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iTunes threatened by DRM-free music

Will DRM-free music & competitors kill iTunes?

What all this means is that subscription services must change dramatically before they will have a significant impact on the digital music industry and take business away from Apple, which has repeatedly said it is unlikely to offer a subscription service. Many believe the subscription services will, indeed, change, and Microsoft claims it is leading the charge.

New subscription models

Jason Reindorp, Microsoft's director of marketing for Zune, said he's confident that subscription services will succeed, although they will probably look different in the future. He also agreed with McQuivey that the biggest problem is that many people don't understand the services.

"What's needed is a strong educational push," Reindorp said. "I can understand why, at face value, people could think that if they pay for something, they'd want to own it."

One way to combat that problem, Reindorp said, is to provide variations of the subscription model that people can more easily understand. He said Microsoft is looking into such variations for its Zune Marketplace, which is structured much like other subscription services. One option would be to provide different levels of service.

"There could be a basic level where you access tracks, another where the service pushes out recommendations to you, and a third where there is all the access you want and where there are videos and other premium content," Reindorp said. "Or maybe the player is free or subsidised, or the device is replaced when a new device comes out. We're exploring all those things."

He predicted that once the subscription model is fine-tuned, it will compete strongly against iTunes. Apple did not return calls for this story.

JupiterResearch's Strother said another reason new subscription models are needed is that the current model doesn't make business sense.

"It's like the cable model where the only way you can make more money is to raise rates or attract more customers," Strother said. "From a business-model point of view, unless you move me up to a gold or platinum level, it's hard to know where you could grow the business."

Reindorp stressed that even without changes, he is seeing some movement toward acceptance of the subscription model.

"Subscribers [to Zune Marketplace] have been increasing about 65 percent a month," Reindorp said. "The numbers are still quite small, but that kind of growth is important."

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