Nov 22, 2008

Tech - MS adds sweetener to its ZunePass Music Subscription service

Peter Burrows

Just when it was starting to look really dire for music subscriptions, Microsoft is making some really smart tweaks to its ZunePass offering that just might get more people to give this model a shot. Starting today, Zune customers who fork over the $15 a month for unlimited streaming of music will also be able to download ten DRM-free songs at no extra charge. In effect, Microsoft and the major labels are throwing in an extra $10 in downloads, so the cost of streaming the other four million or so songs available costs just $5 a month. Not bad, and a decent insurance policy if you decide to drop the subscription in the future. This should make some of you penny-foolish music fans out there (or guilt-ridden illegal file-sharers) at least give a serious thought to trying an all-you-can-eat subscription.

The backdrop here, of course, is that subscriptions have been a commercial failure. With little subscriber growth, Napster sold out to Best Buy and it may be time to put Rhapsody on deathwatch. It’s not that the service is such an economic dog, but it’s owned by Real—whose once-powerful digital format has clearly lost the war. As a result, Real has a market cap of just $460 million. This for a company with $406 million in cash. The fact that someone hasn’t already snapped up the company for the $60 to $80 million it might cost, suggests that no one is interested.

And yet, I have no doubt that in a decade, most of you will one way or another be paying a monthly fee to tap into the great jukebox in the sky. Maybe it will be via your smart phone service plan. Maybe it will because Apple has decided to bake it into the price of its latest iPod or iPhone or iWhatever, or maybe just offer a $30 a month option for those who want free rein within iTunes. But it’ll happen. There is simply no doubt that if you love music—not listening to the same old tracks in your CD collection, but listening to and discovering whatever you want whenever you want it—that this is the way to go. At the right price, there’d be no reason to mess with maintaining thousands of downloads, or putting up with ads on free ad-supported sites.

More after the break.

What’s nice is that Microsoft and the labels are no longer just hoping folks will figure this out. Zune general manager of marketing Chris Stephenson says the company did extensive market research a year ago. While consumers were fine with the idea of paying a monthly fee to rent music, just as they do with cable TV or Netflix, they just couldn’t get past the idea that they would no longer own anything. Of 32 potential features they tested, the idea of giving away free ten free downloads to put in that library came in 2nd (behind only free TV). “The majority of people are still focused on the idea of ownership. The ten tracks is an effort to shift the value equation to get them into the subscription model,” says Stephenson.

The labels haven’t totally lost faith in music subscriptions, but realize the model needs some CPR. All four of the majors are participating in Microsoft's giveaway program (the labels and Microsoft are sharing the cost). Having seen subscription growth rates plateau, “we realized that this model just wasn’t on track to go mass market. So we’re trying to realign the model to give music fans what they want,” says Rio Caraeff, head of digital music for Universal Music Group. That means giving them some ownership, along with the streaming. “We’re not yet in a place where music fans value access more than possession…We need to bring more ownership of music into the subscription model.”

At least for now. Over the long haul, both Stephenson and Caraeff think consumers will come to see that ownership is over-rated. Once they get used to listening to songs whenever they want to, they'll stop worrying about actually owning the bits. But Caraeff says the transition will only happen if subscriptions get subsumed inside other contracts that millions of consumers are willing to pay for. It would be as unnoticed and unexamined as the voicemail charge on your phone bill, or the roaming charge or photo-sharing charge on your cellular service deal. With deals that bring in that kind of distribution—say, five to ten million potential customers--the labels might accept just $5 or $6 a month per consumer, a third of the $15 going rate. Caraeff won't give specific numbers, but says that "We’re very motivated to bring the price down, as we get volume commitments.”

Getting the deals is only part of the problem. There's also that little problem of execution. A year ago, I wrote a story about how subscriptions might be ready for prime-time. Rhapsody, significantly, had inked a deal with Verizon. So far, not much progress there. And Microsoft will need to do a much better job of marketing the ZunePass service than it has so far; even its new ads make no mention of it (though future spots will, I'm told).

Even then, it will be hard to make much headway so long as iPods and iPhones dominate the portable music device business. “We’re very happy with Microsoft as a partner,” says Caraeff. “They’re taking the long view. The competitor they’re up against is so entrenched. Rather than try to go head to head, they’ve tried to innovate on all the things that [Apple] is not necessarily doing. Ultimately, we want there to be choice for consumers and lots of competition.”

As such, it’s time for my frequent plea for Apple to end its download myopia, and add a section to iTunes for people who are happy to pay a flat rate for full access to its library of music. Call it a subscription service, or an iMusicPass or whatever you want. But it’s going to happen one of these MacWorlds. Why not this one?


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