Is Steve Jobs finally ready to consider a music subscription service? Maybe. Should he? Absolutely.
The FT says Apple (AAPL) is talking to the labels about an all-you-can-eat music offering. Consumers would either pay a one-time fee, in the form of a more expensive iPod or iPhone, or a monthly fee, paid via their iPhone bill, in exchange for access to the entire iTunes music library. We haven’t been able to confirm the story, and the music sources we’ve talked to Tuesday night have been sceptical. We’ve talked a range of sources, and while some are sceptical this will amount to anything, we’re told discussions have definitely taken place. Parameters are still pretty vague, but everything we’ve heard so far makes this seems like a rare win for Apple, the music labels, and consumers.
Napster (NAPS), RealNetworks (RNWK) and a handful of other companies have peddled music rental services for years, with limited success at best. Jobs has repeatedly scoffed at the rental model, which means squat; the more Jobs derides something, the more likely he is to embrace it one day. We’ve always liked the subscription concept, but never liked the execution. And there was one overriding hurdle: None of the services worked with the iPod and iTunes.
The deals supposedly on the table take care of the latter problem. And we have faith Apple could knock out the remaining hardware/software kinks.
Which leaves money. The FT says that under the one-time fee model, Apple is offering the labels $20 per device it sells, which they would split based on market share. The paper says the labels want $80. It doesn’t say how much the supposed monthly fee would be.
But if that’s really the only thing keeping this from happening, then this is a done deal. Right now Apple sells about 20 iTunes tracks for each iPod or iPhone it sells. So the two sides just need to replace that revenue in a subscription model.
For argument’s sake, let’s say there’s a digital music boom coming, and the tracks-per-device number jumps 50% — to 30. How much would each side need to compensate for lost sales over the life of the device? Very little.
- Apple collects about a third of each 99 cent track sold: 30 x .33 = $9.90
- The labels keep the rest: 30 x .66 = $19.80
That’s it. Any additional money is gravy. The other upsides are even more significant: Apple gets to rejuvenate its slowing iPod line, and makes the iPhone even sexier. The flailing music labels get a slice of guaranteed income, bolstered by the world’s most inventive consumer electronics company. And their belated embrace of the MP3 format means they’re not locked into Apple for all their music sales: If they want a different deal with Amazon or anyone else, they can do so — the music they sell will work on iPods and iPhones.
Is this trickier than it looks? A little. Current music subscription services have a complicated per-stream licence structure, and that could get in the way. There are still debates about how to pay music acts and songwriters for digital sales. Etc. Whatever. If there’s anything the music industry has learned in the last decade, it’s that it has to move quickly, leave the lawyering for later, and make sure it gives consumers a better option than stealing. And this one, hypothetical as it may be, sure sounds like one to us.
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