Paying $1 per song on iTunes is starting to get old. And Apple knows it. It made sense to start with something simple to establish the legal digital music market. But now consumers are ready for more sophisticated offerings. That is why Apple is exploring ways to bundle an unlimited amount of music into the iPod/iPhone, according to the Financial Times.
The two options are either to charge maybe $100 more for an iPod and split the extra amount with the music labels, or charge a monthly subscription fee (which would work only for the iPhone at this point). Adding $100 to the price of an iPod and shipping it pre-loaded with music and the ability to access any song on iTunes would definitely keep the iPod money machine chugging along for Apple. But would the music labels go for it? That is the equivalent of only ten full-length albums on iTunes at today’s prices. I’d pay more than that for an iPod that comes with as much music as I can ever listen to. I’d pay maybe as much as $200 above the price of an iPod, which starts at $50 for the Shuffle and goes up to $500 for an iPhone or top-of-the-line iPod Touch.
But would the music labels go for it? Most people don’t buy ten albums a year, and people will upgrade their iPods every few years. Every time they do, they will presumably have to fork over another $100 or $200 for the unlimited music option. The question is, how often will people upgrade and what percentage of the extra price will Apple share with the music companies? Nokia is offering the music labels $80 per cell phone for a similar unlimited music service, but Apple is reportedly only offering $20. If that’s true, I don’t see the music labels signing on.
The other option is to go the subscription route. That would probably come to about $7 or $8 per month for the iPhone, and would be added to your monthly bill. At that price, it would take a little over a year to recoup the $100, and then everything beyond that is gravy. A recurring revenue model is much more attractive to the music labels, but paying once up front is more attractive to consumers (at least so far).
If the iPod/iPhone came with unlimited music it would create an even stronger bond between Apple and its consumers. It would turn iTunes into a true universal jukebox that people would connect to on a constant basis to update their playlist, discover new music, and treat as an online radio. It would become a daily habit instead of the place you go to on the odd occasion when you actually want to buy music (something that is happening less and less these days with the proliferation of free music elsewhere). Bands would then use iTunes to connect with fans much like they do today on MySpace or iLike, and Apple would be able to insert itself even deeper into the lives of its customers.
That would be worth a lot more than whatever extra margin it can squeeze out of the music companies.