4 July 02007

Revisiting Subscription versus A-La-Carte models

E-commerce Times iTunesThe contention between subscription and à-la-carte models for online music has been running for at least five years, and I suspect it has at least another five years left to run. Rhapsody was the first to start offering a subscription service, where you pay a monthly fee in return for access to (but not permanent ownership of) a vast catalogue of music, in 02001. iTunes has remained firmly in the à-la-carte camp, selling music track-by-track for a unit price. Steve Jobs has maintained that consumers don't want to 'rent' music, and so far the market has backed him up. Then there are hybrid models such as eMusic, which offers a fixed number of permanent downloads for a regular monthly fee.

Max Blumberg sent me this E-commerce Times article in which he's quoted explaining what puts people off subscription services. We had a bit of an email exchange about this, and here are some of my thoughts.

In the article, Max is quoted drawing the analogy between subscription services and gym membership: "Gyms make money on the fact that many people take out subscriptions, but do not use their facilities regularly — at least after their initial enthusiasm. Pay-as-you-go is more transparent."

I've been an eMusic subscriber since last summer. One of the rumours about eMusic was that they expected the 'gym membership' model to apply, but ran into some difficulty when it didn't apply as much as they expected… The kind of music fans they attracted — like me — are actually pretty committed to using up their monthly allocation of tracks (the 'barriers' to downloading are much lower than those for going to the gym: no travelling, changing clothes, showering or sweating involved). In ten months, I've used every last track of my 40-track-a-month allocation every month. Of course, eMusic won't comment directly on this, but last November they reduced their monthly quotas for each subscription level by up to a quarter, which is consistent with the rumour.

Max, though, was describing the other kind of subscription, the one where you just get the music 'for rent'. I think this appeals to a particular niche of music fans: mostly those who already have large collections, but are still fanatical enough to want to explore other music.

I could be a wrong about this, but I have a hunch that people who number their music collections in tens or hundreds of albums think of it as quite big. Someone who has thousands of albums in their collection thinks of it as frustratingly small. These are the people who won't really be satisfied until they've got to hear most of the recorded music in the world. And that makes them ideal customers for subscription services.

My collection is only in the low four figures, but if I listened to an album a day it would still take me over five years to listen to everything I have. So in those circumstances the value I get from each additional purchase declines: I've reached a point where I have some music I have only listened to once or twice and may never listen to again. So some time ago I reached the point where I have to ask: "Do I need to keep paying a premium to own everything I listen to, when much of it is lying unused and unattended to most of the time?" The economies of paying for access to a truly vast collection make more sense in that context.

Max wondered whether companies should start to offer both models. My response was that it will take some years for these changes work through the market. People take time to adapt to the increasingly vast range of music that is available (and major labels are releasing twice as many albums per year as they did a decade ago, before you even take account of the burgeoning independent/DIY scene, so it's getting harder just to keep up), as well as the 'weird' idea of renting music.

At the minute the likes of Napster and Rhapsody are bearing a lot of the pain from the slow rate of change. Meanwhile Steve Jobs is sitting back enjoying their pain, repeating his mantra that consumers don't want subscription models, which remains true for now. However, once Napster and Rhapsody have done the hard work of breaking in the market to the new concepts, Apple could, as Max suggests, start offering both models and meeting all needs. (They've already established a service that combines DRM and non-DRM options, which would be part of the foundation of a combined subscription/à-la-carte offering.)

Finally Max says, "the entrepreneur in me wonders where the opportunity is for the likes of you and me right now". Well, I'm going to risk taking a determinist view of progress by arguing that the growth of subscription services is, as the old Marxists would have said, 'historically inevitable'. It may be a bumpy path, and some subscription services will perish before they reach the promised land (some already have), but together we'll get there.

If you accept that premise, then there should be entrepreneurial opportunities in oiling the wheels of the slow-grinding subscription evolution. One of the challenges there is helping consumers get their heads round how to deal with vast catalogues available through subscription services. This is what I call the 'discovery problem' — how to decide what to listen to next when everything is available — and that's why I've written a book about it. I hope I'm right.

Posted by David Jennings in section(s) Music and Multimedia on 4 July 02007 | TrackBack
Post a comment

Remember personal info?