Study shows Apple iTunes Music Store pay-per-download model preferred over subscription service

Amid increased growth in fee-based digital music experimentation and continued strong sales of portable MP3 players, the recent launch of a new generation of portable online music subscription payment methods may require substantial incentives to encourage broad consumer adoption, according to new research from global marketing research firm Ipsos-Insight.

In the most recent wave of TEMPO, Ipsos-Insight’s quarterly study of digital music behaviors, a representative sample of U.S. music downloaders aged 12 and older were presented with simulated digital music acquisition environments consisting of various options for obtaining online music. One of these simulated environments included an online peer-to-peer (P2P) file-sharing network, an on-demand streaming PC-tethered subscription-based service, and an a la carte pay-per-download service.

-In this market scenario, nearly one-quarter (24%) of current downloaders indicated a preference for obtaining music through a fee-based online offering, with an a la carte pay-per-download method most preferred (19%; compared to 5% preferring an on-demand PC-tethered streaming subscription service).
-When a new portable online music subscription service (which allows an unlimited number of songs to be transferred to associated portable devices) was introduced to the market scenario at $14.99 per month, the proportion of downloaders who would choose this method was 5%, one-third fewer than the 17% who would choose an a la carte method at $0.99 per song, yet greater than the 4% who would choose an on-demand PC-tethered streaming subscription service. This suggests a potential limitation in rapidly migrating current downloaders to this new method of fee-based online music acquisition.

Downloaders who have experience paying for online music are most pronounced in their preference for pay-per-download methods, as 28% of these consumers reported a preference for the a la carte option, 4% for an on-demand streaming PC-tethered subscription-based service, and 8% preferring the new portable subscription service. Meanwhile, downloaders with past experience using fee-based online music subscription services and those who currently own a portable MP3 player are most receptive to the new portable online subscription service, with 17% and 11% respectively choosing this method of purchasing fee-based online music in a simulated competitive context.

“With all of the recent media attention surrounding this rapidly changing market, these findings indicate that many downloaders still prefer a transactional payment structure over one that is subscription-based,” said Matt Kleinschmit, a Vice President with Ipsos-Insight and author of the TEMPO research in the press release. “This suggests that recently launched portable online subscription services may need to encourage broader adoption through ambitious pricing and promotional or incentive -based acquisition strategies, particularly among those downloaders who have previously only had experience with a la carte fee-based methods.”

Another key finding from this recent research is that despite increased fee-based experimentation over the past year (see below) and continued legal action against individual file-sharers, the presence of peer-to-peer file-sharing options in the market remain an influential force on consumer digital music acquisition behavior. Over three-fifths of current U.S. downloaders (62%) demonstrated a preference for peer-to-peer file-sharing when presented with a simulated market environment also containing fee-based subscription and pay-per-download channels.

When removed from the simulated market environment, findings suggest that many downloaders would indeed shift their music acquisition behaviors to online fee-based services, particularly pay-per-download options. In fact, 39% of current downloaders would choose to obtain music through a pay-per-download service in such a market scenario, compared to only 17% through online subscription-based offerings such as the services currently available (9% prefer a portable online subscription service and 8% prefer an on-demand PC-tethered streaming subscription service).

“This demonstrates that while current fee-based online music services (and pay-per-download models in particular) can indeed be effective at luring downloaders into paying for digital music right now, these services might truly flourish if free peer-to-peer file-sharing was marginalized in the market,” continued Kleinschmit in the press release. “It appears that when consumers do migrate to fee-based services, however, they are most likely to experiment with low cost and low commitment a la carte methods as a way of testing the waters. The primary challenge for online subscription services in this migration is to effectively communicate their value proposition while at the same time managing ownership expectations traditionally held by music consumers. Fee-based online music acquisition in general is still relatively new to many – and online music subscription services may require particularly aggressive promotion of their specific points of difference in the marketplace.”

TEMPO research published earlier this year revealed that in December of 2004 nearly half (47%) of American downloaders aged 12 and older had paid a fee to download music or MP3 files off of the Internet. This represents a leap in activity roughly double the 22% witnessed in December 2003, and over five times the activity in December 2002. This most recent figure translates into roughly 24 million people within the current U.S. population.

Recent TEMPO research also revealed some interesting demographics about fee-based downloaders:

·Adult downloaders aged 25 to 54 are the most likely to have paid to download digital music (50% among 25 to 34 year olds, 53% among 35 to 54 year olds). And while younger downloaders have typically been less likely to report having paid for digital music, in the most recent findings, over half of downloaders aged 12 to 17 report that they have paid for digital music (52%), suggesting that recent efforts to promote pre-payment methods to teens are proving successful.

·Nearly equal proportions of male and female downloaders have paid to download digital music files off of the Internet: 49% of U.S. male downloaders aged 12 or older report having engaged in this activity compared to 45% of American females. American female downloaders are continuing to narrow this gender gap, as women’s current fee-based downloading experience levels have nearly tripled compared to one year ago (16% in December 2003), whereas men’s have nearly doubled (24% in December 2003).

Methodology: Data on music downloading behaviors was gathered from TEMPO: Keeping Pace with Digital Music Behavior, a quarterly shared-cost research study by Ipsos-Insight examining the ongoing influence and effects of digital music around the world.

Data for this release were collected between December 29, 2004 and January 11, 2005, via a nationally representative US sample of 743 downloaders aged 12 and over. With a total sample size of 743 one can say with 95% certainty that the results are accurate to within +/- 3.6%.

In addition, past contextual data was pulled from TEMPO data collected between December 10 and 13, 2004, via a nationally representative U.S. sample of 1,112 respondents aged 12 and over. With a total sample size of 1,112, one can say with 95% certainty that the results are accurate to within +/- 2.94%.

More info and charts here.


  1. As one who is familiar with social psychology research methods, I have to say this looks like a well done, valid study. The most significant findings seem to be that people prefer the simplicity of pay-per-download and that if free (illegal) peer-to-peer file sharing cane be reduced the bulk of those downloads will become pay-per-download transactions, not subscription services.

    At the same time, I’m really wondering how significant account sharing is for the subscription model. Who loses money when subscriptions are shared? Is it Napster or the music industry? Either way it looks to me to be really bad news for somebody other than Apple.

  2. Hard to argue with those figures cos this industry is still in its infancy.

    For now, I will mostly buy CDs. Why? Cos then I can rip them at whatever rate I want. I still don’t consider 128 kbp AAC files at 99 cents to be worth the price.

    If the songs were half the price then I would consider it. 10 bucks for an album where the bit rate and quality may be easily superseded in the next few years is not a good deal to me.

    It will be really interesting how music listening will change in the next 5 years. The iPod has reinvigorated my music experience so I’m very happy with all these innovations.

    Now drop the price for the regular punters!

  3. Neil, I couldn’t agree more. I have no intention of paying for a sonically compromised product (not that many of the recently produced, overly-compressed CDs sound that great, either…).

    My iPod spends equal time attached to my home stereo. 196kbs AAC is the minimum I will rip, 224kbs I have found to be virtually indistinguishable from the source. Only my most prized CDs have received 256kbs; anything higher seems to be a waste of space.

    But 128kbs would definitely be a waste of money. If the iTunes store were to carry out-of-print CDs, or any of the vast amount of music that has never been released on CD, I might reconsider.

  4. Sigh. Audiophiles need to get it into their golden-eared heads that they are not, never have been, and never will be the target market for music download services. The iTMS and its competitors are directed towards the mainstream market, for whom the quality is “good enough”. Hell, more than good enough. iTMS tracks sound pretty much perfect to my average ears.

    But then, where do I listen to music? The car. At work. All noisy, less-than-pristine environments, and with less-than-audiophilic speakers. My stereo system is used almost solely for video. Occasionally I’ll turn on Music Choice on my digital cable, but that’s rare. And I don’t think I’m alone here. Audio is a portable thing. Few people sit in front of their stereo anymore, listening to music while reading a book.

    The point is, I don’t consider 128kbps AAC to be a waste of money. Anything more would be a waste of disk space, as far as I’m concerned, because I wouldn’t be able to hear the difference.

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