Tuesday, March 25, 2008

Paying and paying again: Can subscription work?

Interesting stuff over on eMarketer, where they do some of the sums associated with a musical subscription service and suggest that - surprise - the labels might be expecting too much cash:

Forrester Research estimated that in the third quarter of 2007, 42% of all MP3 players owned by US adult Internet users were Apple iPods.

Applying Forrester's estimate as a market-share calculation, Apple could reasonably argue that any hardware-based iPod royalty should yield 42% of global industry sales, $1.2 billion of the industry's $2.9 billion total for 2007. That would equal roughly 14.5% of Apple’s iPod revenues for its fiscal 2007, or about $23 per iPod unit (assuming average per-unit revenue of $161).

That figure corresponds to the $20 Apple is said to be offering labels, according to The Financial Times. However, if Nokia is paying up to $80 per unit, as the article suggests, that would indicate a huge gap between Apple's price point and the labels' presumed expectations.

Actually, we'd say even the twenty bucks is over-priced: the 42% of US iPod owners shouldn't be replacing 42% of global sales - a massive chunk of that $2.9 billion is accounted for by sales outside the US and physical sales - and why should a person buying an iPod compensate a music industry for a share of sales that has nothing to do with digital downloads? It makes ten dollars sound like a generous amount, surely?