EMI Music Chairman: Music subscription services like Napster and Rhapsody haven’t beeen huge

“Nobody said it was easy for EMI, the world’s third-largest record company and the home of Coldplay, as the music industry has weathered six straight years of falling sales,” Adam Pasick reports for Reuters. “Yet EMI Chairman Eric Nicoli and others in the industry are seeing signs of hope coming from the very source of many of the industry’s woes — the Internet. Downloaded music sales on online services such as Apple Computer’s iTunes Music Store are surging, and made up 6 percent of industry revenues in 2005. Nicoli said digital revenues are now expected to offset flagging CD sales within a few years. ‘We’ve seen a tripling in the last year and we’ve hardly gotten started,’ he said this weekend in an interview with Reuters at the music industry’s annual conference in Cannes, where he also delivered the keynote address. Digital music sales topped the $1 billion mark last year, according to the International Federation of the Phonographic Industry, compared with $380 million in 2004.”

Pasick reports, “He acknowledged that in a complex and rapidly changing sector, predictions and projections are an inexact science. ‘We thought subscriptions (services such as Napster and Rhapsody that offer unlimited music for a monthly fee) would be huge — it hasn’t been,’ he said. Mobile music, apart from phone ringtunes, has also developed more slowly than many had hoped. ‘We’re at year zero — if that — with mobile,’ Nicoli said.”

Full article here.

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23 Comments

  1. Pasick said ‘We thought subscriptions …… would be huge — it hasn’t been,’

    Now don’t overlook the fact that he’s almost certainly reporting this from Eric Nicoli’s point of view, as a chairman if EMI. Nicoli will be looking at how much income has been earned from subscriptions and it isn’t going to be very much at all.

    The subscription operators are usually very coy about just what proportion of their revenue gets passed on to the content creators and distributors. Some say that the figure is about 5%, estimated from what satellite radio services pay. Until I see an unambiguous alternative figure, I’ll assume that 5% is about right. Perhaps we’ll hear something about that when Napster’s announce their results in a couple of weeks.

    So from the record labels perspective, there are two games in town. One is subscription, with the labels getting a 5% share of a very small pie, the other is downloads, where they get 70% of an immense pie.

    I’m not much of a businessman, but I know which deal would appeal to me.

  2. AlanAudio:
    If the percentage you quote for the payment to the labels is correct, why are the Labels pushing subscription over direct download?

    They receive from the subscription service $1.00 a month per subscriber ($20 x 0.05) vs. $1.39 per song on iTunes ($1.99 x 0.70).
    The labels are limited to the flat rate from the consumer with the subscription service (unless they figure they can raise the rates after they have you hooked, liked the cable operators).
    Versus the $0.39 advantage per song out of the box, plus they have the upside potential of multiple downloads per person with iTunes.

    It seems to me that the Labels should be embracing iTunes over subscription services.

    Did the labels get a con job when they were being sold the concept of subscription services?

    What gives??

  3. Yeah, right.

    “Nobody said it was easy for EMI, the world’s third-largest record company and the home of Coldplay, as the music industry has weathered six straight years of falling sales”

    Oh, poor record companies! How ever shall they feed their babies?

  4. Good analysis there MCCF – I like your grand vision, even if it seems unlikely.

    Alan, this is what’s been bugging me all along about the subscription model. It’s amazing to me that the record companies thought that people would flock to this and create a market for something that clearly doesn’t have much more than a niche appeal. And for less profit. And with no potential upside except more subscribers.

    With Apple’s model, you reward the record companies (and eventually a little trickles to the artist) directly for each purchase. Every record label (and artist) has a fair chance at direct revenue (AH… maybe that’s a problem for the big 4… ya think?) and consumers get a chance to purchase in their own manner – singles, hits, genre, albums. (AH… another problem. Consumer choice is not a favorite of the big 4 either.)

    In addition, Apple’s upside is obvious – the more people download, the more they spend, the more everyone makes! Wow. Genius.

    But no, the music industry looks to the Cable and Cell industries and sees the “subscription” model and thinks “well if we can just rope everyone in then we’ll have steady guaranteed income FOREVER! We’ll never have to work hard for individual artists again!”

    As an observer of the consumer society in America, I happen to think we are approaching the point of “monthly fee overload” – wherein people begin to look at every one of these $40 – $50 – $60 monthly bills (cable/satellite, cell phone, DSL, home phone, gym membership…. the list goes on) and start to wonder if they need to pay every month for this stuff. Many are already disconnecting their home phones.

    Consumers move in waves, tides of ebb and flow. I think we have reached the zenith of the subscription model, and I think people are going to become more and more wary of adding yet another monthly expense to their tab.

  5. Good analysis there MCCF – I like your grand vision, even if it seems unlikely.

    Alan, this is what’s been bugging me all along about the subscription model. It’s amazing to me that the record companies thought that people would flock to this and create a market for something that clearly doesn’t have much more than a niche appeal. And for less profit. And with no potential upside except more subscribers.

    With Apple’s model, you reward the record companies (and eventually a little trickles to the artist) directly for each purchase. Every record label (and artist) has a fair chance at direct revenue (AH… maybe that’s a problem for the big 4… ya think?) and consumers get a chance to purchase in their own manner – singles, hits, genre, albums. (AH… another problem. Consumer choice is not a favorite of the big 4 either.)

    In addition, Apple’s upside is obvious – the more people download, the more they spend, the more everyone makes! Wow. Genius.

    But no, the music industry looks to the Cable and Cell industries and sees the “subscription” model and thinks “well if we can just rope everyone in then we’ll have steady guaranteed income FOREVER! We’ll never have to work hard for individual artists again!”

    As an observer of the consumer society in America, I happen to think we are approaching the point of “monthly fee overload” – wherein people begin to look at every one of these $40 – $50 – $60 monthly bills (cable/satellite, cell phone, DSL, home phone, gym membership…. the list goes on) and start to wonder if they need to pay every month for this stuff. Many are already disconnecting their home phones.

    Consumers move in waves, tides of ebb and flow. I think we have reached the zenith of the subscription model, and I think people are going to become more and more wary of adding yet another monthly expense to their tab.

  6. Good analysis there MCCF – I like your grand vision, even if it seems unlikely.

    Alan, this is what’s been bugging me all along about the subscription model. It’s amazing to me that the record companies thought that people would flock to this and create a market for something that clearly doesn’t have much more than a niche appeal. And for less profit. And with no potential upside except more subscribers.

    With Apple’s model, you reward the record companies (and eventually a little trickles to the artist) directly for each purchase. Every record label (and artist) has a fair chance at direct revenue (AH… maybe that’s a problem for the big 4… ya think?) and consumers get a chance to purchase in their own manner – singles, hits, genre, albums. (AH… another problem. Consumer choice is not a favorite of the big 4 either.)

    In addition, Apple’s upside is obvious – the more people download, the more they spend, the more everyone makes! Wow. Genius.

    But no, the music industry looks to the Cable and Cell industries and sees the “subscription” model and thinks “well if we can just rope everyone in then we’ll have steady guaranteed income FOREVER! We’ll never have to work hard for individual artists again!”

    As an observer of the consumer society in America, I happen to think we are approaching the point of “monthly fee overload” – wherein people begin to look at every one of these $40 – $50 – $60 monthly bills (cable/satellite, cell phone, DSL, home phone, gym membership…. the list goes on) and start to wonder if they need to pay every month for this stuff. Many are already disconnecting their home phones.

    Consumers move in waves, tides of ebb and flow. I think we have reached the zenith of the subscription model, and I think people are going to become more and more wary of adding yet another monthly expense to their tab.

  7. Good analysis there MCCF – I like your grand vision, even if it seems unlikely.

    Alan, this is what’s been bugging me all along about the subscription model. It’s amazing to me that the record companies thought that people would flock to this and create a market for something that clearly doesn’t have much more than a niche appeal. And for less profit. And with no potential upside except more subscribers.

    With Apple’s model, you reward the record companies (and eventually a little trickles to the artist) directly for each purchase. Every record label (and artist) has a fair chance at direct revenue (AH… maybe that’s a problem for the big 4… ya think?) and consumers get a chance to purchase in their own manner – singles, hits, genre, albums. (AH… another problem. Consumer choice is not a favorite of the big 4 either.)

    In addition, Apple’s upside is obvious – the more people download, the more they spend, the more everyone makes! Wow. Genius.

    But no, the music industry looks to the Cable and Cell industries and sees the “subscription” model and thinks “well if we can just rope everyone in then we’ll have steady guaranteed income FOREVER! We’ll never have to work hard for individual artists again!”

    As an observer of the consumer society in America, I happen to think we are approaching the point of “monthly fee overload” – wherein people begin to look at every one of these $40 – $50 – $60 monthly bills (cable/satellite, cell phone, DSL, home phone, gym membership…. the list goes on) and start to wonder if they need to pay every month for this stuff. Many are already disconnecting their home phones.

    Consumers move in waves, tides of ebb and flow. I think we have reached the zenith of the subscription model, and I think people are going to become more and more wary of adding yet another monthly expense to their tab.

  8. matrix3, don’t forget that what the labels get from every $20 of subscriptions is $1 to share between them all. At least with the iTunes model, 70% of the cash goes to the artists and labels.

    I was hoping that somebody would have by now been able to say that I was wrong and give a more accurate figure than the 5% that I’ve long believed to be true. To be quite honest, I can’t even remember where I saw that figure mentioned, so I would suggest to people that they take it with a pinch of salt until somebody can confirm it.

    I can see one reason why the labels hoped that subscription would work. If iTMS remains dominant, then the distribution of on-line music is in the hands of somebody else. The labels didn’t like it when MTV managed a similar feat and although the labels are completely unable to look forward, they are very good at looking backward and remembering situations that they didn’t like from the past.

    If there were a profitable alternative to iTMS, Apple wouldn’t have anything like so much power. As it is, there is only one company that makes money from running an on-line music download service and it’s no coincidence that it’s the company that makes the whole operation easy to use, offers a fair deal with regard to DRM and sells the music at a price that people are willing to pay, which also offers a better deal to content owners than selling CDs.

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