Analyst: Apple will lose market share to subscription services, fact that iTunes is tied to iPod

“According to Strategy Analytics, subscription services will replace downloads as the dominant music online model and cause the success of iTunes to be short lived. The shift towards subscription music services will be driven by a combination of changing consumer expectations as well as pressure from broadband service providers and record companies,” Wolfgang Gruener reports for Tom’s Hardware Guide.

“‘Downloads tend to be too expensive,’ said Martin Olausson, senior analyst with the Strategy Analytics’ Broadband Media & Communications service. ‘If you were to download 10,000 songs at 99 cents each, you are talking about a lot of money.’ Instead, subscription services such as Napster and especially Yahoo’s Music Unlimited offered access to the same amount of songs ‘dirt cheap’ and therefore would be more attractive to consumers,” Gruener reports. “Even if iTunes controls about 70 percent of the online music market this time, Olausson is certain that Apple will lose market share to subscription services and the fact that iTunes is deeply tied to the iPod. ‘iTunes is positioned to increase hardware sales for Apple. Other services focus on content,’ he explained. ‘Apple is about to make the same mistake that they made in the PC world. They also lost their lead they had with computers in the 70s and 80s.’ The stronghold the company tried to keep with iTunes and the iPod could soon be broken with more open subscription services and music-capable mobile that could outsell the iPod ‘very quickly,’ Olausson said. According to the analyst, Napster and Yahoo were best positioned to take iTunes’ place as the dominating music service.

Full article here.

MacDailyNews Take: If faced with any market share losses, not seen to date, what’s to prevent Apple from adding a subscription option to iTunes Music Store? Does this analyst really believe that Apple’s iTunes Music Store doesn’t “focus on content?” Has he ever explored Apple’s iTunes Music Store? Does he understand that an iPod is not required to use the iTunes Music Store and vice versa? Does he realize that Motorola and Apple are about to introduce a music-capable mobile phone line? Just how much analyzing went into his analysis anyway? Can anyone with a demonstrable pulse be an analyst?

Again, iPod+iTunes is not the Mac, no matter how weary we grow of having to repeat basic common sense, here goes: The Macintosh platform required and still requires huge investments by developers to create compatible software. So, when faced with budgetary contraints, they chose and still sometimes choose to go with the most popular platforms. The iPod simply plays music that can be encoded, for very little cost, in any format the “developers” (musicians and labels) desire: AAC, MP3, WAV, AIFF, etc. The music doesn’t need to be rewritten, recorded, and remastered. It’s like writing Photoshop once and then pressing a button to translate it for use on Mac, Windows, Linux, etc. To draw an analogy between Mac OS licensing and the iPod/iTunes symbiotic relationship simply highlights the analyst’s ignorance of the vast differences between the two business situations.

Related MacDailyNews articles:
Merrill Lynch analyst: Apple could ‘flick the switch on a music subscription model’ – May 13, 2005
Enjoying Apple’s iTunes and iTunes Music Store without owning an iPod – May 11, 2005
J.P. Morgan: Yahoo music service ‘does little to break Apple’s tight grip’ on digital music market – May 11, 2005
Yahoo launches Napster To Go, Rhapsody To Go killer (takes aim at Apple’s iTunes Music Store?) – May 11, 2005
Motorola expects to launch first Apple iTunes phone this summer, second iTunes phone in 4th quarter – May 11, 2005
Motorola’s Apple iTunes phone software screenshots posted online – May 11, 2005
Will cellphones eat Apple’s iPod or vice versa? – May 09, 2005
Another day, another ‘iPod may go the way of the Mac’ article – August 16, 2004
The iPod is not the Mac, so stop trying to compare them – August 13, 2004

46 Comments

  1. What a bunch of morons!?!? Here, let’s quote the Napster commercial because it makes “sense”. Another in a long line of short sighted, uninformed journalists trying to get their names knows.

  2. Business model for iTMS that makes it more attractive than the subscription services:

    * Subscription service, $10/month or $100/year. Includes unlimited subscription music, plus earn-your-own: Every month after your first, you can download 1 or 2 tracks you own. So if you find yourself out of work suddenly and have to give up your subscription, you still get to take some of that music with you.

  3. 10,000 songs???? I have about 1000 or so on my 20gig 4G iPod and most of those are from CD’s. I have probably purchased a 100 or so songs off iTMS since it opened. I couldn’t imagine having to pick out that many to play. People don’t fill up their iPods with purchsed music; they use their own CD’s…..Give me a break……

  4. It’s remarkable to me that some of these analysts keep writing about how a subscription service is the only way the online, downloadable music industry is going ot survive despite the fact that Napster, Real, Walmart and a host of others have been unable to put even a small dent in the ITMS which does NOT have a subscription model. Definitely a case of people trying to will something to happen and make others believe in it simply by saying it over and over again. There’s no reason at this point in time for Apple to pursue a subscription model. They own the market. If the time comes where subscriptions become more in demand by the consumer, then Apple can turn on such a service in a matter of minutes. The analysts have no clue what they’re talking about and obviously can’t find any real stories to write about, like say…Microsoft’s failure to put out a new operating system for seven years or something…

  5. Do any of the analysts realize how long it takes to play all 10,000 songs? And if everyone, like me, normally listens to a playlist that contains nearly 200+ songs. I have 6000 songs on my iPod from my own collection and about 300 songs purchased on iTunes and there are at least half of them unplayed at least once. What does this mean? No normal purchaser of music will ever dish out $10,000 in his lifetime on iTunes. He will borrow CDs from friends, purchase those he wants, and occasionally buy one or more tracks from iTunes.
    If a normal purchaser of music buys 3 CDs a month for $10.00 each he spends $360.00 a year. He has 360 tracks. If he does this every year for ten years he will have 3600 tracks. How many does he actually listen to?
    The only point I’m making is that, in the long run, most people want to own their music and not rent it and they want to listen to what they like at anytime and not worry if the payment has been made.

  6. hooty –

    Gotta stop thinking like a dinosaur. Today’s adults have large CD collections. Today’s kids have very small CD collections. Tomorrow’s kids aren’t going to know about buying CD’s in a store.. all of their music purchases will be done online.

  7. Agree with the sentiment expressed in the article that downloads are too expensive. The music industry supply chain saves enormously on production and distribution costs and passes none of the savings on.

    I wish I had the option of yahoo’s cheap subscription so I could try it myself. Those of you who don’t want it don’t have to get it. But shouldn’t we all have choice, and isn’t the iPod/iTunes/iTMS vertical integration stifling choice?

  8. Also, this guy doesn’t seem to understand that the last thing Napster & Co. would want is for Apple to give iTMS a subscription model, in addition to it’s a la carte service. If Apple offered a subscription service, NO ONE would use Napster, Real, etc., becasue they’d have no reason to. Yahoo: maybe, if they keep their prices low.

  9. Maybe they think that if they repeat the same old thing over and over it will become true! Or maybe they get a check from Micro$oft every time they repeat it; Wait that’s right they are correct! Subscription is the way to go! M$ send mine to address is Al…! Yeah like I would sell my soul to Bill like these drones did!
    I just hope I don’t get in trouble by saying this, some virus should affect the subscription key/system of these subcription based systems, maybe after a few thousand of these idiots see that all their music is gone, then they’ll realize their dependency on a system like that leaves their music unprotected. Owning is the only way to go!

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