The Greatest Threat, and Opportunity for iTunes

by Hadley Stern Mar 31, 2008

The best way to understand the situation facing iTunes is to look at other business models for distribution that don’t require the ownership of music. Take terrestrial radio, for example. One can live off this as a source of music forever and for free. Because the advertisers pay to have time in between songs to sell you stuff. The radio station uses this money to pay a per song fee to the record label for broadcasting the song.


Now, look at satellite radio. Here you have an even bigger selection of music. In return you pay a small monthly fee that covers the infrastructure and those record label fees and buy a device to tune in.

Again, pretty darn simple.

Still, today, in order to own music, that is have it forever, do with it whatever you want (well, ok, limited by a certain number of cd burns, devices, etc) you have to buy it. Still, after all these years of seismic changes in the music business this fact remains. Sure, you can pay a monthly fee and subscribe, but that doesn’t quite count, because as soon as you stop paying the music disappears.

The challenge is that all this media is available for free from multiple outlets most notably Bittorrent, Limewire, etc. The other challenge is that a lot of people are getting their media this way. It isn’t an act of hackers. It isn’t underground. The words Bittorrent and Limewire are, I would argue, are more widely know than HMV (do they still exist?) or any other number of brick and mortar stores. As people’s expectation is that music (and, increasingly movies) should be available freely and readily this is a problem for Apple. But in that problem hopefully lies a solution.

What is also very important, and what the RIAA does not get is that most people would happily pay a reasonable amount in order to own music. The success of the iTunes Music Store has shown this.

We already pay for our music, as discussed in the radio examples above, in alternate ways. There is no reason why we can’t pay for owning our music differently too. Imagine this world:

- You could download any song, anytime.
- You could keep said song forever, and use it wherever.
- The applications (aka as iTunes) would suggest music to you, have community built in so you can see what friends are listening to or watching.
- etc.

So now, the big question. How to pay for this all? Think back to radio. In order to listen to radio you have to a) own a radio, b) listen to advertising or c) pay a fee to not have advertising.

Same model for music. You will have to own an iPod (which will assumedly have a tax on it of some sort), listen to advertising between songs, or pay a fee to download and own the music, forever.

If Apple doesn’t somehow adjust to this new reality the users and industry will do it without them. Already there are discussions underway between Comcast and Bittorrent with the idea floating around of some sort of monthly fee.

What we are seeing right now with iTunes is the in between step from the old structures of selling and distributing music and the new. The new way is Apple’s greatest opportunity, or threat, if it choses to ignore it.

What do you think? How would you like to see music bought and owned? Does the model above make sense?


  • I’m not sure you’re making the right comparison.  I don’t think of my iPod as a radio, but more like my portable stereo.  I use the radio to find music that I then purchase (less and less though, because commercial radio has been declining in quality, IMO).  I certainly don’t want to listen to adds on my iPod, and I certainly don’t want to pay a subscription fee…I’m tired of fees, actually.  I often wonder whether I’m getting my money’s worth from the fee services I use (cable comes immediately to mind).

    domarch had this to say on Mar 31, 2008 Posts: 12
  • I supposed, Hadley, that you are talking about the “imminent” deal to be announced that will tax portable devices, P2P distribution apps, ISPs, or a mish-mash of those three.

    This music model would then resemble terrestrial radio without the talking heads and ads at predictable intervals. For the end listener, it appears to be free because no monthly reminders - a.k.a. fat bills. They just get subsumed into it and the power de carte blanche.

    That is extremely powerful motive and very appealing. It is very simple to implement. Bean counting is also simplified and predictable.

    I hope Apple and the music industry come to terms fairly for their listeners, artists, producers, and distributors. After all, we listeners are the ones still honestly paying a la carte music while many have already converted to BitTorrent religion.

    I myself wouldn’t mind this sort of “tax” on my iPod purchase so long as I know those artists are getting fairly compensated.

    So, I do not at all think that this - sort of - new way to distribute music, buffet-style, will threaten iTunes. iTunes will enhance music and unlimited music will enhance iTunes.

    iTunes and music are now accepted to be one in the same intertwined tangle of goodness. wink

    Robomac had this to say on Mar 31, 2008 Posts: 846
  • You can also digitally record from broadcast or internet radio, of course. Perfectly legal and free.

    Jon Johanning had this to say on Mar 31, 2008 Posts: 2
  • I’ll do anything and pay any price to avoid having to listen to adverts.

    Charel had this to say on Apr 01, 2008 Posts: 6
  • Hey, Hadley! I may be the first one to comment off your new site theme. Looks mah-veh-lous. Kudos for the blurb of each posters’ comment ranking next to their posting.

    Robomac had this to say on Apr 01, 2008 Posts: 846
  • Most people get emotionally attached to music.  That’s why they buy the same album on LP (if they were old enough), then on cassette, then on CD and then remastered CD.  What other proof does one need to realize that people want to own their music?  You mention a music subscription plan and most people’s immediate reactions are negative.  “You mean as soon as I stop paying, all my favorite songs disappear?”  Or even suspicious “You want me to get hooked on these songs so that I keep coming back and shelling out like a junky.”

    And yet, a subscription, or shall I say “unlimited whole-song sampling privileges” can benefit both music buyers and sellers as it allows music buyers to expand their tastes and buy more music.

    So what arrangement would give sellers the income stream that they want from a subscription while allowing buyers to own the music that they like?

    Purchase $15 worth of music and you get one month’s unlimited whole-song sampling privileges.  For subsequent months, purchase just $10 dollars of music and your privileges continue uninterrupted for another month.  Simple.  No contracts to sign.  No long term obligations.

    tundraboy had this to say on Apr 01, 2008 Posts: 132
  • Sorry, don’t have any interest in subscribing to music.  I HATE cable, and what is that but a subscription to video?  I’d rather buy what I want to watch or listen to.

    I think Apple has the right mix so far.  Buy music and rent the other stuff.  (I’d like the TV shows to go to rent, too.  I’d pay $0.99 to rent a tv show.)

    Again, no contracts, no long term obligations.

    That’d get the content providers back into a form of competition that should improve that content!

    rahrens had this to say on Apr 02, 2008 Posts: 18
  • I agree that Apple needs more models of how to distribute music - simply more choices for people.

    Apple could use exactly the same choices for movies and TV too. You could
    1) buy something once off,
    2) rent once off,
    3) subscribe for a monthly fee to a selection of content, or 4) listen/watch ads specifically targetted to your interests

    I suppose you could even have a combination - like playlists which intersperse your ad supported content with your purchased songs (it might allow you to have half your music from music you love and bought, AND thus halve the amount of ads to hear new/other stuff).

    An ad supported TV show or radio can have fewer ads than regular TV/radio and make the same revenue - by only giving you ads that are relevant to you. You could even click on an ad on the ipod and scroll between “remove for 6 months”, and “follow up”.

    eg: Follow up on your iPod on an ad for a new movie, and it’d appear in iTunes/AppleTV as a video trailer and eventually rental option. Or 6 months later while listening to music you’d hear the same ad with “Now available for rental on iTunes….”

    Greg Alexander had this to say on Jun 01, 2008 Posts: 228
  • Robomac - I’m very against paying a ‘tax’ on my iPod that goes to the artists. The reasons are:

    a) I want my money going to the artists I personally listen to, not distributed between the major producers based on some fixed formula or based on sales of CDs.

    b) I have an 80GB iPod but most of that 80GB I use occassionally to move home videos & big graphic design files. Sure I have 8GB of music, but why should I pay for the extra 72GB I don’t use? And if I have TV on my iPod, how does the tax get sent to the TV producers instead of music companies?

    c) I wonder if I pay a tax does that mean I can legally download any music or TV show from now on for a single once-off payment when I purchase the iPod? I really don’t think the music/tv companies would give up their right to sell their content or sue people for pirate content.

    That said… a subscription fee that actually looked at the music I was listening to and split my (LOW) fee appropriately between bands would be fine.

    Greg Alexander had this to say on Jun 01, 2008 Posts: 228
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