Technology

How iTunes Subscriptions Could Succeed


Apple should take its digital music business a step further by creating a home audio system, complete with an iTunes subscription option

Apple ought to change its tune on iTunes. Or so say many people who follow the consumer electronics maker. Their point: Apple (AAPL) should give users the option of accessing all or most of the music library for a monthly fee (BusinessWeek.com, 3/20/08), in addition to the existing à la carte model that lets users buy one song or album at a time.

Some of the biggest proponents of this idea are record labels that would like a more regular, predictable revenue stream from North America's second-largest music retailer behind Wal-Mart (WMT). Apple CEO Steve Jobs says he's against the idea, arguing he'd rather have people own, and not just rent, the music they pay for. My take is that as far as Jobs is concerned, the existing model isn't broken, so why fix it? He's selling billions of songs on iTunes. No, it doesn't make a lot of money, but iTunes does generate a lot of interest in the iPod and other Apple products that do.

I'm coming around to the notion that an iTunes subscription model, alongside Apple's existing system, could work quite well, especially if it's sold in conjunction with a network-ready piece of hardware.

Shelf-Top System

Lesser players in the digital music business such as RealNetworks (RNWK), Napster (NAPS), and Microsoft's (MSFT) Zune marketplace have embraced subscriptions. I used Rhapsody for the better part of a year and was for the most part pleased with it. For $12.99 a month, I could play music on my Mac or PC without paying for an album I ended up not liking. I could take music I was curious about for an extended test-drive. If I liked it, I'd go over to iTunes, buy it, and keep it forever.

Rather than trying to compete directly with Apple, Rhapsody has gone a different route, getting itself embedded into standalone audio hardware—notably the Sonos Sound System, TiVo (TIVO) boxes, and some high-end audio gear from Denon. It is in conjunction with audio hardware that I think the subscription model makes a lot of sense.

The idea is that the user buys a piece of equipment with a ready connection to an online music store and then pays a monthly subscription fee for unlimited access to many or all of the songs. Apple wouldn't be the first to try to make this work, but it could possibly do it better. I'm imagining a shelf-top audio system that would contain what you'd expect: an iPod dock, a conventional AM-FM radio, and perhaps HD Radio (BusinessWeek.com, 5/29/07), or the option to add on the satellite radio service of your choice. But it would also connect to a home network, via both Wi-Fi and Ethernet. This would make it the ultimate Internet radio right out of the gate.

Subscription-Ready with Direct iTunes Access

Products like this exist. Denon's S-32 and S-52 come to mind. They're expensive, starting at about $500, and aimed at big-spending audiophiles. But Apple can bring a few things to the table that no one else can. First would be its unmatched sense of aesthetic design. Second, Apple could include a touch-screen interface similar to the one on the iPhone and iPod Touch. When selecting music from your iTunes playlists, you could use your fingers to flip through images of your favorite albums, just as you do on those two handhelds.

And it doesn't even have to be connected to the music stored on your computer's hard drive. Why not give the device its own hard drive? Why not embed iTunes software, including direct access to the iTunes store, directly on the player? Consumers could download music from the iTunes store directly to this device, which would sync readily with the iPod or iPhone just as a computer does today. Imagine the potential among consumers who have so far bypassed the entire iTunes/iPod experience entirely?

This device would also support a new iTunes subscription option. As long as you keep your subscription paid up, you'd have access to the full catalog of whatever record labels sign on. New releases would be available to everyone who owns this device. The device would grab the latest releases of your favorite artists, according to preferences you set so that you can hear them the day they hit the street. And if it turns out to be lousy? No problem. Delete it from your playlist without a second thought. You could always go back and check it out again. And if after a few months you decide don't want to pay the monthly fee? No problem. Since it's optional, you can just cancel it and continue downloading music à la carte at 99¢ a track like always.

Expect New Ways to Deliver Music

Impressive as the statistics on iTunes song sales may be—Apple has sold some 4 billion songs in the five years the store has been in operation—they work out to fewer than 30 songs per iPod and iPhone. They're also irregular. A label may have a huge hit on iTunes one quarter, and then nothing the next. Then there's fickle consumer habits. If you're like me, you buy music in blocks. I'll spend about $50 on a bunch of classical and jazz albums on iTunes, and they'll keep me busy for a month or two before I'm ready to head back to buy another batch. But then again, I may not visit the iTunes store again for the better part of a year.

The digital music business is here with us for good, and that means over time there's going to be more than one way to deliver music, and definitely more than one way to play it. As the industry's all-but-undisputed leader, Apple should be thinking beyond the iPod and the iPhone. Who could do it better?


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