After a Decade of iTunes Dominance, Apple Has a Tough Choice (guest post for Billboard)

My most recent guest post for Billboard... this time on iTunes.

Barrels of ink have been spilt hypothesizing Apple’s next move in music given the mass market transition to streaming and subscription music services has finally begun. I am responsible for a least one barrel of that ink, and am on the record as of 5 1/2 years ago speculating that Apple’s entrance into the subscription music market was imminent. In my defense, that was back in a time when there was only one music device in the market that mattered... the iPod. Back then, Apple could have flipped on a subscription music service and secured their place as the dominant force in music for decades more. Of course they didn’t do this, as this would have instantly cannibalized their still very large and important music download sales revenue. Those of us that were still happily shelling out several hundreds of dollars a year would instantly convert to only playing $10/month. The revenue loss from the hardcore music buyer wouldn’t (yet) make up for the slight increase in annual spend from the rest of the iTunes customers. Instead, Apple has been playing the financially prudent game where they can watch the revenue curves... when the projected subscription revenue line crosses the music download revenue line launch the full on-demand streaming service (that they inevitably have had working in the basement of Cupertino headquarters for years).

The wrench in this strategy many years later is, of course, Android. Now instead of owning the entire mobile music device market, Android has come along and turned iOS into a minority share player. While Apple could still launch a successful subscription music service now, they are faced with a “sophie’s choice” - play to win at streaming music (and maintain their leverage over the rest of the market) or dig their heels in deeper on an ever weakening iOS lock-in strategy. For the record, I am no fan of lock-in tactics, and generally think they are all doomed to fail - but given Apple’s choices I think this is likely the path they will take.

The interesting historical context for all of this is that it was Apple’s abandonment of a lock-in strategy that helped them secure such success in the mobile market. When the iTunes Music Store was first launched, it was Mac only... the tight ecosystem between iPods and iTunes (on Macs) were used to lure the Windows consumers to switch to Macs. Given their minority share (< 10%) in the PC market, this strategy did not bear much fruit. Apple then made the somewhat decision to bring their software to Windows - one of the few times they have done this (along with the likes of Safari & QuickTime). Bringing the iTunes Music Store to the mass majority of the market thereabout fueled massive iPod sales, which begat the iPhone, which begat a new massive revenue stream for Apple in iOS apps.

So, I’d argue that if Apple brought an iTunes subscription music service to iOS and Android they can “win” again. BUT, given the notoriously high-complexity/low-margin business that subscription music is... I think they will continue to cede subscription music to the other players. Apple execs have said that music is multi-billion dollar business for them that “is run at breakeven”. By continuing to focus on the other aspects of the iOS platform, they can get a much higher return on that investment while still generating low-complexity/high-margin revenue from music by taking their 30% vig on all music subscriptions that come in through their App Store.

Where in 2007 I’d have bet big money that Apple would enter subscription on-demand music, I’d now bet bigger money today that they won’t. My caveat is the much rumored “iRadio”... I believe the reports postulating that they will compete with Pandora on a “non-interactive” radio service. In my opinion, this has much less to do about being in music as it is about improving their iAD platform. They can use radio as a loss-leader to both create additional inventory for the ad platform while simultaneously gathering very valuable user taste and behavioral data that they can then leverage and offer to all of the other iOS app developers.

In a perfect world, a streaming radio service is an all-around win for Apple... they build a better advertising platform, they offer a programmed streaming experience that has proven both more popular and more cost-efficient than on-demand subscription services, they increase sales and extend the life of downloads, their incremental download sales help drive the sales of higher storage capacity iOS devices, all the while avoiding competing directly with the subscription streaming services (of which they take a nice profitable cut of the revenue on sign-ups through their platform).

There will certainly be a huge number of people that will try, and like, iRadio. For many having that experience only on their iOS devices will serve their needs just fine. A minority share of music listeners is probably “good enough” for Apple to help move their advertising and OS platforms further down the road. But, as the device market continues to fragment - with people enjoying their music on their iPads, Androids, Rokus, car stereos, Sonoses, and more - a platform/OS lock-in strategy will prove to be a short-lived advantage in music.

All of the above is a very long-winded way of saying, don’t count out the other players - both on-demand subscription and non-interactive radio services.. Apple’s entrance into streaming music will ultimately help build the awareness and userbases of those services that are dedicated to being fully-cross platform and being everywhere their listeners are.

iTunes.fm?

Image via CrunchBase, source unknown I just read a really good post from Read/WriteWeb with more speculation on what is coming with iTunes 8.0 software next month (click the link below to see the whole story):

The Case for an Apple iNetwork: Welcome to the Social - ReadWriteWeb: "While most of that is common knowledge, what most people overlook is the glaring lack of any community aspect to iTunes. There are millions of people, many of them with similar tastes, flocking to the same destination every day, yet they never interact with each other... because they can't. If Kevin Rose is to be believed, however, (as discussed on TWiT 157) that all is about to change with iTunes 8.0.

He says, '... the one thing I hear about iTunes 8.0 is that it's gonna do something along the lines of, um, looking at your music, and, uh, kind of recommendations based on certain things.' In other words, the next version of iTunes will monitor your media purchasing and consuming habits and correlate them with everyone else using the system to figure out which songs you will probably like but haven't bought/listened to. If you're a fan of collaborative filtering systems or internet radio (Pandora, Last.fm, etc), you're probably familiar with the idea already and that iTunes may be considering implementing this doesn't come as a surprise (I found myself wondering why this wasn't introduced 2-3 years ago)."

To make a real play at being a music network I think Apple needs to give iTunes a web presence (outside of the client application), but nonetheless the potential notion of Subscription + Cloud + iPhone + Taste Networking = pretty compelling proposition. Last.fm, iLike and iMeem have established the market for such experiences now. This is about the time when Jobs likes to walk in with an offering (while claiming they *invented* it).

I still think that they will come in with subscription at some point (if not now), but I'd put pretty good money that September announcements include MobileMe + enhanced taste networking/discovery features (with still an outside shot of full-blown subscription being announced too). Apple wouldn't be going through the headaches with MobileMe transition (aka "upgrade") if it wasn't key to their strategy moving forward - the next logical step for it is cloud storage (and playback) of your iTunes library with the additional kick of wireless (push) sync management of that media down to your iPhone/WiFiPod. Once your content is in the cloud and universally accessible, then limited sharing (streaming) to a small social network of your friends enhances discovery of new content, with easy "buy" links back to iTunes which can then push the newly purchased content to your device, computer and cloud all simultaneously.

Thoughts?

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iTunes Unlimited Coming Next Month?

Image via CrunchBase, source unknown We'll see if this actually plays out... but news is (re)surfacing that Apple's iTunes subscription plans are for real.

Rumors of iTunes music subscriptions fly again | The Industry Standard: "MacDailyNews says the service will be called 'iTunes Unlimited' and offer 50% of the songs currently on the traditional U.S. iTunes store through the program at launch. The subscription will be for one year and be available through iTunes or a retail box, similar to how MobileMe/DotMac is sold. iTunes Unlimited would launch, initially, on the U.S. store only. The subscription would cost $129.99 on its own, $179.99 with MobileMe or $99.99 for existing MobileMe subscribers. The site claims a late September announcement with late October rollout, just in time for the holiday season. TUAW received (almost certainly from the same source) a similar report."

But if it does, I won't hesitate to be the first to say "I told you so". :-)

Also check out some of my speculation on Apple's continued subscription world domination plan from January of this year.

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Never Go Up Against a Sicilian When *Death* is on the Line!

Image from WikipediaVizzini vs. The Man in Black in "The Princess Bride"... one of the most quoted and memorable movie scenes of my generation. The battle of wits to the death comes to mind often when I sit and watch what is going on right now in the music industry. The labels are Vizzini... overconfident, over-thinking, but also over-looking (the obvious). The consumers are The Man in Black... practical, nimble and immune.

For those of you that watch the industry, you have seen a flurry of announcements lately about the new approaches the labels are taking, the partners that used to be defendants, and how everything is the next "iTunes-Killer". While hyperbole is aplenty, clarity is hard to come by when it comes to making bets on what happens next.

• Last.fm offering free streaming of millions(?) of tracks has also just announced that they will also offer streaming simulcasts of CBS Radio stations (sister division)
• imeem cutting deals with all the majors with other "gray" services being coerced into similar deals
• MySpace Music's announcement today about offering free streams (from 3 of the 4 majors) and selling both DRM'd and DRM free tracks
• Nokia's "Comes with Music" offering (aka "the hardware tax")
• Apple's rumored discussions around their own subscription plans ("hardware tax")
• Omniphone's music subscription as bundled with wireless plan service in Europe ("wireless tax")
  
• Universal Music Group's "Total Music" plan(s) that are still unclear ("hardware tax"?)
  
• Warner Music Group's announcement last week that they hired Jim Griffin to drive and promote a service offering that would be bundled with your ISP bill (aka "the ISP tax")
• MP3 Search Engines (aka "information retrieval tools") and online storage lockers, like Seeqod and MP3tunes, being sued by major record labels
• New playlisting and music services popping up daily (see Muxtape and Mixwit)
• Other services getting acquired (Foxytunes, Qloud) while others close up shop (Ezmo)
  
• XM & Sirius merging
• EMI hires ex-Google CIO to head up their digital division
  
• Yahoo and MTV shedding their subscription music services (to Rhapsody)
• Yahoo Music VP, Ian Rogers, decided to move on to a new job focused on the *creation* side of the industry... presumably because the consumption side is such a mess?
  
• AOL farming out their radio programming (and presumably royalty liabilities) to CBS Radio
  
• Amazon is now the second biggest digital music retailer, but iTunes is now the biggest music retailer (digital or physical) surpassing Wal-Mart
  

The list goes on and on. The good news is that there are a lot of smart and passionate people dedicated to trying to change the way the music business operates. The bad news is that most of the business models being pursued above can only succeed at the expense of all the other models.

I like the notion of making music "feel free" even if it's not. The problem is are you going to pay Nokia, Apple, Verizon and Comcast all an incremental fee for the same rights (all the music you can enjoy)? Some would say the labels have finally gotten smart by recently making some online bets after years of just trying to wish the internet away. Others would say that they are extorting the digital music companies, forcing them to make huge upfront deals and trade away big chunks of their companies in the name of self-preservation. Taken a step further, many claim the labels are moving towards extorting the consumers directly (after years of suing them) by trying to inflict an "optional" ISP music fee that basically buys you (and the ISP) immunity from being sued.


The only thing clear to me is that there is a nuclear bomb coming, and I'm not betting on any of them until the smoke clears. Any one of the (r)evolutionary models will send ripples throughout the music/tech community.... anointing new kings while massacring hundreds of others in the process.

That is, of course, if Steve Jobs decides to let any of it happen or not.

Warner Music's Take on Subscription Music

Source: WikipediaNews yesterday that Warner Music is pushing forward with their own take on subscription music... one that bundles a monthly fee (around $5/month) into your ISP bill and then lets you download any/all things you want (presumably most happening via P2P networks) with immunity from litigation.

As I have said numerous times, I am a big fan of the value proposition offered by subscription services, but this opens stirs up far more questions for me than answers based on my (assumed) use case below...

• Comcast pays some collection agency a couple/few bucks for on every ISP customer they have
• Comcast either then charges me an extra couple of bucks on my $50/month ISP bill or throws a few more ads at me to cover their incremental cost
• I (and they) now have "immunity" for anything I download over their network - from MP3 search, P2P, etc.
  

If that is correct, then that sparks a bunch of related questions...

1. Does it matter how many people are on my network? Theoretically, my ISP is monetizing each user but in reality they would be monetizing the household, no? What if I open up my wireless network, and invite my neighbors that don't have broadband to jump on? What if I open a coffee shop and let hundreds of users a day get on free of charge? What if I resold access, is it then different?
2. How does my ISP cover their incremental costs via advertising? Many people don't ever visit their ISP's webpages (myself included). Do they they have to require their users to use/frequent their portals/sites? Do they require some application (like some of the old free ISP models) that throws pop-ups at me?
3. What about wireless? Is my cellphone company considered an ISP and subject to the same fees? If so, then isn't the consumer getting charged twice for the same rights (e.g. once by Comcast and once by AT&T)?
4. This is repeatedly denied as being "a tax", but to make this work it would have to be a *required* fee to every ISP, no? Otherwise, there is the danger of people switching to the *cheaper* ISPs that don't have cover this cost?
5. If the ISPs need to monetize these music consumption experiences (to cover their incremental costs of contributing to the pool) that seems to dictate that they (or at least some of them) can no longer just be a dumb pipe to 3rd party music sites.
6. Does this force Comcast and Verizon Fios (and others) to invest in building out there own music destinations to compete with Yahoo Music, AOL Music and MTV?
7. Does this trigger an avalanche of music service acquistions by the ISPs? Does Comcast buy Napster? Does Verizon buy imeem? Does Cox Communications buy Seeqpod? If they don't "own" the music experiences of their customers then how do they cover their additional licensing costs? If the ISPs can't cover these costs (or generate additional revenue around music) then what's in it for them? Just immunity from lawsuits themselves?

Public perception will be one of the biggest hurdles (and in my opinion, most important) to overcome in this new plan. The labels have done a fabulous job painting themselves as the bad guys over the past few years and most consumers don't really care whether or not they survive. While there are lots of reasons why the blanket licensing plan has merit, it will be all for naught if the consumers aren't convinced it's in their best interest.

I suggest that Warner Music gets a great PR firm on retainer quick before this rhetoric gets loud enough to smother the plan.

The next *big* question is then... how does this ISP-fee plan work in conjunction with the other approaches that Nokia is pushing with their "comes with music" plan and rumored Apple subscription plan that would put the tax on the devices themselves. How many times do I need to pay for my music... once with my phone + once with my iPod + monthly with my ISP + monthly with my cellphone???!

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Sony BMG to Launch Own Subscription Service (Again)

News is surfacing that Sony BMG is going to try (yet again) to a launch their own subscription music service. You know the saying about the "definition of insanity", right?

I don't get it at all. Where I used to think that Sony must have some well-thought out plan for their future (that I just didn't have visibility into), I now see them as just completely desperate, completely dis-"Connect"-ed, delusional label that has somehow convinced themselves that consumers know (and care) what label an artist is on.

Would you subscribe to a cable TV tier where you would only get access to shows produced by Ubu Productions (sit, ubu, sit.... good dog). Arguably, Ubu has stronger brand equity than Sony BMG and I still can't name what shows they produce.

It seems to me that these guys are just floating any idea to try and and stem the possibility of Apple beating to them to the punch (remember my 2008 predictions?) and taking what little semblance of power the labels once had in the music industry away from them.

Last.fm's Subscription Details (or just speculation?)

Silicon Alley Insider says they have an inside tip on details of Last.fm's upcoming subscription tiers...

Last.fm's Subscription Service: Bite-sized And Super-Sized? - Silicon Alley Insider:

• "A mini-subscription, priced at $4 a month. This would let users stream more music than they can for free -- Last.fm's current deal limits users to 3 plays per song, per month -- but would be capped at some number. We've heard 100 songs a month, but that seems too tiny to entice many users.
• An all-you-can-eat, unlimited subscription, priced at $10 a month."

SAI closes saying they are skeptical of the validity of these rumors... what do you guys think?

To me it says Rhapsody better get going and (re)introduce some of the community features that they briefly showed up last year but have subsequently disappeared.

Rhapsody Snags Yahoo Music Subscribers Before Microsoft

Further consolidation in the music market....

Yahoo selling music service to Rhapsody America - USATODAY.com: "Yahoo is selling its digital music subscription service to Rhapsody America — a partnership of Real Networks and MTV Networks — as it revamps its music strategy.

Yahoo Music will continue to offer music videos, Internet radio and music downloads. But customers of its monthly Yahoo Music Unlimited service will be migrated to Rhapsody. No firm timetable has been set. Yahoo, which expects the deal to close by the middle of year, did not disclose terms."

Now all that is left if for Rhapsody to buy Napster, and the subscription market has been weened down to Rhapsody vs. The World (save Last.fm's upcoming streaming subscription service).

This story talks about Yahoo keeping their Music destination (music.yahoo.com) and ... I definitely believe the former, but I still think the latter could be up on the blocks at some point.

I think this is a good play for Rhapsody, and sooner or later people *will* understand the value of subscription. When the do, they'll be the only game in town...

Last.fm Rolls Out Freeplays and Subscription

And another shoe drops...

Last.fm – the Blog · Free the Music: "As of today, you can play full-length tracks and entire albums for free on the Last.fm website.

Something we’ve wanted for years—for people who visit Last.fm to be able to play any track for free—is now possible. With the support of the folks behind EMI, Sony BMG, Universal and Warner—and the artists they work with—plus thousands of independent artists and labels, we’ve made the biggest legal collection of music available to play online for free, the way we believe it should be.

Full-length tracks are now available in the US, UK, and Germany, and we’re hard at work broadening our coverage into other countries. During this initial public beta period, each track can be played up to 3 times for free before a notice appears telling you about our upcoming subscription service. The soon-to-be announced subscription service will give you unlimited plays and some other useful things. We’re also working on bringing full-length tracks to the desktop client and beyond."

What's unclear is whether their subscription service will be streaming only or have some download component. My guess is the former - unlimited on-demand streaming - with continued affiliate relationships with Amazon for iPod compatible downloads.

Now the big question is, just how much advertising are they going to have to put in front of everyone to cover the costs of the on-demand licenses with the labels? I've done some modeling of this in the past, and it's most likely going to need to include some piece of video advertising (see prior post about Truveo/AOL deal). And just how much will consumer put up with before they move on to the next ad-free, business model-free, offering?

Radio Adios

There is lots of talk about Yahoo's upcoming layoffs with many predicting that their Yahoo Music Unlimited subscription service going the way of the Dodo (perhaps selling off their subscriber base to Rhapsody). I agree with this speculation, particularly in light of their new strategy and their focus on "context" over "content". The other thing I think that may get hit in the downsizing is their radio product, LAUNCHcast.

Given the strategic shift taking place over there (particularly with their music products), as well as the ongoing SoundExchange negotiation debacle, I think they will cut-and-run on radio too. Radio is generally a loss-leader for the big portals and with the (unknown) future royalty rates the "loss" is going to get too much to stomach for most.

On a related note, look for AOL to dump their AOL Radio product as well (along with XM partnership) and replace it with a third party player/product. Probably from a larger terrestrial radio network... most likely related to the recent video advertising deal announced between CBS (owner of Last.fm) and Truveo (part of AOL). This would get AOL out of a money-losing content endeavor and more focused on being a cross-platform advertising network. Great for everyone. Well, except the consumers....

Note to eMusic... Round Up

I, like most eMusic "subscribers", anxiously await the date our monthly download credits refresh so we can scoop up the tracks and albums that we've bookmarked over the previous month. I actually never knew my exact date of refresh, although I knew it was sometime around the 2nd week of the month. Well, after I realized (or were told by a few people) that I had sort of slept on the Spoon and Of Montreal albums last year (made *lots* of people's top 10 lists, but for some reason I never got around to listening to them) - I decided I would scoop them both up on eMusic.

So, on January 9th I checked my refresh date and luckily it said my monthly refresh was scheduled to happen on on January 10th. Nice, so I went to bed with the intention that I'd grab them first thing in the morning. But, to my dismay, when I woke up it still said I had 0 credits. I checked back a couple hours later... 0 credits. Another couple of hours later.... 0 credits. Rechecked my refresh date... yep, it was the right day... Jan. 10. There should have been 30 credits in my account, but still 0.

By this time I was really annoyed. I contacted eMusic's customer service to be told that my credits would refresh "at some point throughout the day". Would it kill you to give me the benefit of a a half a day to give me a better experience? Hell, I'd even prefer to give up 12 hours and you can round up.... tell me my account refreshes on the 11th (instead of the 10th) and I would have been a much happier customer. Whatever happened to underpromise and overdeliver?

And while you are at it... can you add a "remember me" checkbox on the login so I don't have to re-enter my credentials every time I want to browse the catalog?

Or perhaps you are just getting back at me for my mention of you in my 2008 predictions?

2008 Digital Media/Music Predictions

I have been remiss in making my 2008 Digital Media/Music Predictions this year. Instead of putting it off until I could formulate some well-thought predictions, I figured I'd take the more lax approach this year and go stream-of-consciousness (and slightly tongue-in-cheek).

As a reference, here are my 2007 Predictions. Now, on to 2008!

• Apple launches a subscription music service (of one form or another). Dark Horse/Long Shot but I'm putting it out there.

• Rhapsody & Napster... "there can be only one!". Napster continues to run out of cash and sells subscriber base off to Rhapsody.

• Amazon siphons off all of eMusic's userbase - eMusic goes up for sale. Potentially to a major label - or a consortium of them?

• The Beatles *finally* make their digital debut - on iTunes. Apple sells millions virtually overnight. That's my "lock of the week".

• AmazonMP3's affiliate program takes off as their catalog of DRMless MP3's from all 4 major labels grow - virtually every site with music content moves to Amazon as primary affiliate partner (and away from iTunes) due to better terms from Amazon.

• Open Standards for music and taste portability finally start to make inroads (see www.openmediaweb.org).

• SoundExchange becomes successful in drastically increasing royalty rates for online radio (retroactively) - they put massive number of broadcasters our of business (and forcing companies like Pandora to change their product and/or business model or shut there doors), see a proliferation of "gray" services that don't pay royalties directly, and collect a fraction of royalty payments then they did before they raise the rates.

• Slacker is acquired - by Microsoft or Motorola. Their hardware/satellite delivery platform is integrated into a more holistic product line.
  

• The major labels (while tentatively supporting DRMless MP3s) will still screw around and not giving users what they want - by forcing users to jump through additional hoops to get the MP3 versions. I cheated on this one since Sony BMG just tipped their hand on this "plan".

• While 2007 saw explosion of new "media & music 2.0" companies hit the market, 2008 will be the year of the great shakeout. Smaller existing "music 2.0" companies are acquired - funding gets tougher to come by for new ones.

• AOL completes their "transformation" to become an ad network - they try to sell off their audience/portal business at bargain basement prices. There are no takers. On a related note, they sell off the AIM business to Facebook. What the hell, every once in a while you have to close your eyes and throw a dart.
  

I'm not going to make predictions on the work that I'm doing (it wouldn't be so much a prediction as a breach of confidentiality) but look for some very cool things out of MyStrands in 2008 too. :-)

What do you guys think? Anything to add? Anything that jumps out as you as "are you smoking crack?!".

Apple Gets Their Dominoes in Place

I've been thinking more about the odds of whether Apple will decide 2008 is the year they launch a subscription music service (of some sort) and been asking others what they think the likelihood is.

The consensus (or lack thereof) is that people either lover or hate the subscription model. And I thought (once again) I would wax (un)poetically about what I'm currently thinking...

As someone that worked on subscription service, I can say without hesitation that the biggest consumer question (and hurdle to trial - and therefore adoption) was "does it work with my iPod"? In response, all of us in that business would do a little tap dance and reply with something akin to..."Uh, no... but check out these cool devices from Creative and iRiver. You should just get rid of your shiny new iPod (and Mac if you have one of those too) and buy one of these instead so you can try this really cool service that your not sure you understand the value of yet".

As subscription services suffer from the "TiVo problem" (where users don't fully appreciate the value until they try it), getting trial is key. If the the addressable market that can actually try it (aka the iPod installed base) is then in the hundreds of millions, the wall comes tumbling down and subscription takes off - albeit at the expense of Rhapsody, Napster and others (sell, sell, sell!).

A 3G (or maybe even WiMax?) WiFiPod/Phone with all-you-can-eat streaming/mobile downloads for $10/month? Done. Trials spike into the tens of millions virtually overnight and conversion rates give Apple a subscription base larger then all other competitors. Offer movie rentals for a couple more bucks a month and now Apple kills Netflix and Blockbuster too. Oh yeah, while they are at it Apple can throw a Skype client onto the device and begin to marginalize the carriers while they are at it by offering voice services for a fraction of consumers current voice plans.

All of this pervasive "Apple-Ready" content then drives adoption of AppleTV (and Mac Mini's) - or at least next generation ones that also support CableCard. People start forsaking their rented Cable Set-Top boxes for Apple boxes they own outright (and also allow them to do more then just watch videos). These boxes bring them broadcast and IP content delivered seamlessly to their living room and the public starts to wonder... "why am I paying Comcast $100/month for TV when everything I'm watching is on-demand content being delivered over the web"?

Apple then controls the devices and the delivery pipe for all your content ("you" pertaining both to the labels/studios and consumers) - and communication. The dominoes are in place... do you dare topple the first one?

If you listen closely you can hear Steve Jobs in the background.... "BWA HA HA HA HA!".

Movie Rentals Coming to iTunes - What About Music?

As rumored for a while (and previously mentioned) Fox and Disney will both be offering movie rentals via iTunes (for between $2 - $5 for a 24 hour period). So, Apple's FairPlay DRM scheme - and complete hardware line - has now obviously evolved to support time-constrained subscription licenses.

As the music world continues to move to a DRMless ecosystem - with Warner now the 3rd of the 4 major labels to join - one must wonder if Apple is considering entering the subscription music market.

Why?! Well, in a DRM world iTunes became the dominant player partly because the only place you could buy major-label music that worked on an iPod was from iTunes. But now.... now I can unprotected MP3s from multiple sources that work with my iPod. Amazon being the most notable.

So, if Amazon all of a sudden started eating into iTunes sales.... would Apple flick the switch on subscription music to lock them (the consumers) back in? I don't know, but at this point one of the few people that could get people to "rent" their music is the same person that told people not to in the first place.

I still need to post my 2008 predictions... maybe this will be one of my long-shot picks.

Universal Music to Take the Reins - But Can they Reign?

BusinessWeek breaks more details on Universal's plans to try and wretch the power back from Apple. Basically, they want to build a consortium (comprised of the major labels) to launch a new tweaked model of music subscription service.

Universal Music Takes on iTunes: "While the details are in flux, insiders say Morris & Co. have an intriguing business model: get hardware makers or cell carriers to absorb the cost of a roughly $5-per-month subscription fee so consumers get a device with all-you-can-eat music that's essentially free. Music companies would collect the subscription fee, while hardware makers theoretically would move many more players."

This feels a bit like Microsoft telling all their device and subscription/DRM partners, "we're tired of waiting for you guys to make a market, get out of the way and we will do it ourselves". Now that frustration has moved further up the chain and the world's largest record label is saying, "I'm watching my business go down the drain and a guy in black mock turtleneck has got me over a barrel - get out of the way, we will do it ourselves".

Questions? Sure, I've got a few...

Q. What about the indies? How bad are they screwed in this scenario?

Q. DRM? I sure as hell hope not. If it doesn't play on iPods and iPhones, it doesn't play.

Q. How quickly does Napster and Rhapsody America bleed customers if this happens?

Q. Pressplay and MusicNet... anyone remember the fate of those major label subscription consortiums?

Q. Will they expose APIs so that they can syndicate this content everywhere, or are they going to drag everyone to a central "store"?

I'm sure I will have more thoughts on this over the coming days. What do you guys think?

Drowning Victims - Sink or Swim?

A couple of months ago a wrote a post (The King is Dead (and has no clothes). Long Live the King) about my coming to terms with the failures inherent in the current music subscription models. Or, more specifically, the failures caused by the convoluted DRM requirements inflicted by the major labels onto their partners and thereby passed along to the consumers. Well, the list of people that have been frustrated beyond repair by this short-sightedness is Ian Rogers - GM of Yahoo Music.

Ian just presented at Digital Music Forum West and had a wake-up call for the industry. Some good stuff in here... you should read the whole post.

Convenience Wins, Hubris Loses and Content vs. Context, a Presentation for Some Music Industry Friends at FISTFULAYEN: "I’m here to tell you today that I for one am no longer going to fall into this trap. If the licensing labels offer their content to Yahoo! put more barriers in front of the users, I’m not interested. Do what you feel you need to do for your business, I’ll be polite, say thank you, and decline to sign. I won’t let Yahoo! invest any more money in consumer inconvenience. I will tell Yahoo! to give the money they were going to give me to build awesome media applications to Yahoo! Mail or Answers or some other deserving endeavor. I personally don’t have any more time to give and can’t bear to see any more money spent on pathetic attempts for control instead of building consumer value. Life’s too short. I want to delight consumers, not bum them out."

AOL and Yahoo *should* have been able to become the de facto destinations for play-on-demand music. Both companies are good corporate citizens - have ad supported and paid music services - and play by the letter of the law (generally speaking). But, by doing so they have both gotten surpassed by smaller start-ups that are willing and able to take some risks (see Imeem, Project Playlist, etc.) - choosing a path where they ask for forgiveness after the fact instead of permission beforehand. It's not like there aren't exceptionally smart people at these companies (AOL/Yahoo) that haven't been whiteboarding and spec'ing out these use cases for years... it's just been that these companies have been "playing nice" with the labels and are therefore getting dragged down with them as their failed business models fill with water.

I was reminiscing this week while on vacation about my lifeguarding days back when I was a teenager. The thing I learned then that had the most lasting impact was - if you go out to save a drowning victim, and they start to pull you under to the point that your life is endangered, extricate yourself as quickly as possible and leave them to drown on their own. Better to lose one life then two.

It is a sobering thought, but one whose time has come in this space. I hear you Ian... time to head back to shore until the labels are ready and willing to be rescued.

The Great Subscription Music Consolidation Continues

This one is not via acquisition, but attrition...

Heard on the Street - WSJ.com: "Its Yahoo Music service, which has about 250 to 300 staff, is among those expected to be trimmed and its fee-based subscription music offering overhauled or shuttered. Overall, the company plans to move staff around and freeze some positions, though significant layoffs aren't expected, people familiar with the matter say."

Since the Rhapsody/Urge merger a whopping couple of weeks ago, even more has happened. Sony Connect has been shut down and it appears that Napster is backing off of their freeplay strategy. This is of course good news for "Rhapsody America" (ugh) as the Yahoo Music Unlimited subscribers will now need to look for a new home.

Also, as of last week Apple announced that they will be rolling out WiFiTunes (my name, not there's) where users can buy any track and download over the air to their iPhone/iPod Touch and sync it back to their computer. Unlike the wireless carriers who thought that you would happily pay 2-3x for this convenience has now had that business chopped at the knees.

Now for my latest conspiracy theories around Apple...

1) iPod Touch has WiFi and Safari - how long until they introduce a VoIP client (Skype anyone) and turn it into a WiFi phone? It seems interesting in conjunction with the rumor that Apple may bid on some of the 700mhz spectrum that Google has been ogling.

2) Other news surfaced this week that iTunes has hidden error messages suggesting that a movie rental service is right around the corner. Of course... if you can do movie rentals, there is no reason you can't do a music subscription service. The fact that some of the earlier iPods didn't have a secure clock that would enable these models has be negated by the fact that Apple is rolling out an entire new *line* of iPods that I'm guessing have the secure clock that enables temporary license management.

What do you guys think?

The King Has No Clothes (and is Dead). Long Live the King.

I have been on both sides of the subscription music business. I led the product group at AOL that acquired/relaunched AOL Music Now (unfortunately dealt away to Napster) - and I have subscribed to virtually all the competitors. I have been a big fan of the value proposition that subscription music business brings - in spite of itself and all the hoops it makes consumers jump through. If you haven't already, you should read some of my (ever-evolving) thoughts about the state of the market in some of my older posts.

But, as a consumer I have recently sworn off DRM (and Microsoft products/technologies in general to a large degree, but that's a different story) - after years of trying to convince myself and others that DRM is "no big deal". Admitting you have a problem is the first step to recovery, right? The turning point for me was the realization that people (like my wife) would have a portable player full of content (that I had to put on there for her) that would never play because all of the licenses were expired. With her being only a part-time computer user, the job would then fall on my shoulders to continually manage her player, download the tracks she wanted and keep it all working. Major pain in the ass.

And yes... Apple obviously uses/has used DRM for a long time too - but to their credit, they simplified the model so that you would never run into the issue of "dead" content on an iPod (since they don't do subscription they don't have to worry about renewing the licenses on a monthly basis).

I still give Rhapsody my $15/month - although I'm not sure for how long considering I broke down and got an iPhone (more on that later). Their issues (and those of the new "Rhapsody America") are the same as they have always been... subscription content doesn't play on an iPod/iPhone. And who in the marketplace doesn't want/have an iPod or iPhone? It's like the kids 30 years ago who's parents bought him a "Magnavox Odyssey2" video game system when the rest of the planet had an Atari 2600 (unfortunately, that was me).

I truly believe that a marketplace with ubiquitous high-speed IP access and multi-function mobile phones solves all of theses issues - but realistically that is still a couple of years off (keep an eye on Sprint... uh, I mean "Xohm"... and their 4G/WiMax rollout) for early adopters and probably 5+ years for the mass market.

So, until then my new digital music M.O. is iPhone + eMusic + DRMless MP3 purchases (some from iTunes even they are actually AAC files, some from gBox, some from Amazon) + free-range MP3 streaming and "acquisition" (SkreemR, Hype Machine, Seeqpod, etc.) + library sharing (via Simplify Media) + personalized streaming services (more on that soon). What the market really needs is a destination that aggregates all these options into a single place - there are a couple that are starting to do this now - and I'm sure more will follow (will it be Google?).

The two year AT&T contract that I had to sign for my iPhone will expire just as it is time to move back to an all-you-can eat subscription model....

Rhapsody and Urge Merge

Big news. The subscription music consolidation continues with MTV rolling it's over-hyped under-delivering subscription service, Urge, in with Real's Rhapsody service - this follows Napster's acquisition last year of both Virgin Digital and AOL Music Now's subscribers.

Free Article - WSJ.com: "In a bid to create a stronger competitor to Apple Inc.'s market-dominating iTunes Store, Viacom Inc.'s MTV Networks is set to announce today that it is merging its online digital-music offerings into a joint venture with RealNetworks Inc., the company behind the Rhapsody subscription digital-music service, according to people familiar with the matter."

A couple of more moves are needed until Real has got a realistic shot a making a dent in Apple's marketshare.

1. First, the market needs Napster (or at least their customers) to be acquired by Rhapsody too. Then, the market confusion will start to clear a little (iTunes needs one strong competitor, not a bunch of tiny ones) - then they can easily position A vs. B in their marketing messaging.
2. Offer DRM-free a la carte tracks (which they are going to do) - word is that they will be really high bit-rate (upwards of 256kbps) MP3s. Sell them for $1 each.
   
3. Introduce an ad-supported streaming service - with an upsell tier to ad-free listening.
   
4. Partner with every "music 2.0" site out there and syndicate their free play web player - support *lots* of external communities, not just their own - cut affiliate relationships with them all.
   

Now they have a basic value proposition that the market can understand - "we are just like iTunes but instead of 30-second samples you can listen to the whole song". Songs you buy can be imported into iTunes and sync'd with an iPhone (iPod sync is supported by other players, but if you want to sync your contacts/calendar with your iPhone then currently can only do that with iTunes). You also have a great web-based streaming experience that doesn't require a fat media player client.

Over time they could move towards "package" download tiers (like eMusic where you can download x tracks/month). I would personally like that model, but I actually think they should refrain from offering that as it confuses the marketing message. Once people understand it is "just like iTunes only better", then they can move on and try some new models.

All that being said... there is nothing keeping Apple from doing all this themselves if/when the Rhapsody plan started getting some traction.

Hypothetical: Pay For One, But Take Another

I'm on a large listserv that is haunted by a wide range of professionals and artists that discuss many of the issues and opportunities that currently present themselves to the digital media market. I started a thread last week that simply posed the following hypothetical:

Someone pays a subscription music service for their "to-go" plan in perpetuity ($15/month for life) but instead of downloading any of the DRM'd content from that service they "acquire" DRMless MP3 versions of the same songs.

Is this deemed "illegal"? They are paying the labels their per month minimums which in turn are paid out to the rights holders (assuming the user is only acquiring content that is also licensed to the subscription provider they are paying) - and since they are paying in perpetuity then the issue of "owning" versus "renting" (and the 30-day licenses) is a non-issue.

The logic (albeit many see as flawed) being that if you pay the monthly subscription fees in perpetuity (basically "renting" it for life), than theoretically the artists and labels end up making far more than they do off a one-time sale of the track. Therefore, if someone pays Rhapsody their $15/month for the rest of their life for the right to listen to a track - but then go and "steal" those tracks from somewhere else - the net net is a positive for the labels and artists. This is the "music as a utility" (some say "tax") argument that the industry has yet to embrace, although their could be grassroots movement of consumers just paying these subscription services (using them as little more than a collection agency) then going off and "acquire" all the tracks they can find off of MP3 blogs, P2P networks, etc. with a clear conscience in knowing that the rights holders are still be remunerated.

The fact is, I know *many* people that discover and listen to new music from MP3 blogs and/or The Hype Machine that also happen to subscribe to services. They find the stuff on the blogs, they listen to it there. If they like it, their choice is to either:

A). Download it directly from there
B). Copy the artist/song info, go to the store of choice (potentially
launching a big heavy media player), log in and buy it. Perish the thought
that they find *lots* of songs they want to buy. Rinse. Lather. Repeat.

The bottom line is that in the current digital music legal and business framework it is easier to steal than to buy legally.

This thread has been active for almost a week now and spun into a very lively debate that has started to cover much larger topics that I originally intended (which is great). But to boil it back down to the original question and the more relevant follow up of... Would you feel morally comfortable with this scenario?