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March 19, 2008, 11:33 am

Why would Steve Jobs rent music on iTunes?

itunes-ad.pngIt’s all the talk on tech and music blogs: The report in Wednesday’s Financial Times that Apple (AAPL) is negotiating with the big music companies for a deal that would give customers free access to the entire iTunes music library. (link)

In exchange for what? There are several answers to that question in the FT account, and that’s the problem.

In one model, customers would pay a premium — up to $100 extra — for an iPod that would have “all you can drink” access to the iTunes library for the lifetime of the device. This is similar to the “comes with music” deal Nokia (NOK) struck with Universal Music last year. The Nokia deal, however, is for streaming music to a phone. The iPod deal would require download access and some kind of digital rights management scheme to prevent a user from siphoning off the entire library and putting it on a big hard drive.

In the other model, customers would pay a monthly subscription fee of $7 or $8 dollars for full streaming access to the library — like RealNetwork’s (RNWK) Rhapsody.com service — and the right to keep 40 to 50 tracks per year. This model would only work with the iPhone, which is sold on a subscription basis.

According to the Financial Times, the negotiators are haggling over the price. Nokia is reported to be offering up to $80 per handset to Universal. Apple, two sources told the FT, is offering only $20 — which happens to be roughly what the average iPod owner spends at the iTunes store today.

“If that’s really the only thing keeping this from happening, then this is a done deal,” writes Peter Kafka at Silicon Alley Insider, echoing much of the commentary this morning that likes the way this deal sounds.

“I won’t speculate whether the rumor is correct or not but I can say that it does make sense,” writes Michael Gartenburg.

Color me skeptical, and not just because Steve Jobs has repeatedly attacked the idea of “renting music.” People rent movies and watch them once or twice, he believes, but they listen to their favorite music over and over and they want to own it.

Jobs, of course, might change his tune if he could find a way to make subscription services as simple and transparent as the 99-cent-per-song download model that he’s stuck with since he opened the iTunes store.

But the business models outlined in the FT story are anything but transparent. In fact, as MG Siegler points out in VentureBeat, the store and service the FT describes is more complicated than many of Apple’s chief competitors’.

“Does Apple,” Siegler asks, “really want to mess with a good thing?” (link)

Apple is being a bit archaic with this one. Though, if the deal went through it would be “all the rage” amongst our less informed(scared) group of musicheads, whom are unaware of the dozens of “FREE” p2p’s. If Apple strikes an affordable deal and makes a simple user-friendly way of searching,downloading and uploading the music then, with their immense and quite loyal customer base, this will be a huge hit.

Posted By Josh Ruggeberg, Dallas, Texas : April 2, 2008 9:40 pm

I’ve been paying for a Rhapsody subscription for a couple of years now and LOVE IT! I can change out what’s on my mp3 player whenever I feel like it, new, old, etc. And, the $12-$15 a month is significantly less than I was paying for downloading songs (which I would quickly bore of).

Sadly, my iPod has been laying idle in a drawer since it isn’t compatible with the Rhapsody service. I would be so excited if Apple would create a subscription service (really, why can’t they?) for those who want it. And, I’d quickly dump my Sansa player (Rhapsody To Go) in favor of that cute little iPod in my drawer.

Posted By Denise, Kansas City : March 20, 2008 1:07 pm

Most every music download site offers membership…Napster, Rhapsody/MTV, Yahoo. I hear what Steve Jobs is saying about renting music, but at the same time, he has such a monopoly on MP3 players and how easy it is to download that everything he says just sounds like it’s all about the money he might miss making by offering a membership to Itunes.

Hey, I ain’t talking smack about Steve Jobs, I finally broke down and got an Ipod. It’s fabulous. The best MP3 player I’ve had to date, the problem is, I’ve lost much of my music library from my other players since they support other music download sites, and the Ipod doesn’t.

I still buy cds because I like have the liner notes, but I do think Itunes could be more user friendly– and more cost effective for the consumer, not just Apple.

Posted By G, Philadelphia, PA : March 20, 2008 12:31 pm

It should not be assumed that this is the first time. Microsoft Zune offers the same subscription deal every since it began.

Posted By John, San Jose, Ca : March 20, 2008 10:59 am

The reason Apple has to “mess with a good thing” is that major labels are considering licensing p2p. Yep, you heard me right. DRM hasn’t worked, the “sue ‘em all” policy is on the rocks, ISPs are rejecting filtering… what else can they do?

The iTunes store has so far had everything is its own way in the legal downloads arena, but legalized p2p would change that overnight. The iTMS’ 3 million songs are about to be swamped by the tens of millions available on p2p networks. Hence, the change of business plan: lock people in quick, before that happens.

Posted By Chris Ovenden, Brighton, UK : March 20, 2008 3:54 am

I can’t believe Apple has never done this. I got rid of mine and my wife’s ipod a while ago to get a 60GB creative zen and 30 gb gigabeat just for this capability. For $14/month I have 16,000 songs on my player and my wife has several thousand different songs on hers. I am a musician constantly looking for new sounds and used to spend about $2000 a year on CDs. Now I download two or three albums a week from the service, and can listen to it on either laptop or through my home stereo with my media center PC or on either mp3 player anywhere I go. For the same price most people pay for satellite radio to hear other people’s playlist, I can listen to any song I want, whenever and wherever I want to hear it.

Posted By Drewbie in LBV, FL : March 20, 2008 1:27 am

i don’t really know why anyone pays for music anyway! you can download it for free from a number of different web sites

Posted By Anonymous : March 20, 2008 12:28 am

I will not be getting a Ipod period. I get my music from Cd’s, Music Choice on Digital Cable, radio.I get plenty of
music I want.

Posted By Troy Port Orange,Florida : March 20, 2008 12:25 am

RE: Gregg, Chicago IL –

I have to imagine you work for the businesses involved in renting music. I have never heard one other person say they LOVEd paying a monthly fee to listen to songs. It’s sort of like getting excited about paying your phone bill.
So, come on, be honest here, you are workin’ for the man on this one right?

Posted By mfearing : March 19, 2008 10:44 pm

I have hesitated buying an Ipod for this very reason. Subscription music is fantastic.
I subscribe to Yahoo Music To Go – which ironically named since it’s about to ‘go away’.
I have a 30gb mp3 player filled with any artist/song that I want to hear. Want to sample the new Sheryl Crow album? No problem. Want to find some good hip-hop your friends reommended? No problem.
Just think of all of the songs you’ve paid for and ‘own’ that you would gladly get rid of for a refund. An all-you-can-eat model is perfect for music.

Hey Apple – I have my beat up MP3 ready to trade in for an Ipod
Touch as soon as you bring the subscription option. The time has come.

Posted By Gregg, Chicago IL : March 19, 2008 9:25 pm

Wow I cant wait till Sound Beast launches. I’m fed up with dealing with complex DRM and extra downloading fees. I haven’t heard much about this new digital music but what I have heard is that it’s going to be iTunes arch nemesis in the future.

I will always be a fan of Apple but when it comes to downloading music they might have some legit competition with this new service Sound Beast.

Posted By Manhattan, New York : March 19, 2008 9:10 pm

i would consider a flat monthly subscription. but i would not do this if my it’s tied to the iPod/iPhone i own at the time and if i buy a new one the songs would be voided out – that serves no purpose to me or most people.

renting songs makes no sense, but monthly subscription is logical. however, subscription shouldn’t remove the ability to d/l songs or whole albums as we can now.

great idea to have tier level monthly subscriptions: bronze – $7-8 for music only; silver – $9-10 for music & audiobooks; gold – $20-25 for music; audiobooks & 2-3 movies rentals OR 4-5 single tv shows; platinum – $30-35 music, audiobooks, 2-3 movie rentals AND 4-5 tv show season passes; super-platinum – $45-50 music, audiobooks, 2-3 movie rentals AND 2 complete tv show movie passes OR instead of the tv shows 5-6 movie rentals.

my 2 cents.

Posted By Travis, Fremont CA : March 19, 2008 6:50 pm

The day this is actually a win for the average customer, Aple will do it in a heartbeat.

Big fees and complexity are not a win.

I think the point here is “of course Apple will talk”. But the success of the ipod is that it was build with consumers in mind, not the recording industry.

I also love the “If that’s really the only thing keeping this from happening, then this is a done deal” quote. $20 v. $80 is not a rounding error or mere negotiation, it is a 400% difference in price. And while iTunes may sell an average of $20 per ipod, what about all the CDs ipod owners (like me) buy to put on their ipod.

$20 would be a steal for Apple.
$80 would change the economics and appeal of the ipod signifcantly (especially as Apple ventures into iPhone/iPod touch 2.0 where music may no longer be the dominant application for many users. $50 probably would as well.

I envision this negotiation
DM: $80
SJ: $20
DM: $50
SJ: $20
DM: $40
SJ: $21
DM: $22
SJ: $21.50

done.

=)

Posted By yet another steve San Diego, CA : March 19, 2008 6:15 pm

I can’t quite understand why you would want to rent music, or pay a fee for LIFE to listen to songs. Perhaps it it’s a type of thinking that my ‘old fashioned’ mind can’t grasp. After all, no one used to pay monthly fees for TV either… But I would never pay a monthly fee to listen to music on a personal, portable device. But maybe lots of others would?

Posted By mfearing : March 19, 2008 5:07 pm

And why would Apple want a deal where people have an incentive to keep the old version of an iPod or iPhone for as long as possible? If I had to pay a $100 premium for an iPod and I get free music for the lifetime of the device, I’m sure as hell not going to be as anxious to upgrade to a new iPod and pay a new premium for the unlimited access.

Posted By Joe, New York, NY : March 19, 2008 4:54 pm

I really do not think Apple or Steve Jobs for that matter realy wants to do this .. I think it’s more of a “following the trend”
Steve Jobs loves music and he is totally right about not liking “all you can eat” but if there is a company that can make the best of it that would be Apple
I say Apple should start their own label sign every artist and change the game … screw the record companies ..

Artists should start contacting Apple directly or distribute their own music like Madonna, NIN and others and stop dealing with record companies.
We paid $20-24 for a CD and generally only $1 goes to the artist
that’s the ripoff.. they are like extorsionists and now they are crying

Posted By lf ny : March 19, 2008 1:17 pm
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Philip Elmer-DeWittSilicon Valley veterans like to joke that Steve Jobs must be surrounded by a reality distortion field; if you get too close to him, you start to believe what he's saying. Thanks to the success of the iPod, the launch of the iPhone and the renewed interest in the Mac, Apple has made believers out of millions of customers - and made a lot of investors rich. But Philip Elmer-DeWitt believes that an ounce of skepticism never hurts when writing about the company. He should know. He's been covering Apple - and watching Steve Jobs operate - since 1982, first for Time Magazine, then for Business 2.0, and now for Fortune.
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