Subscription music's future, Part 2

Yesterday, I spoke about the history of the subscription music model, its roadblocks, and the major players committed to its success. In part 2 of this feature, I'm going to outline some areas of growth for subscription music, share some comments from Rob Williams of Rhapsody, and take a closer look at Microsoft's approach with their Zune Marketplace.

So far, we're seeing three music device trends that will shape digital music in coming months and years: digital audio on more device types (cell phones, MP3 players, UMPCs, in-car GPS, car stereos, home stereos, laptops, Squeezeboxes, boomboxes, Chumbys, and even sneakers); greater adoption of wireless technologies including Wi-Fi and Bluetooth; and cheaper, high-capacity flash memory replacing hard drives. Services such as Napster and Rhapsody are betting that while Apple may dominate the MP3 player space for a while, there's plenty of room for subscription music on all the many connected devices in your life that aren't iPods.

In a conversation I had with Rob Williams, senior vice president of music software for Rhapsody, Williams agreed that while wireless internet penetration needs to improve to fulfill the potential of the "celestial jukebox" concept, there are still plenty of opportunities for wireless music delivery. In our conversation, Williams said, "We want to assist people in getting music on devices, on their phone, at home, in their car, and across the Internet. We think that's something users actually want." At the moment, using Rhapsody to discover music while on the subway or in the car is a tricky proposition. A new partnership with Verizon could speed acceptance of on-demand music downloads and streaming radio (presumably using Bluetooth to broadcast to your car). However, despite the popularity of the iPhone, it remains to be seen whether consumers will broadly embrace music phones.

Putting subscription music everywhere the iPod isn't sounds like a tidy divide-and-conquer recipe for long-term success, but will it be enough? Are there other, more human factors contributing to the slow adoption of subscription music services?

Without a doubt--I think Steve Jobs was right on with this--there is an instinctual resistance to subscription music pounded into us by decades of consuming music as a physical medium. Rhapsody's Williams agrees: "There's definitely a hurdle with subscription because it's not an exact replica of the model people are used to in the physical world."

However, as a generation grows up trusting the Internet's infinite shelf space, we may become less concerned about owning an MP3 file. As a former record store employee, I can't tell you how revolutionary it still feels to know that music will never again go "out of print." Just five years ago, I played grief counselor to customers who optimistically walked into my record store asking for the long-out-of-print Travelling Wilburys album, only to walk out empty handed (the album finally saw a revival in 2007). As a reaction to repeat disappointments, many of us still stockpile MP3 files as we do CDs or LPs. It make take a while for the new reality of the Web's infinitely deep catalog to sink in, but when it does, purchasing music files a la carte may seem as quaint as buying VHS movies at Blockbuster--especially for casual music listeners who would enjoy a passive stream of music and risk-free on-demand downloads of whatever Top 40 music they might be enjoying on the radio.

But how does a Rhapsody hook these customers? Attempts to lure them with Rhapsody-branded MP3 players have met with mixed success, but nothing on the scale of the iPod and iTunes. In-home streaming jukeboxes such as the Sonos music system and Logitech Squeezebox, both preconfigured for use with Rhapsody and bundled with a trial subscription, have made some inroads. As Rob Williams stated in my interview, "Anything that has an IP address is a natural place for a subscription service."

The other, perhaps more promising hook for Napster and Rhapsody is subscription music content on mobile phones. Personally, I can't stomach the idea of using my phone as an MP3 player, but there's a little gadget out there called the iPhone which is apparently doing quite well, and from a business point of view, an on-demand music service on a mobile phone makes sense. After all, not everybody will buy an MP3 player and even fewer will buy a product such as the Squeezebox, but nearly everyone has a cell phone. With more than 3 billion mobile phone service subscribers worldwide, the market is so huge that luring a mere fraction of customers to Rhapsody or Napster on their handsets could make a real difference for these music providers. If subscription services could tack their charges on the already skillfully obscure cell phone billing statements, their customer base would probably hardly blink. It's a crazy world in which we pay $80 a month in phone charges, but would rather steal a song than pay 99 cents for it, but I think Rhapsody and Napster are smart to take advantage of that particular market quirk.

But there's an interesting third approach to the future of subscription music, too. Unlike Rhapsody and Napster, which strive work with a wide swath of consumer electronics, the Microsoft Zune Marketplace subscription music service is a vertical solution intended only for the Zune MP3 player. In an attempt to position the Zune as a hip, more youthful alternative to Apple's now mainstream iPod and iTunes universe, Microsoft has positioned the Zune and its integrated $14.99/mo Zune Marketplace subscription music service toward a smaller, younger, more musically devout demographic. Judging from their well-funded marketing campaign complete with 20-year-olds making deep psychedelic connections to The Shins while riding the subway--they just might get away with it, too.

Historically, the niche interests and voracious appetites of young, money-strapped, die-hard music fans could only be met by the deep, free, and unrestricted catalog of music available illegally through peer-to-peer services. Today, however, as labels of all sizes and genres are increasingly opting for inclusion on subscription music sites (often motivated by marketing and exposure, rather than direct financial gain), the all-you-can-eat buffet of subscription music is considerably better than it was only a few years ago. If properly dressed and curated, there's no reason the more than 3.5 million tracks available on a service such as the Zune Marketplace couldn't satisfy (or at least compliment) the appetites of highly demanding users. However, it's a tough audience to cater to, but Microsoft holds an advantage not shared by Napster or Rhapsody (aside from deep pockets), which is owning a closed vertical system of both the software and the hardware. It may come as no surprise that the Zune MP3 player is not compatible with any other subscription music service beyond the Zune Marketplace, nor is the Zune Marketplace compatible with any other MP3 player (with some rare exceptions).

So what's it all mean? Well the one-sentence conclusion for those of you smart enough to skip to the very end of my rant, is that subscription music service providers are likely to grow stronger over the next five years because of the consolidation of providers, the increasing amount of portable, networked devices, the breakthrough of the mobile music phone, and the generational shift of young music consumers with huge appetites and no hang-ups about owning music because of fears of scarcity. Apple's iPod and iTunes store have stood as the biggest roadblocks to the adoption of subscription music these past 5 years, but they have unwittingly set the stage for subscription music's increased viability as consumer's expectations for deep catalogs of affordable, on-demand music spill over into the areas of mobile phones, home stereos, and worthy iPod alternatives.