In a move that initially baffled many industry analysts, Apple (NASDAQ:AAPL) announced in May that it was acquiring Beats Electronics for $3 billion. While Beats Electronics is primarily known as a maker of premium headphones, the deal also included Beats Music, a subscription streaming music service that made its debut in early 2014. Although the price of the acquisition was relatively low considering Apple’s $150 billion-plus cash pile, many analysts struggled to see the rationale behind the deal, especially since the iPhone maker already has a well-established brand of music services under its iTunes banner.
However, new music consumption data from Nielsen appears to offer more proof that Apple’s acquisition of Beats Music was a prescient move to stay ahead of the curve in the music industry, rather than a shortsighted “cool” brand purchase. According to the Nielsen Entertainment & Billboard’s 2014 Mid-Year Music Industry Report provided by TechCrunch, sales of digital albums declined by 11.6 percent in the first six months of 2014 compared to the same time period last year. Digital track sales saw a similar 13 percent decline during the first half of 2014 as well.
Meanwhile, the on-demand audio streaming market that includes services like Beats Music saw a year-over-year increase of 50.1 percent. “With On-Demand streams surpassing 70 billion songs in the first six months of 2014, streaming continues to be an increasingly significant portion of the music industry,” noted Nielsen Entertainment SVP David Bakula.
Apple has long dominated the digital music download market with its iTunes store. However, the music download business has been in decline over the past several quarters as more consumers move toward the subscription-based music streaming model. Although it’s not known exactly how much the decline in the overall digital music download market has affected Apple, Morgan Stanley analyst Katy Huberty estimated in May that iTunes sales have seen a year-over-year decline of 24 percent, reports 9to5Mac.