What's the Harm In An iTunes Subscription Plan?

Microsoft recently went after the iPod, by saying it would cost $30,000 to fill the iPod with music, but the magical Zune is only $15 / month for as much music as you want. This isn't the first time someone has used that $30k number before.

It all leads us to ask the same question we asked last June: What's the harm in an iTunes subscription plan? From our numbers at that time:

Today there are roughly 175 million iPods and iPhones sold. Let's say 150 million are still in use. Now let's assume 40% of those iPod/iPhone owners would be interested in a $15/mo rental program. $15/mo x 90 million would give Apple revenue of $1.25 billion per month.

There are a lot of unknowns here, so let's take a look at far more conservative numbers. Perhaps as few as 5%, or 7.5 million ipods/users would subscribe to the service. That would still mean more than $112 million in revenue each month, or $1.34billion per year. It would take less than four years to match the per song revenue.

It's still a valid question: What's the harm in adding a subscription? Give people the choice, and see what the market does. The only possible concern would be the royalties to the labels outpacing the rental income. If you don't like the rental plan, you simply don't use it. what are we missing?

5 Billion songs sounds like a lot, but...

Apple announced this week they have now sold over 5 Billion songs. That is a huge number, and a huge feat in a space that was practically non-existent before the iTunes store launched.

With that said, some people, especially stock holders, might want to get out the calculators for a minute, and consider the ramifications of a rental or subscription service instead.

For this discussion, let's assume Apple's cut of rented music vs. purchase would be roughly the same. And we'll assume all those 5 billion tracks were purchased individually, meaning the sales brought in roughly $ 5 billion.

Today there are roughly 175 million iPods and iPhones sold. Let's say 150 million are still in use. Now let's assume 40% of those iPod/iPhone owners would be interested in a $15/mo rental program. $15/mo x 90 million would give Apple revenue of $1.25 billion per month.

There are a lot of unknowns here, so let's take a look at far more conservative numbers. Perhaps as few as 5%, or 7.5 million ipods/users would subscribe to the service. That would still mean more than $112 million in revenue each month, or $1.34billion per year. It would take less than four years to match the per song revenue.

This isn't meant to suggest Apple should abandon per track pricing, but rather they should offer a rental system as well. Traditionally Apple has been set in creating hardware or software, then telling the consumer why they needed it. Why not, just this once, give the consumer a choice. A choice that could ultimately lead to far higher revenue.

Free iTunes for life? Believe it or not, it makes sense...

The rumor mill is abuzz today with reports Apple might be considering a premium service, that would allow you to pay a premium, $100 perhaps, over the normal iPod price for the privilege of lifetime downloads from the iTunes Music Store.

And believe it or not, this actually makes economic sense for everyone involved.

First a look at the numbers. As of January, Apple had sold 150 million iPods according to analysts. And from Apple's press releases, the music store has sold roughly 3.5 billion songs. Some quick division shows that's a mere 24 songs per iPod sold. Let's say the $100 premium is split evenly between Apple and the labels. That still means more than double the revenue from iTunes than now, for everyone involved. Well, of course except for the artists. (Quick tip: don't go into music for the money.)

Additionally, Apple would be an ally of all the big labels. After all, which player will they push if they're getting such a fine cut? Sure, other players will inevitably get the same deal, but it will be too late.

This would also eliminate the headache of users losing music in a hard drive crash: simply create a restore library option to bring all those songs to your new hard drive.

But what about TV shows and movies you ask... Well, they would most likely not be included. However, Apple could partner with the new industry site hulu.com to make TV shows available for free with advertising. TV show sales and movie sales, by all accounts, haven't quite caught on fire on iTunes. Imagine the possibilities to stoke AppleTV sales. And if the content's free anyhow, there wouldn't be nearly as much resistance to adding dvr functionality.

Overall, it's a sensible, though probably unlikely scenario. After all, this is the same company that still makes users pay $99 a year for .mac email...