Apple iTunes entering the Music Subscription Market?
Speculation regarding Apple’s intentions with its iTunes music store were rife when it completed the purchase of Lala five months ago. That speculation looks ready to hit hyper mode now that it was announced on the Lala site that it would be closing down at the end of this month.
Many sources stated Apple wanted Lala’s propriety “payment and fulfilment systems” at the time of Lala’s purchase. According to sources spoken to by Robert Andrews at Paidcontent.co.uk, they speculate that Apple will launch some type of underwhelming “locker” system and follow through with a full and dynamic subscription service afterwards.
So what are the likely scenarios in terms of business models that iTunes may or may not decide to use? Furthermore, what are the implications for current struggling subscription services like Spotify, Rhapsody, eMusic and even Vodafone with its 450,000 subscribers across seven European markets? When I say struggling, 375,000 (Spotify) subscribers from 7 million users of its free services are definitely underwhelming. Solidifying this is the fact that Rhapsody, who have been around since 2002, only has 675,000 subscribers.
Let’s do the math. 450,000 subscribers at £5 per month only makes just under £2.5 million per month. In a year, yes, that is £24 million or so, but that is gross retail price. What are the labels and, hence artists, left with? Recently, on a panel at SXSW (check out the TMV event report on that panel here), Steve Savoca, Director of Digital at Domino Records, suggested that the scale music subscription services need to reach is around 50 million subscribers in order to be viable for the business over the medium to long-term.
Reinforcing this is the fact that Apple has over 125 million registered (including credit card details) users of its a-la-carte iTunes music service. When, and if, Apple intends to leverage this in the music subscription market, all other services should rightly be scared! A less than three-percent conversion to monthly subscription would almost certainly be viable and would dwarf Spotify and Rhapsody’s current subscriber numbers.
The recorded music industry in the last five years has really pushed the subscription business model for music, as it is a “no brainer” that the recorded music business does need to begin working within an ARPU (average revenue per user) model. However, implementing this has been harder than expected, as conversion rates from free advertising-funded models to paid subscriptions has been relatively light when looking at the aforementioned numbers.
Whilst CEO of Warner Music Edgar Bronfman Jr. states that the “number of potential subscribers dwarfs the number of people purchasing music on iTunes”, TMV does wonder if the consumer has already said, “No, it is not interested in subscribing to music.” Notwithstanding, a few million, or even 10 million using any new Apple launched subscription service would be a great boon for the industry.
TMV would like our readers to consider the impact on the full music business value chain in terms of music subscription. If, as Rob McDaniels CEO of INgrooves stated in an exclusive TMV video interview in 2009, it takes 250 – 280 streams to make up the same revenue for a label or artist from one single a-la-carte sale. Is a streaming subscription service actually viable for the industry over the medium to long-term?
Going further, issues of parity that the independent recorded music business has faced also need to be addressed. Albeit, Apple has generally been a lot more independent-friendly than a number of streaming music services, social media music services (a-la, MySpace) and, lastly, mobile operators. So on that front, TMV do believe independent labels have nothing to fear.
However, is it in the recorded music industry’s interest to have Apple move from being the dominant a-la-carte music service to the dominant music subscription service as well? What would the cross-border competition/monopoly law issues be on a global level for such a situation? What will be the effects on new potential entrants to the market and investment in them?
Will mobile operators even bother launching new music propositions in competition with a service that has both global dominance on a-la-carte and also music subscription markets? So many questions, and yes, lots of speculation. But we will all just have to wait and see what Apple’s true intentions are in terms of subscription.