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!".

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....