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Thursday, April 30, 2009

3 Reasons For And Against Digital Music Subscription

In doing research for my upcoming book "Music 3.0 - A Survival Guide For Making Music In The Digital Age" (published by Hal Leonard and to be released by the end of the year), virtually everyone I interviewed highly endorsed the subscription model as the ultimate solution for digital music and claimed it to be the inevitable direction that the music industry will take. Subscription means that you pay a basic fee like $10 - $15 per month and then are able to access any song you want whenever you want where ever you want.

This view has been held by those inside the industry for a long time, but I really didn't get it until last week. In helping my partner clean up the hard drive on her laptop, we were eliminating everything that was outdated, already backed up, or simply no longer needed. After much work there was still wasn't much drive space reclaimed, so I took a look at her iTunes folder. Sure enough, she had well over 20 gigs of songs! At that moment, I understood that subscription was the future of the business.

Here are the reasons that I believe it will work:

1) It's a lot more cost-effective for the consumer. As industry pundit Ted Cohen states, “For $10 a month, you can get 10 songs on iTunes or 10 million songs on Napster.”

2) Managing a lot of songs takes time and a lot of storage space for the consumer (see my story above).

3) There's potentially a lot of money to go around - much, much more than the business is generating today. The potential buying public in the US alone is 100 million. If only 50% of those subscribed at $10 a month, that's $500 million a month spread around to everyone in the business. The consumer will never be happier and the industry will grow overnight.

Here are the reasons against it:

1) It's hard for people to get over the idea of "renting" music after buying it for almost forever.

2) Most artists are afraid of subscription. Oh, they like the idea of steady income every month, but as of yet there's no way to ensure they'll actually see any of it. Most fear that the labels will take the lions share of the money and the artists will not see their fair share.

3) It's a publishing nightmare. As of now, the artist and publisher split a grand total of .18 cents (less than 1/4 of a cent!) each time a song is streamed. Most publishers claim that they now get statements that may be 5 phonebooks high of reported streams that add up to maybe $12, of which they only get to keep $3. In other words, it costs way, way more to process the paperwork than they're capable of making in it's current form. It's great that you can get the type of granular information about number of plays that publishers always hoped for, but they'll never sign off on subscription until they stop losing money on the deal.

I'm convinced that subscription digital music will eventually take over the business. Already Rhapsody has nearly 800,000 users and Napster has 700,000. The upstart Spotify has over a million subscribers in Europe alone (it's not available in the States yet due to licensing issues) and is getting rave reviews. But as our friend Ted Cohen says, "If iTunes announced subscription tomorrow, we’d be over the hump."

We keep hearing rumors that might happen. Stay tuned as the digital space continues to be the most interesting part of the music business.

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