ML: Apple prepared to debut iTunes subscription service if needed
With a flick of a switch Apple Computer could debut a subscription-based sales model for its iTunes music download service, says one analyst who believes Yahoo's new music service clearly poses a problem for Real Networks and Napster, but questions whether it will have a significant impact on Apple.
Earlier this week, The Wall Street Journal's Walt Mossberg endorsed Yahoo! Music as the "best subscription service." Meanwhile, Microsoft Chairman Bill Gates followed with a few jabs of his own — proclaiming that mobile phones should replace the iPod as the primary device for listening to music, and hinting that Apple shouldn't get too comfortable with its current position.
In regards to the pressure from Yahoo, Apple could "flick the switch on a subscription model," Milunovich believes. He says Apple could debut an iTunes subscription model later this year if it experiences any share loss as a result of Yahoo! Music and similar subscription services. To date, subscription services account for a mere 15% of the digital music download market while iTunes boasts an over 70% share.
Additionally, Milunovich noted that number of song downloads from Apple's iTunes are actually accelerating. He estimates that the average iPod user has only paid for and downloaded about 20 songs. At the same time, Yahoo's music service remains unproven, and could present issues of its own. Such problematic issues could include Yahoo's: use of advertisements, potential to raises fees, and reliance on the Microsoft WMA format, which could disinterest some consumers.
As for the comments from Gates, Milunovich argues that Apple isn't standing still and is working to protect its iPod profits. "Industry observer Robert Cringely examined the new Tiger OS and found unused icons and support of the H.264 codec that hint at video capability on the iPod and an iTunes video store," the analyst said. "Cringely also believes Tiger may have support for competing music formats, indicating that if iPod margins get squeezed Apple might license its software and switch to software-driven profits. Thatâs more of a stretch though Apple does appear to have learned from past mistakes."
In the eyes of Merrill Lynch, the Apple story is about more than iPods. "Although we think the iPod franchise is safe for at least the next year, the driver of the stock increasingly will be Mac sales," Milunovich wrote on behalf of the firm. "Management sees more evidence of the halo effect. We model a conservative 15-20% sustainable growth rate for Mac revenue. "
Merrill Lynch reiterates a "Buy" rating on Apple with price objective of $51 a share.
22 Comments
Apple isn't being stupid here. There's a reason why iTunes 5.0 has take a long time. They are going to have options and we haven't even seen Apple's assault on the living room yet.
I say bring on the subscription service. It'll only sell more iPods and music on iTMS.
Apple isn't being stupid here. There's a reason why iTunes 5.0 has take a long time. They are going to have options and we haven't even seen Apple's assault on the living room yet.
I say bring on the subscription service. It'll only sell more iPods and music on iTMS.
What do you think needs charged to break even with subscriptions?
how do the record people charge? Does Yahoo pay more as more people download tracks? or is it a fixed amount?
"With a flick of a switch Apple Computer could debut a subscription-based sales model for its iTunes music download service..."
Definitely. Apple has said (during a conference call) that there are no technical barriers blocking Apple launching a subscriptions service. They're just waiting for the right time.
Interesting observation.
Until a few days ago, I could not imagine why I would ever want my TV connected my computer in any way.
I mean, TV is for watching passively. And, computers are for interaction.
But, Mac OS 10.4 Tiger changed my mind. I was playing with Dashboard widgets (most of which are useless) and came across Doppler Weather. So, I thought: What if I had Dashboard on my TV and I could check the weather with a push of a button on the remote. Check the weather anytime. Not wait for the weather bimbo to show me the Doppler map. Now, here is a combination of computer and TV that I understand.
,dave
"With a flick of a switch Apple Computer could debut a subscription-based sales model for its iTunes music download service..."
Definitely. Apple has said (during a conference call) that there are no technical barriers blocking Apple launching a subscriptions service. They're just waiting for the right time.
I agree. Jobs also said, about a year ago, in response to a question about it, they would do it if it seemed necessary.
If they can do it now, I say go ahead.