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March 19, 2008

Apple tacking subscription fee onto iPod/iPhone?

There have been rumors making the rounds that Apple has been looking at offering a music subscription service as an alternative to its so-called “a la carte” model where iTunes customers pay a flat fee for every song they buy. Naturally the a comparison with RealNetwork’s Rhapsody service comes to mind.

But now there’s a report from the Financial Times that suggests that Apple is instead looking at another model: Charge an extra premium for the iPod or iPhone device, and then offer consumers full access to the entire iTunes music library. It’s similar to a deal from phone maker Nokia. But the FT says the big difference is in scale. Nokia is said to offer a pot of money that amounts to $80 per device, and then divide the pot among the record labels according to market share percentages. Apple’s proposed rate is said to be closer to $20, which makes a lot of sense. Of course they’re pretty far apart on what constitutes a reasonable rate.
Meanwhile, I can’t help but remember that Steve Jobs years ago derided the idea of “renting” music. He often hates something before he loves it. Remember when he said music was a background activity and that as such video wouldn’t make sense on the iPod? It wasn’t long before Apple launched TV shows on iTunes. Yeah. It’s like that. This story is probably true. [BusinessWeek]

In a post entitled "Steve Jobs vs. Subscriptions" I once argued on this blog that a subscription model is superior, and that despite statements to the contrary from Jobs, it was for temporary, tactical reasons that Apple wasn't already moving in that direction.

I listed a number of reasons the subscription model is superior. The first comment to that post was from someone purporting to be Steve Jobs who said "And here's one reason it isn't superior: when I stop paying all the music goes away." (Personally, I see no reason to think it wasn't the man himself; that's something he has said in other contexts as well.)

My response was: "But, unless you were planning to stop buying music piece-by-piece, you'll be spending money in the future on music anyway. And I, for one, have no such plans. So, I don't see how the 'when I stop paying all the music goes away' has much merit in the real world."

I subsequently heard from some folks who claimed that they never needed to buy signficantly more music than they already bought in college, so in fact, they said, the Jobs argument was true for them. I find it hard to believe anyone is really like that, but I suppose some people are.

Others argued that subscriptions cost too much. My reply was basically that that was an illusion, undoubtedly brought on by the high price of the first subscriptions services. There was no reason that subscriptions had to remain that high -- if you thought they were going to, you just weren't thinking ahead enough. One solution, I argued, was to have different tiers of service.

The model of tacking $20 onto the price of an iPod/iPhone fulfills that promise in a big way -- although it's so cheap it even eliminates the need for different tiers. According to the BusinessWeek article, folks in Europe tend to buy new cell phones every year, so at least for that group it's equivalent to a $20/yr subscription fee.

But, more likely, the music access would be time-limited and when it expires, Apple would offer a renewal on an annual basis.

I don't know if Jobs is able to do a deal with the labels that really gets the pricing down to that level. But if he can pull it off, it will be a huge step forward. (At least for those music lovers who also like Apple hardware! A group I happen belong to -- my family owns two iPhones, three actively-used iPods, two Apple TV's, and three Apple laptops.)

Update: It looks like it's not actually going to happen in the near future, but the idea is being "kicked around":

According to a story in the Financial Times, Apple (AAPL) would charge enough for iPod and iPhone devices to cover the cost of licensing entire music collections. It would use that premium to create a pool of revenue, a portion of which would be divided among the major music labels, the newspaper said.

Trouble is, no such talks are under way, according to people familiar with Apple's plans. An Apple spokesperson declined to comment. Insiders at major music labels were similarly dismissive. One person familiar with the matter said the idea of subscription plan has been "kicked around" for about a year, but said there have been "no meaningful discussions" on the subject. [BusinessWeek]

I continue to think that the long-run outcome will probably be some kind of iTunes music subscription service. This recent "kicking around" is a first step.

March 19, 2008 in Music, Web/Tech | Permalink


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