition.

To further grease the music-for-money rails, you can sign up for Beats Music online, or at any AT&T store. Also, taking a page from its cellphone playbook, in addition to individual plans, AT&T also exclusively offers a Beats Music family plan; as many as five people can share an account for $14.99/month. On another front, Beats also enlisted Target to offer free trial subscriptions.

So, Beats Music is already wildly successful, right? Well, not so fast. It’s off to a good start, but let’s hold off on the bubbly. Here’s the thing: At least according to Recon Analytics, to be profitable, Beats Music will need at least 5 million subscribers. Beats Music has a long way to go to attain that number. Moreover, every subscription service has a certain churn rate. Customers are constantly dropping out, and have to be replaced by fresh recruits. Hitting the number is one thing; keeping the number is something else. How many is 5 million? Well, Spotify has 6 million paying subscribers (25 million total listeners) and Pandora has 2.5 million paying subscribers (70 million total listeners).

Pandora, Spotify, iTunes Radio, YouTube, Rhapsody, Slacker, Xbox Music, Rdio, Deezer - Beats Music is going up against established and savvy competition. Still, Beats sold $1.6 billion worth of headphones in 2012 (up 30% from the previous year and representing a whopping 50% of the premium headphone market), and isn’t exactly a neophyte when it comes to music marketing. Beats Music may or may not destroy the competition, but if it gets a decent slice of the music subscription market ,that may be enough. After all, it is widely believed that subscription is the future of the music business. In other words, that would be a slice of the entire pie.

A final factor: Beats bought MOG and reportedly will shut down the service today (April 15). The acquisition shortened the learning curve for Beats Music, and (presumably) bought Beats instant subscribers, giving it an instant foothold in the market. Will Beats Music succeed as wildly as Beats headphones? Who knows. Math is hard. So is the music business.