Chicago (IL) - A dramatic shift in the way you will be consuming and paying for music on your iPod or iPhone could be in the making, according to an article published by the Financial Times. Instead of shelling out $1 for each track, the iPod maker apparently is aiming for an upfront payment in exchange for access to a complete music library over a certain period of time.
The idea is not entirely new. Some readers may remember the announcement of Nokia’s "Comes with Music" service, which allows users to download an unlimited amount of music for free for 12 months. Announced in December of last year, the Financial Times said that Nokia may be paying its flagship partner up to $80 per device for this program, but market research indicates that this investment is apparently paying off.
The newspaper said that Apple has been in negotiations to close a similar deal, but the company isn’t willing to pay as high as a premium as Nokia and has put a limit on $20 so far. Interestingly, the Financial Times quotes market research that has shown that consumers could be convinced to spend more than $100 for unlimited access to music over the lifetime of a device, or up to $8 per month as a subscription service.
An all-you-can-eat music subscription model could be very lucrative for Apple, since it is generally believed that the company is not exactly making a killing on music sales through its iTunes store: Instead, Apple is using the service as a marketing vehicle to promote its iPod and iPhone products (which usually have huge profit margins between 33 and 50%).
The music industry could profit as well: In February of last year, Apple CEO Steve Jobs noted that iPod owners had purchased only 22 songs from iTunes for their iPods, translating into less than $22 in iTunes revenue from each iPod owner.
That trend appears to continue as iTunes currently sales stand at about 4 billion and iPod unit sales at about 160 million - which translates to an average of 25 song purchases per iPod sold (leaving the iPhone as well as iPod replacement sales out of consideration). However, Apple noted in its most recent 10Q filing with the SEC that iTunes sales are accelerating not just because of the growth in the iPod installed base, but also because of "heightened consumer interest in downloading digital content, as well as the expansion of third-party audio and video content" - which indicates that people are downloading more content for their iPods than they did a few years ago.
There may be a big question mark behind the growth variable, but at least from the perspective of average unit sales, any subscription model or lifetime access premium payment in excess of $30 could even make sense for the music industry and not just Apple.