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For Apple, Streaming Is A 'Necessity Not An Option'

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For Apple, Streaming Is A 'Necessity Not An Option'
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In a report published Friday, Bank of America Merrill Lynch analyst Wamsi Mohan maintained a Buy rating and $145 price target on Apple Inc. (NASDAQ: AAPL). Music download revenue has declined significantly, as the consumer moves to streaming music.

Music downloads, which accounted for more than 80 percent of the iTunes revenue, have declined to contributing only about 50 percent of its revenue. The decline was, however, masked by the growth in App store sales from 20 percent to about 50 percent of the iTunes revenue. "We attribute a part of this decline in music downloads to the growing popularity of streaming audio," Mohan said.

The analyst expects the company to launch a new music streaming service, "Apple Music", at WWDC 2015. This service is likely to require monthly subscriptions, rather than being an advertising-supported free version.

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According to the Bank of America report, "In the current model, iTunes runs on a Pay-to-Own model which transfers rights of ownership to customers who purchase the song or album. With Apple Music, we expect Apple to retain the ability for customers to pay for and download songs, but to lean more heavily on subscription-based streaming."

The analyst believes that Apple could differentiate itself by allowing people to curate signs through exclusive deals with artists and by offering artists greater visibility regarding their fan base. The company could also consider offering a social media platform for artists to interact with their fans.

The company is also expected to provide an update on the Apple Watch during the keynote address at the WWDC 2015, announcement of new versions of the iOS and OSX and a potential launch of the Apple TV service.

Latest Ratings for AAPL

DateFirmActionFromTo
Jan 2017OTR GlobalDowngradesNegative
Jan 2017GuggenheimInitiates Coverage OnBuy
Dec 2016PiperJaffrayAssumesOverweightOverweight

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