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For six years, the Internet Nexus served as my technology blog, but I've since started blogging at the SuperSite Blog instead. If you're looking for the blog, please head there. --Paul

Tuesday, September 07, 2004

Microsoft Steps Into The Ring

Washington Post: "Both Apple and Windows base their online businesses on a pay-per-download model: Songs cost 99 cents each; most albums are $9.99. This year, the online sector should account for about 2 percent of all music sales, with estimates of total revenue running from $270 million to $500 million, according to industry figures. Some analysts, however, believe the real money to be made will come from subscription services, which now lag behind the download stores in total sales. The reason has to do with the way people buy and use music ... The subscription model resembles how people watch cable TV. Services such as Napster, which charges $9.95 a month, give users the right to listen to the entire length of all the songs in the service's library an unlimited number of times [They also let you move the songs to portable devices, another feature iTunes lacks. --Paul] ... A July report from Jupiter Research predicts that download services will account for $158 million in revenue this year, with subscription services taking in $113 million. According to the company's forecasts, both numbers will continue to grow in coming years, eventually will converge and will switch places by 2008, when subscription services will book an estimated $741 million in revenue, passing the $713 million in sales that download services will make .... if all the iPods sold are divided into all the songs sold on iTunes, the total comes to an average of 34 songs per iPod, or about $34 spent on digital music. In other words, the numbers indicate that the average iPod owner is a sampler, rather than a heavy spender ... The profit margin per user is higher for subscription services than download services, and about 65 percent of Napster's revenue comes from subscribers, the company's financial reports say. In contrast, Apple's iTunes is not expected to be profitable; it is primarily a marketing tool to propel sales of iPods, which run as high as $399."

Subscription will definitely beat out a-la-carte downloads over time. The question is whether Apple moves to this model and, if so, how they position themselves when they do.

[ Posted at 1:29 PM | Permalink ]