Analyst Sees Subscription-Based Music Services Eclipsing Pay-Per-Download

| Reports

Strategy Analytics analyst Martin Olausson has authored a report positing an eventual sea change in the online music retail space. While Appleis iTunes Music Store (iTMS) dominates with a pay-per-download model that commands 70% of the market, Olausson writes that he "believes subscription services will supplant downloads as the dominant model for selling music online, driven by changing consumer expectations as well as the interests of broadband service providers and content owners."

In the report, a copy of which was obtained by The Mac Observer, Mr. Olausson explains the key points that led him to this conclusion. First, he writes, "consumers will gradually place greater value on having access to a wide range of music rather than owning a much smaller number of songs. Consumers will recognize that the a la carte purchase model is costly and inefficient, and that subscription-based services offer additional benefits such as improved interoperability and portability."

Looking at Appleis iTMS and Sonyis Connect, Mr. Olausson observes that "buying tracks in a a-la-carte model is costly and inefficient" and "the supply of music, and enhanced services, in subscription-based business models will continue to improve."

"Furthermore," he writes, "with different Digital Rights Management (DRM) standards on the market and little interoperability between them, itis not even certain that the tracks consumers buy today will be playable on new devices in a few yearsi time." And with subscription-based services adding the ability to take music on the go (except on the iPod, of course), Mr. Olausson believes that "consumers will realize the value of universal access to music and eventually put greater value on access than on ownership."

In addition, "Broadband Service Providers should drive availability and adoption of subscription-based services in order to promote broadband usage, ilock-ini existing customers and participate in music service revenue sharing," he writes. "Major record labels should make every effort to stimulate demand for subscription-based services in order to increase revenues from online music and combat illegal peer-to-peer music sources."

Mr. Olausson recommends that Apple Computer and Sony add subscription services to their pay-per-download business models while Napster, Rhapsody and Yahoo! "should work towards universal accessibility of their content and partner with broadband service providers to maximize sales."

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