An Extra $100 For An All-You-Can-Listen-To iPod?

Paying $1 per song on iTunes is starting to get old. And Apple (AAPL) 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 (NOK) 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.

Comments

[draggot:]

LAME - how many times have I heard people bash the idea of a music subscription svc. re: rhapsody - now that apple is considering the concept - everyone is going to say "genius"

2008 Mar 19 12:56 PM

[jgeoff:]

As long as the current option to purchase songs individually without a subscription is available, I have no problems with subscription fees. I, personally, use my iPhone more for everything but the iPod features so it'd be a waste for me to pay $100 more for it, or pay $7/month extra for a song or two. But that's just me.

2008 Mar 19 01:40 PM

[relish1t:]

I doubt that Apple is even considering an "up-charge" per iPod. That's a sure way to slow sales. For multiple iPod owners, you know they're not gonna bite. A subscription model might work for some, certainly not for the majority of owners. If Apple is considering either of these it would only be as "option" for those that would want it.......not as an wholesale change of their current iTunes model. Financial Times?- where do you get the notion that a subscription service would ONLY work for iPhone owners? What a ridiculous comment to associate the iPhone subscription process with AT&T to a music download process on iTunes. What role would AT&T play in THAT?

2008 Mar 19 01:46 PM

[Tom B:]

AAPL is down today. I'm guessing the market believes the alleged new subscription plan is indicative of weakness developing in iTunes music store sales. I am unconcerned; the iTMS is simply a convenience that helps Apple sell the hardware, the iPods.

Mac sales are said to be booming. Everything Apple does is ultimately
about getting folks into the Stores so they can see how the happier swath of the computer-using population lives.

2008 Mar 19 01:51 PM

[PopTheBubble:]

Exactly, Thomas. You're one of the few on these blogs who has apparently actually been in an AAPL store. As I've been saying for a few weeks now, when the commodity bubble implodes, people will come screaming back to AAPL. Commodities are falling hard, at least today....if it continues, big money will start moving back to the solid growth companies. And if the AAPL computer sales are as robust as being speculated, we may see the perfect storm of investor excitement in a month or so! Remember, the next really big things....the 3G phone and iPhone in China by the Olympics!!

2008 Mar 19 02:13 PM

[Tom B:]

"You're one of the few on these blogs who has apparently actually been in an AAPL store."

I make it a point: To buy stuff; to pick stuff up in my own hands (the MacBook Air); to see if the Store is busy.

Apple is on a roll; great products AND people are finally noticing. And MSFT is NOT executing well, under Ballmer and under the watchful eye of the EU.

2008 Mar 19 02:45 PM

[Chaim:]

Is it really true that most iPod owners don’t buy ten albums a year? Or does "albums" in this case refer strictly to iTMS-downloaded tracks, excluding CD and non-iTMS track purchases and subscriptions?

It seems unlikely.

2008 Mar 19 05:22 PM

[peter02l:]

Let's say you've got 5 people in the family each with two ipods and an iPhone. That will cost an additional $1500 (or $3000 if they were to charge what you are willing to pay).

And to top it off if you lose an iPod, break one, or wish to get a newer one, you'd have to pay the $100 over again. I have been buying music for a long time in many different physical formats, and am getting tired of paying for the same music over and over again.

2008 Mar 19 08:02 PM