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Now, Will Apple Do A Music Subscription Service?

Posted by: Peter Burrows on April 07

One of the more significant advances in Apple’s iPhone 3.0 OS announcement was support for subscription pricing. This was discussed in the context of iPhone app developers, who see it as a crucial tool to help them build sustainable businesses—which is tough to do on free or $.99 one-time downloads.

But the technology that enables app developers to offer subscriptions could also help Apple offer a music subscription service, for people who want to pay a monthly charge for access to the full iTunes library. Such a billing option isn’t all Apple would need to do this. It would also need to deploy royalty-tracking software and other infrastructure, so Apple could pay the labels, artists and publishers based on how often their songs were played each month. That’s a more complex problem than paying the flat per-song payment Apple makes on each song sold through its download store. Still, the subscription option would be necessary for Apple to introduce a service similar to Napster or Real Network’s Rhapsody service.

So should Apple take this step? New data from Piper Jaffray makes it clear that Apple doesn’t need to at all. According to findings of the brokerage firm’s just-released teen survey, iTunes’ share of the teen paid digital music market rose to a staggering 97%, up from 81% a year ago. Apple’s share of the portable media player market remained at 86%. Writes author Gene Munster, “Apple’s dominance in the CE and online music markets is going seemingly unchecked.” Meanwhile, Rhapsody’s market share remains stuck at just 2%.

But whether it needs to or not, Apple should make this step. After all, 97% share means Apple has fully saturated the teen market for legal music downloads, Munster reports (The legal market, by the way, is just 40% of total music downloading activity; the other 60% is via peer-to-peer networks). To generate additional music-related revenues streams, a subscription service is the obvious choice.

Here’s some reasons why:

There is meaningful demand. Apple has always made the black and white argument that “people want to own their music.” But when you’ve got the kind of market share Apple does, you’ve got to start mining the sub-markets and niches as well. According to Piper Jaffray, 46% of teens expressed interest in paying $15 a month for a music subscription service, up from 38% the previous year.

A subscription service is a great way to lock in some of the best music customers Apple is going to find. People who love music enough to pay $15 or so a month to get it are likely to be the kinds of people who will want to buy whatever music devices Apple brings to makret down the road.

Subscriptions may well be more profitable than downloads for Apple. It’s the old gym club argument. Just as people pay that monthly fee even though they rarely actually work out, music service subscribers are unlikely to listen to as much music as they think they will.

Subscriptions are a fantastic music discovery tool. Personally, I haven’t found any new music using Apple’s Genius feature. But I find new artists and songs to fall in love with every time I use Rhapsody. If Apple had a subscription service, it would therefore boost download sales to customers who for whatever reason still want to own some of their music (say, so they can have it on CD).

Subscriptions are simple. Given Apple’s well-deserved rep for easy-to-use products, it’s interesting to see the discussion around today’s move to variable pricing on iTunes. Suddenly, after being dinged for years for not offering anything but $.99 tracks, some are complaining that some now cost $.69 or $1.29 (with most of the complaints about the latter). Well, one of the virtues of subscription services is simplicity. They’re all-you-can-eat, one price fits all.

Why leave oxygen for rivals? If Apple added a subscription, it would almost immediately take the two or three points of market share that Napster and Rhapsody have been holding on to. And the ability to combine subscriptions with the dominant music commerce site would further differentiate Apple against the wannabes.

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Reader Comments

Mark U.

April 7, 2009 09:41 PM

Apple finally succeeded in getting rid of DRM in the iTunes store, a goal they got a lot of marketing mileage out of. I'd guess they aren't anxious to have their next move be putting it right back in via subscriptions -- particularly when, as indicated by your numbers, nobody cares about subscriptions in the first place.

Martin Beutling

April 8, 2009 03:31 AM

The new in-app-purchasing will drive the total number of apps down.Why? There won`t be "lite"-versions of some apps.
So the consumer can download an app and then use the in-app-purchasing to buy the full version rather than download a new one.
This new method of buying apps will help make the AppStore more grown-up.

Steven

April 11, 2009 01:26 AM

C'mon. You asked teenagers if they'd be "interested" in paying a $15-a-month subscription? Really? Could there possibly be any less reliable a group of monthly payment-makers than a bunch of kids? So what happens to this initial rush of pimply-faced subscribers after they miss a payment or two and their music begins to go "poof?" First of all, they'll be mad as hell, and of course they will blame it all on Apple. Then they'll run back to their P2P's in droves, undoing years of effort offering customers a legal alternative.

And I also agree with Mark U. What sense would it make to expend the energy Apple has in eliminating DRM, only to welcome it back with open arms? Jobs keeps saying no one cares about subscriptions, and the numbers keep proving him right. For Apple to embrace subscriptions now, even to, as you say, suck all the oxygen from their rivals, would be to say that they've been wrong all along, that subscriptions are a viable business model. As more subscription-based businesses appear and collapse, being able to say "I told you so" is more important to them than any additional crumb of profit they would realize through by jumping on that bandwagon.

Galley

April 12, 2009 05:57 PM

If I could get access to every song ever recorded, and that access would be guaranteed in perpetuity, then I would be interested in a subscription service. Until then, I'll stick with CDs. Once I buy a CD, I am assured that I will be able to listen to those songs for the rest of my life.

Steven

April 12, 2009 10:58 PM

The Macalope says it all in a nutshell (http://www.macworld.com/article/139950/2009/04/macalope_ruination.html): "If you consume a lot of music, it’s clearly a cheaper way to get your fix. But, unlike with purchasing your music, five years from now you could find yourself standing by the side of the road, $900 poorer with nothing to show for it."

Ryan

April 15, 2009 01:45 PM

I love Apple, iTunes, and iPods. However, I use a Sansa MP3 player for my music. Even though I have to run Windows in Parallels on my Mac just to update it, the extra work is worth it, as I have (mostly) unlimited access to all the music I can handle.

I would love to see Apple offer DRM-free purchases for keeps, as well as the option to rent the music for $15/mo. Heck, I'd even pay close to $20 to end the hacks that I have to use to get my Sansa player to sync with my iMac. Also, I wouldn't have to carry two players (still use iPod for podcasts).

The truth of this article is in the fact that most teens pirate the music. If you think about it, there is still 60% of the market left to reach. iTunes doesn't own the market, P2P does. I'm betting with an easy-to-use subscription model, and great marketing, they could significantly reduce the pirating market.

ryan

May 9, 2009 04:57 PM

what if there was a subscription service DRM free, which includes unlimited downloading? Could this potentially come out soon?

gat

June 18, 2009 12:40 PM

I'm a Rhapsody subscriber but I'd switch to Apple in an instant if they offered a $15/month subscription service. The iPod Touch would be an ideal portable device for music subscriptions because you could download new tracks using its built-in wireless and not be forced to sync with a PC to get new music on it.

John R

August 18, 2009 02:10 AM

Ditto - I LOVE Rhapsody and our family listens to way more music and more variety then we ever did in the past. I used to spend way more that $15/month on CDs. No more. I have a subscription and can listen to virtually anything I want too. And if I tire of it I don't care. My young kids can experiment with all sorts of music without buying CDs or speding .89/song. I see no real reason to own music anymore. Just like I don't own movies either. I just call them up on netflix, or pay-per-view. Who needs the hassle of ever obsolescing media? I have no idea what happened to my 8-tracks, my cassettes are collecting dust and I had to give away my LPs 'cause no own would buy 'em. Now my CDs are competing for shelf space and collecting dust with DVDs and VHS tapes we rarely pull off the shelf. I get the content I need via other means and luv it that way.

Jerry

September 16, 2009 11:06 AM

I have a Zune subscription. 14.99 per month and can load up 3 devises and 3 PCs with as much music as they can hold and I get 10 songs to download and keep forever per month. This is the only reason I'm not an ipod owner. So tell me how a service like that for ipod won't work again? I'm just one Zune user who would switch to ipod touch in a heartbeat if they offered this service. There must be MILLIONS more of me.

Jerry

September 16, 2009 11:12 AM

I have a Zune subscription. 14.99 per month and can load up 3 devises and 3 PCs with as much music as they can hold and I get 10 songs to download and keep forever per month. This is the only reason I'm not an ipod owner. So tell me how a service like that for ipod won't work again? I'm just one Zune user who would switch to ipod touch in a heartbeat if they offered this service. There must be MILLIONS more of me. I agree with John R too. Why spend thousands for them to not work later anyway?

David

September 20, 2009 04:54 PM

I can't decide between the Zune HD and Ipod Touch. I really want the Zune for its subscription and the Ipod Touch for everything else. I can't afford both, so I am still undecided. The Zune subscription service is so good that it makes it difficult to decide. If Apple had a subscription service, it would an easy to decide. Apple subscription service would kill the Zune.

Matt

November 8, 2009 07:16 PM

I have a Zune pass, too. My wife just got an iPhone and it is awesome, but I am not willing to pay for each individual track. If there was a subscription iTunes I would b sorely tempted to switch.

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A blog on the daily doings of Apple and the many companies in its orbit, with insight and analysis by two longtime Apple-watchers BusinessWeek Senior Writer Peter Burrows and BusinessWeek.com Senior Technology Writer Arik Hesseldahl.

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