March 19, 2008
All-you-can-eat iTunes
News that Apple is in talks with record labels about a possible ‘all-you-can-eat’ model for iTunes is making the rounds on the blogs this morning following last night’s story in the FT.
Over at TechCrunch, Erick Schonfeld asks whether music companies would be willing to go along with a subscription model. We think the answer is clearly yes.
Consider this: Steve Jobs himself pointed out last year that the average iPod contains just 20 iTunes songs. Our own back-of-the envelope analysis shows that the number at this point (4bn iTunes songs sold, divided by 140m iPods and 4m or so iPhones) could be closer to 28 songs per Apple device. Either way, given Apple’s 70-30 revenue split with record labels, that means the music companies are making a paltry $14-$20 per iPod, even though many iPods can hold thousands of songs. Meanwhile, Apple banks hundreds of dollars per iPod sold.
Compare that $14-$20 with what record labels could make on an all-you-can eat deal, and it’s easy to see why music companies would be interested. Music labels are thought to be pushing for a $100 up-front payment over the two-year life of an iPod, with the markup to be split between the music companies and Apple. The lowball $20 per iPod figure being floated by Apple suggests that Steve Jobs is determined to drive a hard bargain, if he agrees to such an arrangement at all. But even if the record labels were only able to get Apple to come up to $40 per device, they would be almost doubling what they have been getting under the current a-la-carte model.
Update: Peter Kafka at Silicon Alley Insider has a good analysis of the economics of an iTunes subscription service here.
Tags: apple, Digital media, digital music, entertainment, iphone, ipod, Music, record labels
