Saturday, October 13, 2007

Record Industry Comes With Great Deal

Have a look at this BusinessWeek article, and ignore what this Apple fanboy is saying.


While the details are in flux, insiders say Morris & Co. have an intriguing business model: get hardware makers or cell carriers to absorb the cost of a roughly $5-per-month subscription fee so consumers get a device with all-you-can-eat music that's essentially free. Music companies would collect the subscription fee, while hardware makers theoretically would move many more players. "Doug is doing the right thing taking on Steve Jobs," says ex-MCA Records Chairman Irving Azoff, whose Azoff Music Management Group represents the Eagles, Journey, Christina Aguilera, and others. "The artists are behind him."

This is of course great news. And Christina is in, so I'm intrigued.
The big question is whether the makers of music players and phones can charge enough to cover the cost of baking in the subscription. Under one scenario industry insiders figure the cost per player would amount to about $90. They arrived at that number by assuming people hang on to a music player or phone for 18 months before upgrading. Eighteen times a $5 subscription fee equals $90. There is precedent here. When Microsoft was looking to launch a subscription service for Zune, Morris played hardball. He got the tech giant to fork over $1 for every player sold, plus royalties. Total Music would take that concept even further. "If the object is to wrest control of the market from Steve Jobs," says Gartner analyst Mike McGuire, "this is a credible way to try it."

$90 per unit is nothing. It would be no problem at all for device makers to pay for that. Think about the value to the customer this would add. Wouldn't you pay a device that came with a lifetime (=18 months) of as much music as you wanted at no additional charge? I know I would.

This also shows the importance of DRM. Do you think something like this would be possible with unprotected MP3s? Of course not. You need DRM to make this happen. Another great win for DRM!