A look at the different business model/fee structure underlying the current subscription model, and the stake that this part of the industry has in Microsoft’s Janus technology: Music Sites Ask, ‘Why Buy If You Can Rent?’ (see also the BBC’s Virgin seeks slice of net music and CNet’s Virgin launches online music service)
Jupiter Research estimates that 2.1 million people pay for music subscription services, including the cheaper Internet radio services. By contrast, 8.5 million people have paid to download a music file. (All of that is still dwarfed by the 23.4 million people who said they downloaded files free from sharing services like Kazaa in the month of July, according to a survey by the NPD Group.)
That track record does not scare Zack Zalon, the president of Virgin Digital. “Two or three years out, subscriptions will overtake à la carte because it is a much more interesting proposition,” Mr. Zalon said. “It has just been difficult to articulate to consumers what it is.”
[...] Mr. Cue said that Apple might consider a subscription service in the future, but it has no plans to do so now. “Customers are speaking loudly with their wallets.”
Though that may be true, it is far more profitable for online companies to offer subscription services. Typically, an online store pays 65 or 70 cents to the record companies for each 99-cent track sold. But with subscription services, the online services split the fees 50-50 with the record labels after deducting certain expenses.
That fee-splitting cost structure is leading to what may turn into a price war among music subscription services, which generally cost just under $10 a month. AOL offers a subscription service to its members for $8.95 a month. Now Virgin is $1 cheaper than that.
[...] New technology from Microsoft, which is being adopted by most major electronics makers like Samsung, Rio and iRiver (though not by Apple) will allow devices to play songs downloaded in a special format from subscription services.
The songs will be programmed to expire on a set date, but that date is automatically extended when users connect their players back to the music software on their computers. If the user does not continue paying the monthly subscription bill, the songs will not play.
Plus, there’s these prognostications, and a bit of the music industry’s dream of endless format changes as revenue:
Others in the industry point out that surveys a decade ago said that cable subscribers preferred pay-per-view movies to subscription channels like HBO, but the channels turned out to be far more popular.
Moreover, Richard Wolpert, the chief strategy officer of RealNetworks, which offers the Rhapsody subscription service, says the idea that people buy music once and own it forever has not held true over the last few decades.
“I bought the Eagles ‘Hotel California’ on vinyl,” he said. “Then I bought it on 8-Track, really, then on a CD, and now I’ve bought it as a download.”
“What I really wanted,” Mr. Wolpert added, “was to be able to listen to the album wherever I wanted, whenever I wanted.”