BusinessWeek: Apple’s Steve Jobs needs to rethink views on subscription model for iTunes Music Store

“It has been 2 1/2 years since Apple Computer Inc. introduced its iPod digital music player, and consumers’ love affair with the sleek little gizmo just keeps gaining steam. Despite the iPod’s hefty price tag — $249 to $499 — Apple has sold 3 million of them, making it far and away the most popular music player on the market. Demand is so fierce for the new iPod Minis that there’s a six-week waiting list on Apple’s Web site. And the player is only half of Apple’s dominance in digital music. Its iTunes online music store accounts for 70% of all legal downloads,” Peter Burrows and Tom Lowry write for BusinessWeek.

“What should Apple do to stay on top? Plenty. For starters, it needs to embrace the new ways consumers want to buy music. While the iTunes store offers 99 cents downloads, Apple has yet to provide a subscription service for folks who want to listen to whatever they want for a monthly fee. To stare down a raft of new music players, Apple needs to broaden its product line. It should consider forming partnerships to add iPod technology to cell phones and other futuristic devices… A swarm of competition is on the way. Rivals have unveiled more than 60 music players to compete with the iPod, and these devices can play music from a variety of services. The iPod, in contrast, works only with iTunes. ‘When you buy an iPod, you have one choice,’ says Chris Gorog, CEO of Roxio Inc., which runs the rival Napster service. ‘That may work fine for early adopters, but mass-market consumers are going to want to shop wherever they want to shop,'” Burrows and Lowry write.

“Jobs also should rethink his views on subscriptions. He has refused to offer them, saying music fans want to own rather than ‘rent’ their favorite songs. But more than 1 million people now have online music subscriptions. Market leader RealNetworks Inc. (RNWK ) boasts 450,000 subscribers paying as much as $9.95 a month, up from 250,000 in the past year. Clearly, many consumers believe subscriptions are an easy, affordable way to discover new music… The iPod may yet become what Kleenex is to tissues or Jell-O is to gelatin desserts, but Jobs has much more work to do to make that happen,” Burrows and Lowry write.

Full article here.

25 Comments

  1. No offense, but Jobs knows what he’s diong…the notion the author of this article expresses is that people will wanna use other services with the iPod. Jobs doesn’t integrate because he knows that iTunes is the easiest, most affordable, and largest music store on the web…why would he want to work with the losers? That is, and always was, M$ downfall.

  2. Personally, I can’t wait (although my wallet can) for iTMS to launch in Europe. I could get music from Sony, Napster, Coke etc. but I’m happy to wait for the luxury service and usability that iTMS offers.

    People will always use iTMS because it offers the best service, ease of use and it was the original and is still the best by a country mile.

    And as for renting music, WHATEVER! I like to own my music. I like to rent movies. And I’ll never change my mind. If you want music t listen to now and again, buy a radio. On second thoughts, use the iTunes radio ” width=”19″ height=”19″ alt=”wink” style=”border:0;” />

  3. Microsoft is about to do it so it must be the right thing to do. Apple must get on the band wagon before the train leaves the station. Blah, Blah, Blah, Blah.

    The only 2 things Microsoft has successfully ‘innovated’ was to copy the graphical user interface to improve DOS and to use their Windows monopoly to make MS Office the standard.

    Everything else they have done has lost money. A subscription music service will be no exception.

  4. on the other hand, what can it hurt to offer a subscription service in addition to the standard model….giving your customers another option wouldn’t hurt, and could prove that the current model is best.

    question is why not?

  5. Hmm… how do the artists / music industry get paid by a subscription service?

    If renting catches a significant share, could iTMS offer a subscription service for streaming medium~low quality music by demand as a loss leader? It may not be economical to cover license fees and the bandwidth costs, but at, say, $5.95 a month, that could put a dent on the competition — assuming the appropriate licenses are obtainable.

    Not that I think Steve will blink.

  6. Rental would be fine if it was a rent to own deal and you didn’t pay more for the song by the time you owned it. Say, ten pennies a month for a song until you had paid the full 99 cents then it’s yours. That would be nice for new music that you’re not sure about. You listen to it a few times and discover that you really hate it – so stop renting it – you’d be out the ten or twenty pennies but not a whole buck.

  7. I remember a nice fellow rented a CD from a Japanese rental store at my request, ripped it and passed it to me via Napster. Those were the days … I bought more legitimate music then than I did in the ten years before Napster, and possily will in the ten years following its demise. On a later trip to Japan, I visited a rental shop with the intention to rent and rip, but found the CDs were all second-hand and cheap enough to buy.

    Buying CDs online is not always an option. After I downloaded a double CD, I tried to buy it, but was quoted 76 euros for postage on top of the 26 euros for the package. No thanks.

  8. I think what we’re not hearing from Napster wipes is that subscriptions don’t pay, at least, not at the numbers anyone offering them is able to currently sustain.

    So, while Apple may be able to offer subscriptions now (a likely possibility considering their dominance of the technology curve in this arena) the subsription levels indicated by other services may not provide them with any confidence that they will be able to make a profit right now. Because let’s face it, the number of people subscribing to a music service is a tiny fraction of the PC marketplace. And that’s with the Smartest PCeople in the World� running the services offering them.

    Meanwhile, Apple doesn’t lose any money trying to grow that business model to a sustainable level. But when it gets there, Apple offers subscriptions done right and immediately steals enough marketshare from Crapster and Real to break even. Throw in the iTMS customers who would try a service like that and you’ve got an instantly profitable subscription service.

    Apple is right to concentrate on growing the piece of the market it owns while waiting for others to grow other pieces of the market that Apple can cannibalize when there’s enough meat on the bone to matter.

  9. People want to own not “rent”.
    Record labels want people to buy not “rent”.
    Artists want people to buy not “rent”. The royalties would likely be paid as a function of where they are on the charts, so most artists wouldn’t see a cent.

    So, what songs do we put on the subscription service? Top 40 hits?

  10. Renting Music. Come on get real (no pun intended).

    Apple hit the nail on the head, rental services were around for long before ITMS came out and they were utter failures. They may be getting a bit more publicity resulting in a small increase in subscribers now (thanks to ITMS) but MOST people want to own, not rent.

    The only thing I can perhaps agree on is that Apple needs to make their Fairplay ubiquitous and to do that they should license it out at some point. The timing will be key tho. They don’t want to throw away first mover profits.

  11. >People want to own not “rent”.

    So the number of renters — “1-million”? [$120-million p.a.] — shouldn’t increase significantly and that’s that. And if it ain’t that, then it’s what we’re talking about — is there merit to BusinessWeek’s observation that subscriber numbers went from 250K to 1M in one year — even if it’s early and most are trial subscriptions.

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