With Apple Music, we’ll soon know if Apple’s $3B bet on Jimmy Iovine will pay off

Midem paid for part of Chris O’Brien’s travel to Cannes for the Midem Music Industry Festival, where he is participating as a startup competition judge. Our coverage remains objective.

In the early 1980s, music mogul Doug Morris was at Atlantic Records, where he recruited a hot young producer named Jimmy Iovine to work on the Stevie Nicks solo album that would become Bella Donna.

What Iovine really wanted to do at the time, according to Morris, was work with the Rolling Stones. But Morris was firm. Iovine was going to be paired with Nicks, and that was that. Morris had great personal affection for Nicks, and he wanted her album to break big.

A few months later, Morris called Nicks at home to check in and see how the recording sessions were going. He called early in the morning and was surprised when Iovine answered the phone. Iovine told him Nicks was still asleep, and Morris asked Iovine what he was doing at her house so early in the morning.

Then the lightbulb in Morris’ head clicked on.

“That’s when I realized that if you’re going to work with Jimmy, he’s always going to get a little something extra,” Morris said, laughing, during an interview on stage at the Midem Music Industry Festival in Cannes last weekend.

Morris was making his remarks the day before that former young hot-shot was going to walk on stage nine time zones away to introduce Apple’s music streaming service, dubbed Apple Music. While Apple spent $3 billion to acquire Beats, the headphones and music streaming company cofounded by Iovine and rapper Dr. Dre, in reality that acquisition seems now in retrospect to have been primarily about bringing Iovine in the fold.

With Apple Music available on June 30, we’re about to find out if Apple got its money’s worth. With the digital download market declining, Apple was finally forced to move into the world of music streaming and subscriptions services.

But is Iovine the right person to be leading this charge? And what is the little extra Iovine might be getting with Apple Music?

I spent the past weekend at Midem, where in addition to Morris, I got to hear from representatives of several other major streaming services, including Deezer, Spotify, Tidal, and SoundCloud. My takeaway from these conversations is that Apple is certainly putting its faith in a man who was a master of the music industry’s past. But Iovine’s grasp of the present and the future seems less clear.

At its heart, as described on stage at Apple’s Worldwide Developers Conference by Iovine and others, Apple Music seems to be the type of service that someone like Iovine would want, and that honors his traditional notion of a music industry powered by the lone wolf with the nose for talent and trends. Instincts, not algorithms.

Apple Music seems to be made in Iovine’s image of himself, that tries to prove that his skill set still matters. And that could be the “something extra” in this case.

The good news, in that regard, is that with Iovine, Apple got someone whose connections to that traditional music industry run unfathomably deep.

Morris, for instance, made it clear just how profound his love and respect for Iovine is, thanks to their 37-year partnership across numerous labels and music companies. He noted that he still calls Iovine twice a day to talk about music. He recalled with amazement how Iovine pushed him to embrace rap in the 1980s when other labels were staying away, afraid of the controversial content.

“Jimmy is an extraordinary person,” Morris said. “He is the most remarkable person. We’re friends.”

Morris said that as a music industry exec, he’s not a fan of ad-supported streaming services. And naturally, Apple Music will have a three-month trial period, but not a free, ad-supported tier as most others streaming services commonly have.

And yet, those who have been in the streaming trenches for several years argue quite strongly that such ad-supported tiers have been essential in attracting users, educating them on the value of streaming, and then converting them into paid subscribers.

Steve Savoca, Spotify’s vice president of content and distribution, said that 80 percent of Spotify’s subscribers started off as freemium users.

“We feel pretty good about the job we’re doing in growing the subscribers,” Savoca said in an interview. “The thing to note is that the vast, vast majority came from the free tier. They had to be in the service for us to convert them.”

Spotify now has 60 million active users, including 15 million paying subscribers. Since its launch in Sweden in 2008, Spotify has paid more than $2 billion to rights holders. And it just launched a series of new services that allow for greater interaction between fans and artists.

Hans-Holger Albrecht, chief executive of Paris-based Deezer, the world’s second largest streaming player after Spotify, also emphasized the importance of the free tier.

“You have to explain to the customer again and again and again why they should be paying for the premium service,” he said. “It takes time to change consumers’ minds.”

Several competitors also argued that breaking into streaming was harder, and more complex than it appears. While Apple unveiled a global music radio service, Deezer by comparison has chosen to focus on developing more finely tuned local versions of its service with local partners in each country.

Apple and Iovine boasted about the big names who will be developing playlists and hosting the radio shows. But the fact is most services have some kind of human curation element.

“It’s not about having just 40 million tracks,” Albrecht said. “Curation and entertaining them is going to be very, very important. That’s why at Deezer we have 50 editors who are doing nothing but pulling these playlists together.”

But even with big investments in human curation, many streaming companies insist that algorithms are also important in terms of scaling recommendations and personalization of the service to fit people’s listening habits and to help them discover new music.

As far as emphasizing the bond between artists and fans, SoundCloud and Tidal are pursuing that philosophy, though in different ways. SoundCloud has created a more freewheeling platform that lets artists upload tracks directly.

Tidal, the music streaming service backed by Jay Z, had a rough start earlier this year. But its mission is to also avoid a free-tier, while emphasizing exclusive content between fans and musicians.

“As part of our DNA, artists’ involvement is foundational to us,” said Vania Schlogel, Tidal’s chief investment officer, during an interview on stage. “A lot of what we are offering is unique content like behind-the-scenes videos and exclusive concerts. As we go forward, our subscribers will feel that closeness with the artists.”

In addition, Apple enters a field that is growing more crowded as it has become clear that streaming is the future. Russian Internet giant Yandex recently launched a music streaming service focused on its home country. And Saavn, which has 13 million users and focuses on streaming Indian music in 200 countries, has been growing rapidly, especially in its home country.

Of course, Apple is Apple. And Iovine is Iovine. Both are giants in their own right. There was a reason that nearly everyone in Cannes last weekend was talking about the imminent arrival of Apple Music.

And many, including Morris and rival streaming executives, truly believe that Apple’s entrance and the attention and marketing it generates will draw more people to the still relatively small business of music streaming.

“What does Apple bring to this?” Morris said. “Well, they’ve got $178 billion dollars in the bank. And they have 800 million credit cards in iTunes. Spotify has never really advertised because it’s never been profitable. My guess is that Apple will promote this like crazy and I think that will have a halo effect on the streaming business.

“A rising tide will lift all boats,” he added. “It’s the beginning of an amazing moment for our industry.”

Perhaps. But it remains to be seen whether Iovine, a beacon of the music industry’s golden days, is the right captain to chart the music industry’s future.

With Apple’s resources and brand, it’s hard to bet against him, of course. But having been the main focus of the most costly acquisition in the history of the world’s most valuable company, the pressure on Iovine to turn Apple Music into a hit must be immense.