Subscription vs. piecemeal pricing of music

This week I actually suggested to someone that they avoid an iPod and instead buy something from Creative or iRiver. I know, I was shocked to hear myself say “well if you want unlimited music, no version of an iPod will work with that.”

Here’s the weird part — at first I only suggested avoiding the iPod because they wanted to use Rhapsody, but the more I think about it, choosing to go with an unlimited music service seems like a smarter choice. I was glad to see Chris Anderson, editor of WIRED, talk about this last week as well.

For me and my maladjusted alpha geek friends, the idea of nearly unlimited music for the iPod is totally doable in the age of bittorrent, mp3 blogs, mp3 groups on usenet, and iTunes hacks like Ourtunes. We get almost all the music we want for free, and buy a few on the iTunes Music Store (and we go to rock shows and buy shirts and find other ways to repay the band) when we’re not spending time ripping our large CD collections to high bitrate mp3 and swapping that with each other.

But for regular people that just use the internet for web information and email, locating tons of free music is a difficult task. When Yahoo or Napster or Rhapsody offers 1+ million songs for ~$10 a month, the iPod and iTunes Music Store starts to look like a ripoff in the long run.

This could be the undoing of Apple’s cornering of the mp3 player market — for a long time people have advocated a compulsory music license, where you pay $50 a year and you get all the music you want for free. The thinking behind it is that $50 x millions of broadband subscribers = more money than the music industry gets in album sales. And that’s basically what these unlimited music services offer. Sure, you’re merely “leasing” music because when you stop your membership, the music disappears, but all-you-can-download is what napster used to be back in the day, only this time it’s crippled with DRM and there’s a monthly fee. But it’s still all the music you want, all the time, like napster used to be.

It seems like the music labels are always at war with Apple over pricing and I think I can see why. They prefer the subscription model where no one “owns” anything and files only work as long as you pay into it. Apple insists on letting people download copies (crippled with DRM yes, but you still get to keep the files and play them long after you pay for them) but you have to buy them ala carte, which can quickly get expensive for any music fan. And I think I see why the music industry wants to move to a subscription model — selling albums or song downloads requires constantly coming up with new music to keep sales up. Sales are unpredictable without a constant stream of new stuff to buy, but if you get every listener on a subscription plan, that’s money in the bank you can count on every month, regardless of whether or not Sting or Coldplay or 50 Cent ever do another album. Heck, most subscribers would still be paying ten bucks a month to hear old Steve Miller band tracks, as the back catalog would be the main draw in a subscription-based music business instead of the newest stuff.

Maybe I’m finally realizing that if I had to legitimately pay piecemeal for all the mp3s I’ve ever owned, I’d be spending thousands of dollars a year instead of the couple hundred I spend at the iTMS. Having unlimited downloads of over a million songs starts to sound pretty attractive at only ten bucks a month.

(totally weird sidenote: in my recollection, the big proponents of compulsory music licenses come mostly from the copyfight world but everyone I know from there uses an iPod)

12 Comments

  • I’ve spent $115 in 5 months so far with iTMS. Would I rather go unlimited? Well, my 60GB iPod is very nearly full, so if it were some other similar player it still wouldn’t fit much more. It’s practically unlimited listening as it is.
    It’s worth noting that I didn’t buy music piecemeal before, and I don’t always know (I often buy albums).
    I’m not sure I like subscription models because they don’t allow you to put your money behind a band, at least with regards to getting their music published. I also like “owning” some music in perpetuity. Maybe I’m in the minority there, but I don’t think that’s necessarily true.

  • Back when eMusic was unlimited, I would go crazy dowloading and then realize that I’d probably never listen to half of what I downloaded. It was more collecting for the sake of collecting that actually listening.
    I believe one of the reasons the iPod mini and nano are so popular isn’t just that they are so small. It’s that for most people, that’s all they need.

  • I dunno – I worry about what happens when the company that’s renting you their music goes under. After two years at $10/month, $240 sounds like a lot of money to have nothing to show for it.
    And after a couple years, when people realize that they’re basically paying ransom for their music, what’s to stop those companies from raising the rates drastically? I wouldn’t start off paying $50/month, but if that was the only way to keep the thousands of tracks I’d downloaded…
    The license agreement with iTunes isn’t perfect, and the fact that they reserve the right to change the deal on you at any time is scary, but I tend to avoid the whole issue and rip MP3s for CDs, which makes the real issue about the hardware.
    Speaking of which, have you actually used any of those players? The iPod is smaller, lighter and easier to use in every segment. A friend showed off his Nomad to me a while back and all I could think was: “Okay, you saved $40 on the iPod but you got a lousy interface, uncomfortable buttons, and the device itself is twice as big and twice as heavy.” No thanks.

  • Patrick’s on to something. When the money goes into a common pool, the artists themselves stop mattering as anything other than one piece of an aggregate whole. Think musicians are getting screwed now?
    Look at the dreck they’re pumping out when they actually have to compete for sales. Would a flat subscription fee encourage diversity and promotion of previously unmarketable acts? Or would it more likely prompt laziness in marketing and even worse contracts for the artists?
    I personally won’t buy anything with any form of DRM, so I don’t have a pony in this race. But I’m not sure how much longer that’ll be possible, given the way things are going. Thank god for podcasting and indie acts, they might be my only choice in short order.

  • “I’ve spent $115 in 5 months so far with iTMS. Would I rather go unlimited? Well, my 60GB iPod is very nearly full”
    I don’t quite understand how one relates to the other. I’m on my third iPod, and it’s a 30Gb model. I have four years of music in iTunes, but still I’m barely closing in on 20Gb of music. $115 is maybe 500-600Mb of music, so I’m not quite understanding how you filled up your big iPod.
    “Speaking of which, have you actually used any of those players?”
    Yeah, they’re terrible, but my wish would be to see rhapsody work on an iPod so you could get the best of both worlds — great hardware and a sane unlimited music plan to fill it up. I was actually on Rob Glaser’s side a year or so ago when they came up with iPod hacks to make their music work on the device and I was disappointed when Apple shut it down. I wish my iPods played ogg files, wma files, and every other music format out there.
    “When the money goes into a common pool, the artists themselves stop mattering as anything other than one piece of an aggregate whole.”
    See, I don’t think that’s a bad thing. It makes the indie route much clearer for those that want to side-step the industry. Empowered musicians will produce and distribute themselves and not need to be limited by the pool a music contract would throw them into. It would make the contrast much more stark and I think steer more great artists away from contracts with the devil and let them control their own destiny.

  • I have to say, any time I see iTunes tracks referred to as “crippled by DRM,” I have to sneer derisively. It’s the easiest DRM to circumvent in the history of time — all you have to do is burn a CD! You were probably going to do that anyway! That said, if iTunes tracks are crippled by anything, it’s their low bitrate. I buy individual songs I like on iTunes, but I buy hard copies of albums, because the audio quality on iTunes isn’t satisfactory for something I really love. If they were to knock the AAC encoding up to 192 or 256kbps, then we’d really be talking (and an Apple Lossless store is also a beautiful concept, but would require some broadband advances and much, much larger iPod hard drives).
    And I also have to sympathize with the people who are saying that an iPod and the occasional iTMS track is “enough” for most people — I have over 700 CDs and the biggest iPod I can get, but the reality is, there’s only so much music a person can listen to. I have a hard enough time listening to my old favorites with the amount of music that comes into my life. I feel if I was ever to try an “unlimited” plan, I too would be collecting more than I’d be listening. I already do that with books, God help me if I did it with another form of media… (it seems most people I know do that with DVDs these days, too.)

  • “It makes the indie route much clearer for those that want to side-step the industry.”
    This seems backwards, Matt. If the subscription model becomes the dominant form, then those artists are locked out of the dominant form of music distro. Why not promote a system where those artists can find wide distribution instead of offering a Darwinian approach where a few pluckish folks find an audience and the vast majority sink into obscurity? At any rate, the subscription model is the “Wal-mart”-ization of music. Do we as consumers have any say in where that $10/month goes, that is, which artists get a bigger slice of the pie? That equation sounds to me like the major lables getting more, and the artists getting less.
    With steadily fewer artists getting larger chunks of the music revenue stream and promotion, we’ll need to start a FairTrade system for musicians like they do for coffee growers. “Unlimited” choice is a very American idea. Unlimited is bullshit. Personally, I tend to like limitations. Unlimited is all about consumption and nothing to do with creativity.

  • “It would make the contrast much more stark and I think steer more great artists away from contracts with the devil and let them control their own destiny.”
    Point taken. I’ve been listening to a hell of a lot more indie rock in the past year, and realizing I can happily, happily exist without the RIAA (or regionalized equivalent). Cheap hardware and great software means production quality is universally high these days, to the point that pretty much the only difference I see between a good indie band and a good commercial band is that one has a marketing machine at their disposal. Exposure and discoverability are the main issue, and that’s where podcasting comes in…

  • “Exposure and discoverability are the main issue, and that’s where podcasting comes in…”
    Or Myspace (which seems to be working as a promotion/discovery tool for a lot of bands that would never get radio play or promotion).

  • Stephen Bronstein

    There are a few big misconceptions here about subscription services that I’d like to address.
    1) ‘Major labels love subscription services’
    This is simply not true. If you search Rhapsody for particular artists or albums, lots of it is missing or available for purchase (ie $0.99/track) but not for subscription. Many labels and artists see subscriptions as a threat to CD or download sales, and thus will not license for streaming. People are coming around on this, but they definitely see streaming as more a necessary evil vs. their desired solution.
    Furthermore, the whole idea of ‘holding us ransom’ via subscription services is pretty farfetched. There are lots of other types of entertainment competing for your dollar, such as cable, video games, etc. It will never make sense to jack up the price of subscriptions because everyone would stop subscribing and go back to the ‘darknet’, which realistically is never going to go away. I think that people will choose subscription services (which will likely be about $10/month total) because the cost benefit tradeoff makes sense. Obviously that tradeoff would change if the price was spiked.
    2) “Subscription services are bad for indie artists and indie labels”
    This has it exactly backwards. Subscription services are great for indie artists and indie labels, but bad for major label artists like Britney Spears.
    First, compensation – wholesale revenue is paid out to rightsholders (ie label or artist) on a pro-rata share of a % of gross revenue. For example, let’s say that gross revenue is $100. A typical % would be 40%-50%. Let’s say it is 50%, so the wholesale pool is $50. If there were 100 plays total (ie users played 100 songs during the period) and Artist #1 had 40 of those plays, then Artist #1 would receive $50 * 40 / 100 = $20. Now, of course there will actually be lots more artists, but there will also be many more plays. Rhapsody has many tens of millions of streams per month, and close to 1M subscribers.
    There are two main reasons why subscription services are great for indie artists and labels. The first is that good music will continue to generate revenue in perpetuity. Every time someone plays the song on Rhapsody, even 10 years after they first started listening to the album, the label and/or artist gets paid. This is of course a negative for low quality major label music like Britney Spears – how many people do you think are still listening to Britney a year after her album came out? But it’s a plus for anyone producing music that stands the test of time.
    The second reason why subscription services are great for indies is, as discussed a bit above, music discovery. Whenever I hear or hear of a new artist, I immediately go to Rhapsody to listen to the release. I also click on lots of the similar album or similar artist links. I would say I listen to at least 5-10 albums per week that I have not heard before. When there is no marginal cost for the consumer to try new things, they will try alot more stuff. This is clearly a plus for indies trying to get more people to listen to their music while also trying to make ends meet.

  • Mr. Bronstein, I like your argument. A lot. Except IT ISN’T TRUE.
    “Furthermore, the whole idea of ‘holding us ransom’ via subscription services is pretty farfetched.”
    Except that it happens all the time. Look at U.S. broadband rates, for example. There is very little competition in the broadband market, and yes, cable and the telcos are ‘holding us ransom’ to use your words. The Wall Street Journal has had several articles recently about the broadband speeds and rates in countries in the Far East and even France! 20Mbps for $30 or so a month in France. You’ll pay $40-$50 in the U.S. for a 5Mbps or less connection. Subscription services are bad for consumers and good for companies. It’s a steady revenue stream, and companies like Yahoo! can introduce subscription services at $5/month…for a while. And once they’ve knocked out the competition, then they can raise the rates as high as they want. Competition is good, and there certainly isn’t enough of it online.
    “First, compensation – wholesale revenue is paid out to rightsholders (ie label or artist) on a pro-rata share of a % of gross revenue.”
    Wow! That’s totally amazing! If I read that correctly, you’re suggesting that *artists* would make *$20* for 40 plays in your model. That is a great idea. Except IT’S NOT THE CASE.
    I’ve highlighted two bits there–artists & $20. First off, let us ask the question, who are the rightsholders? Oh, yeah, the labels. I guess the artists are missing out. Well, except for Metallica. They own their music. But that’s it. End of list.
    So okay, the labels are getting the money, but how much are they getting? Mr. Bronstein suggests a figure of $20 for 40 plays in his example. Interesting. Not even in the same universe as the actual figures.
    One solution that has been suggested is Voluntary Collective Licensing (VCL). Read about it here. I think VCL might work, and certainly it’s a solution that’s tailor-made for an online world.

  • I’m an indie musician with albums available in iTunes, Rhapsody, eMusic, etc. Here are the actual payouts from some of the various online music services:
    Rhapsody: pays one cent per stream, or — on average — about a dime if an entire album is streamed.
    iTunes: pays 70 cents per individual song download or $6.50 for an “entire album” download.
    eMusic: this one’s a little complicated, as eMusic has a revenue sharing agreement with the labels and distributors. A set percentage of eMusic’s subscription income each month is paid back to the labels. Based on total download activity for the month, a per-song royalty is calculated. Because of reporting lag, I only have data for one month so far, but for May 2005, the payout rate was 24 cents for each song download.
    Most of the other services (Napster, MSN, Sony Connect, etc.) pay about the same as iTunes – 65 to 70 cents for individual songs and $6.50 for a full album.
    Because my band’s albums are “self released,” we keep ALL of the amounts listed above, minus a 9% cut for our distributor. For the truly independent artist, digital distribution is a great deal. For someone signed to a standard major label contract, where royalties are generally 10% to 15% of wholesale, it’s much less lucrative.

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