What does Apple's (Nasdaq: AAPL) iTunes have in common with your local Subway restaurant? In a few weeks, they may both be pushing a lot of subs.
The New York Post is reporting that Apple's iTunes boss has been in talks with major record label executives to roll out a music-subscription service -- one that would allow users to stream unlimited songs for $10 to $15 a month.
Apple wouldn't be breaking new ground, if the paper's sources are right. If anything, Steve Jobs is so late to this niche that it's laughable.
eMusic, Best Buy's (NYSE: BBY) Napster, and RealNetworks' (Nasdaq: RNWK) Rhapsody spinoff have already been at it for years. Even Microsoft (Nasdaq: MSFT) has some skin in this game with its Zune Pass subscriptions.
However, now that the growth of digital music sales is slowing, Apple appears ready to embrace the model that it has successfully skirted in the past.
Stream on
There's more to music-subscription services than streaming tunes. It would be a lousy model, since anyone can just fire up YouTube and play a music video or artist play list in the background for free.
The real appeal of these premium services is that members can take their streams on the road. As long as someone is an active member, it's a breeze to load up a portable media player to enjoy expanded access to music. Many plans also offer a number of actual downloads that can be retained even after the subscription runs out.
It's still too early to tell how aggressive Apple will get with this potential service. Maybe it doesn't include a number of iTunes downloads every month. Maybe it will be more restrictive in the number of devices that are available.
Apple has to be careful, though. It may be the undisputed champ in music sales, but that doesn't mean that it can't price itself out of the digital subscription market. If the service is not a good value relative to other services, it will falter. Even worse, it may help make rival offerings more popular by broadening the appeal and education of the concept.
The time is right
Warner Music Group (NYSE: WMG) rang up $179 million in digital music sales in its latest quarter, up a mere 2% over the previous year and a problematic 10% decline sequentially. Rival labels that don't publicly announce their digital sales aren't likely to be doing much better.
The possible peaking of online music sales isn't directly a dealbreaker for Apple. It passes on most of that revenue to the music makers. Apple's money is made mostly on iPod sales. Unfortunately, that too is slowing for Apple. The class of Cupertino sold 8% fewer iPod units in its fiscal third quarter than it did a year earlier. Apple can presumably make that up in iPhone and iPad sales -- since those iOS-fueled gadgets also access iTunes -- but it's clear that both Apple and the music industry need a digital spark.
All of this dovetails nicely with Ping's razzing by the media after its summer debut. It's cold and overly commercialized in its present state. However, if it was populated by millions of members on unlimited streaming plans, there would probably be a lot more sharing of entire streams instead of 30-second samples and "buy" buttons.
Barbarians are at the iTunes gate
I hate to sound like a late-night infomercial for Ginsu knives -- but wait -- there's more.
Google (Nasdaq: GOOG) is readying its entry into digital music. We've known that this is coming for years, but Billboard revealed last month that there will be a cloud-computing element to the service. Users will be able have digital lockers, allowing their purchased tunes to travel with them everywhere that an online connection can be found.
In short, iTunes is about to feel pretty dated with its old school model. Even Best Buy and Wal-Mart are doing piecemeal rentals these days. If Apple isn't too careful, instead of gaining share in a growing market, it's about to begin losing share in a shrinking one.
Add it up and it's not even really a matter of the credibility of New York Post's sources or if these negotiations are merely exploratory in nature. Apple, for a change, is the one that needs to evolve before it gets left behind.
A music-subscription service has to happen, before iTunes begins a slow yet painful fadeout.
Do you think iTunes needs to evolve? Share your thoughts in the comment box below.
