Napster & Yahoo! Execs Say Subscriptions Will Beat iTunes

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The king daddy of the online music download business is, unquestionably, Apple Computer. The companyis iTunes Music Store [iTMS] owns some 90% of the market, and it so far has withstood every newcomer, including Napster, Yahoo!, and Microsoft. Executives at two of those companies, however, have said that in the end, subscriptions will beat Appleis á la carte system.

At issue is Appleis business model of selling songs versus Napster, Yahoo!, and other online services that also offer users the ability to rent songs. With that business model, users can typically download any and every song they want for a fixed monthly fee, but the catch is that those songs are only playable as long as the subscription in current.

Itis a classic tradeoff of permanence vs. quantity, but Chris Gorog, CEO of Napster, told USA Today that he thinks subscriptions will beat out purchases before all is said and done.

"You can fit 10,000 songs on [a 40 gigabyte iPod]," Mr. Gorog told USA Today. " [But] to do that would cost you $10,000 if you bought the songs from Apple. With our plan, customers can get 10,000 songs on their device for $180 a year. Itis an enormous value."

The same sentiment was echoed by Dave Goldberg, who heads Yahoo!is music division, which includes MusicMatch. He told the newspaper that "Selling 99-cent singles isnit working as a business model for us or for consumers. We sell hundreds of downloads, but we donit make money on them. Subscriptions is a much better business for us."

The comments came in a USA Today article published by the Springfield News-Leader (link courtesy of our friends at MacMinute). The specific quotes appear to be recycled from an earlier article USA Today published on December 21st, 2004.

No downloads for you!

Apple CEO Steve Jobs doesnit see it the way as Messrs. Goldberg and Gorog. In a press conference held in April, 2004, Mr. Jobs said that users donit want subscriptions.

"The subscription services are not succeeding," said Mr. Jobs in answer to a question from Josh Bernoff of Forrester Research. "People want to own their music, not rent it."

So far, it would seem that Mr. Jobs has the right of it. Music buyers have bought more than 200 million songs from Appleis iTMS, allowing the company to capture some 90% of the market. That leaves Napster, Microsoft, eMusic, Yahoo!, BuyMusic.com, and a host of other competitors left scrabbling over the remaining 10%, including those saying renting is better.

The portable equation

At the time that Mr. Jobs spoke, it was impossible to take rented music with you on digital media devices, but that is no longer the case. Microsoft introduced Janus in the Fall of 2004, a platform that allows subscription content in Windows Media format to be played on those devices that support it.

As USA Today pointed out, however, very few devices currently support Janus, though that number is growing. The most important device, Appleis market-crushing iPod, isnit one of them, nor is it ever likely to be one of them, bringing observers to a chicken-or-the-egg question that leaves Apple still firmly in the lead.

The long run

The most interesting thing about this issue is not whether Apple will sell more downloads than the rental houses will gross in monthly residual income, but whether or not Apple will be able to adapt to the market.

Should it prove that there is a large market for subscriptions, there is little doubt that Apple could quickly introduce such a feature to the iTunes Music Store and its line of iPods. If that is the case, the company will be able to leverage its already-large user base of iTMS customers.

In the meanwhile, expect more hype from both camps, with each claiming the otheris business model is obviously a failure.

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