Three reasons Apple will frustrate music subscription moguls

CNN Money has a fairly thin story about how the CEO of INTENT MediaWorks believes Apple is preparing to offer a subscription music service within the next six months. In his own words:

I think Apple is seriously considering a subscription offering right now even though they will probably tell you otherwise,” he said.

But I think the real motivation behind the subscription idea isn't Apple, but the record companies, as analyst Phil Leigh of Inside Digital Media notes:

"Record labels would like a subscription service. They, like anyone else, like recurring revenue. Ringing the cash register every month is a beautiful way to run a business," Leigh said.

Just as the RIAA starts another round of lawsuits against its customers under the battlecry "Piracy!" every few months, the concept of subscriptions on iTunes appears about as perennially as weeds. But while some consumers may find the concept attractive in theory, for Apple, this strategy just doesn't work for three reasons:

1. Subscriptions require Digital Rights Management (DRM) that turns off consumers. How many times do people have to hear Steve Jobs oppose DRM before they believe him? A subscription music service doesn't work without DRM enforcement of the subscription terms. Jobs is on record as saying he'd like to get rid of the cost and complexity of rights-managed music, yet subscriptions would take the company back into that business model that he (and others including me) considers fundamentally flawed. And how would he explain Apple re-embracing DRM for subscriptions to EMI, who just signed up to provide music without DRM?


2. Labels would have little incentive to create good products. Once record labels start getting paid on the basis of subscribers to their entire catalog instead of purchases of songs, you can expect the quality of commercial music to drop from its already-low level. After all, why should they waste a million dollars signing a new artist when it won't directly affect their subscription revenue stream?


3. iTunes' existing subscriptions create more satisfaction. Contrary to popular belief, Apple already offers subscription services, both in the podcast area and in TV shows. And it has the capability to charge for these subscriptions, even though that ability hasn't been used yet for podcasts. But unlike the models put forth by Real Networks and Yahoo!, Apple's subscription policy is more like a magazine's or newspaper's: you pay to own the content, not to rent it. For consumers, that analogy to real-world products they know and understand creates significantly more satisfaction than one where your entire library disappears the moment you stop paying your subscription. And consumer satisfaction is one of the keys to Apple's overwhelming success.

I think this last point about consumer satisfaction is key. Subscription services where you sign up for an entire catalog of music sound attractive in theory, but place consumers squarely in the conundrum of the tyranny of too much choice. Suddenly playing music isn't about listening to things you like -- it becomes a chore of selecting, classifying, and often rejecting music on an ongoing basis. Consumers don't like chores and like paying for them even less. In my opinion, the day iTunes offers an all-you-can-eat music rental (as opposed to purchase) service is the day I'll be claiming that iTunes has peaked. Offering iTunes subscriptions would make iTunes a "me-too" music subscription site like Napster, Real Networks and Yahoo! Music -- and would throw away its unique differentiation in the market. Frankly, Steve Jobs is too smart to do that.

It's certainly possible for some startup to offer music subscriptions services and prove Apple's strategy wrong. That's what markets are for; consumers are pretty good about voting with their wallets. In addition to the three reasons I listed above, Apple's iTunes has about two billion revenue reasons this year to pursue its own course in music subscriptions and to reject "me too" rental services. Perhaps that's reason enough.

Technorati Tags: Apple, CNN Money, Differentiation, iTunes, Marketing, Music rental, Podcasts, Satisfaction, Steve Jobs, Subscriptions, Tyranny of too much