Just like Apple launched a video iPod after Steve Jobs dismissed the idea of a portable video device, the company is now reportedly considering new business models for selling music, including subscriptions, despite Jobs' assertion that downloads make more sense.
According to a report in the Financial Times, Apple is talking with the major labels about letting consumers pay a premium for new iPods, then receive the right to download and listen to as much music as they want for a certain time period, along with the right to keep 40 to 50 songs permanently. Negotiations are apparently underway to determine the exact amount of the premium, with Apple holding out for $20 and the labels believing that consumers will pay $100. Apple may also be considering a straight subscription-based music service, but only for iPhone users, who already receive monthly bills from their cellular carriers.
The model sounds very similar to Nokia's Comes With Music model and Omnifone's MusicStation Max, both of which are slated to launch later this year.
This type of model acknowledges the way that serious music fans have chosen music for the last few years now: by sampling a wide range of compressed digital files for free (usually via file-trading services or from friends), then buying a select few albums in a higher-quality physical format (usually CD, sometimes vinyl). Consumers win by no longer having to sift through spoofed and low-quality files, although the real benefit will depend very much on specifics--how much Apple charges, and how long users are allowed to keep how many songs. The original FT report suggested there'd be no time limit, but CNET's Greg Sandoval has apparently heard that a subscription would be required after six months or a year in order to continue listening to files downloaded under the program.
Apple would helps the record companies earn some money from their normal behavior, rather than alienating customers (and facing increasing legal risks and expenses) by suing them. And Apple makes far more money from iPod sales than iTunes downloads, so using this technique to boost sales would more than make up for any loss of download revenue.
My fellow blogger, Don Reisinger, thinks the labels will only agree to a service if it's so crippled as to be worthless. I wouldn't be so sure--their strategy of ignore, delay, and sue clearly isn't working, and they all want a piece of the iPod phenomenon.
Yesterday, U.K. music download provider Omnifone announced a forthcoming program, MusicStation Max, that will offer cell phone buyers unlimited free music downloads. Of course, "free" is never free, and in this case, Omnifone is enlisting handset makers to subsidize the estimated cost of the downloads and pass that cost along to you in the form of a higher up-front price for the phone. So far, LG Electronics is the first cell phone maker to sign up for participation in the program. No confirmation yet on carrier partners, but the service builds on Omnifone's existing MusicStation subscription-based music download program, which has more than 30 carriers signed up worldwide, including Vodafone in the U.K. (No U.S. providers, however.) It's supposedly due out in the first half of 2008.
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Later this year, MusicStation Max will offer unlimited free music downloads to LG handsets.
(Credit: Omnifone)MusicStation Max will give carriers some leverage against Nokia's forthcoming Comes With Music service, which is due out late this year. That is, if people like the idea of paying a bit more (how much?) up front for free music downloads, carriers will be able to offer them phones from other handset makers, and won't be locked into Nokia's hardware, service, or prices.
But that's the big question: will people like the idea? With both services, there's an expiration period after which customers either have to buy a new phone to keep using the download service (although they will be able to keep the songs they've bought), or move to a monthly fee. Similarly, songs will be playable on phones and PCs only, and won't be burnable to CDs or transferrable to other types of devices.
So the success of such a service depends on whether people are truly ready to make their cell phone their primary source of and playback device for music. I know that people live on their phones, but I think an Internet-connected computer's hard to beat--you have nearly infinite selection and pricing competition, immense flexibility once you've gotten the music onto your computer, and the ability to hook it into all sorts of playback hardware for better sound quality.
Regardless, though, both Nokia and Omnifone are taking important steps toward the only logical future business model for the music industry, in which the cost of unlimited "free" music is subsidized by pooled payment from customers to some third party, be it ISPs, hardware manufacturers (PC, portable music player, cell phone, flash memory stick, whatever), or music software companies. That's the only economically sensible way to compete with piracy.
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