Apple revives talks to launch iTunes music subscription service

Tools

Apple (NASDAQ:AAPL) is reportedly in negotiations with major record labels to introduce a subscription-based music service promising unlimited access to songs for a monthly fee. The New York Post reports Apple's iTunes vice president Eddy Cue has been in talks with the music industry to formalize licensing and pricing--according to one source, the service would offer tiered pricing ranging from $10 to $15 per month, although it has not been determined how much music would be included from tier to tier, nor how long consumers would be able to access the content in question. Labels are said to endorse the idea, and believe it could re-energize sagging digital music sales. Apple declined to comment.

Reports of an iTunes music subscription service are not new, but Apple is said to be reviving the concept in response to growing concerns over Spotify, the increasingly popular digital streaming music service that now boasts more than 10 million registered users across Europe. Rumors persist that Spotify will roll out in the U.S. prior to the close of 2010; insiders say record labels are pressuring the company to jettison its current free content approach in favor of a guaranteed revenue model, citing the impasse as the culprit behind Spotify's inability to expand into the North American market thus far. While the majority of Spotify users tune in to a free, ad-supported version of the service, BusinessWeek reported in mid-June that the four majors--Universal Music Group, Warner Music Group, Sony Music Entertainment and EMI Music--want Spotify to follow the lead of rivals like Rhapsody and eMusic by introducing premium monthly subscriptions to U.S. consumers, enabling the music industry to share in resulting revenues.

More than a quarter of iTunes, iPhone and iPod users express strong interest in cloud-based music services, with many willing to pony up a subscription fee to access their music libraries via multiple devices and platforms, according to a consumer survey conducted this summer by market research firm NPD Group. Asked their reactions on different free and premium options offering combinations of music streaming, music downloads and universal web access to their iTunes library, between 7 million and 8 million U.S. consumers tell NPD they would have serious interest in one of the paid alternatives, indicating a willingness to spend a minimum monthly fee of $10. NPD research also notes that a model giving consumers free streaming access to iTunes would attract 13 million to 15 million subscribers.

NPD estimates that total iTunes users in the U.S. exceed 50 million. "If the consumers who indicated strong interest in a paid subscription actually adopted one of those services at $10 per month, the market opportunity is close to $1 billion in the first year, which is roughly two-thirds the revenue garnered by the current pay-per-download model," said NPD vice president and senior entertainment analyst Russ Crupnick in a prepared statement. "We don't yet know what, if any, effect these services might have on the traditional pay-per-download music model, or whether consumers will ultimately spend more on digital music overall, if or when any of these options eventually rolls out."

The iTunes multimedia storefront now accounts for 70 percent of all premium music downloads in the U.S. according to NPD Group data released in late May. iTunes' growth is slowing, however--NPD notes its share of the digital download market has remained essentially flat since the first quarter of 2009, increasing just 1 percentage point since that time. Rival AmazonMP3 increased its market share by 4 percentage points, and now represents 12 percent of the U.S. digital music market. Sales of digital tracks and albums accounted for 40 percent of overall U.S. music market share in the first quarter of 2010, a gain of 5 percentage points since Q1 2009, NPD said. Adding physical music purchases to the equation, iTunes still leads with 28 percent of all U.S. sales, a 4 percent year-over-year leap.

For more on the iTunes subscription service talks:
- read this New York Post article

Related articles:
iTunes
now 70 percent of digital sales, but Amazon growing
Apple
flips the killswitch on Lala music service
Apple's iTunes surpasses 10 billion song downloads
Record iTunes sales ignite Apple profits

Filed Under