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ML: Apple prepared to debut iTunes subscription service if needed

post #1 of 23
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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.

In a research note released to clients on Thursday, Merrill Lynch analyst Steve Milunovich said the current weakness in Apple's stock represents a buying opportunity. The analyst acknowledges that the news flow over the past week has opposed Apple, but said his firm maintains a long-term bullish outlook for the company.

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. Thats 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.
post #2 of 23
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.
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post #3 of 23
Quote:
Originally posted by hmurchison
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?
post #4 of 23
"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.
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post #5 of 23
Quote:
Originally posted by hmurchison ...we haven't even seen Apple's assault on the living room yet.

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
post #6 of 23
Quote:
Originally posted by macnut222
"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.
post #7 of 23
Quote:
Originally posted by melgross
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.

The beauty of iTunes is its simplicity. One price per song. One price per album unless a partial album. Let the subscription services battle over the few that don't want iTunes. Then see if there really is a problem. If not forget it. If so then use it.
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post #8 of 23
apple must always have options to turn to if the market dictates. I think that Jobs is 100% right when it comes to the public wanting to buy music. If Steve and I are proven wrong I would expect apple to flip that switch and offer its users both flavors of service. That is just inherent in running a good company. The flexability to react to changing markets and the ability to take advantage of them.
post #9 of 23
Any subscription service will be done differently by Apple. You wouldn't expect them to just emulate the rest?

Think about what you would want in a subscription service and chances are Apple has already thought the same.
post #10 of 23
Bill Gates is a turd. Let me tell you why. Cell phones get outdated every couple of months. iPods and or any other MP3 players don't. They get updated but you don't HAVE TO buy a new one. I'm on my third cell phone in two years. There's no way in hell am I going to commit to buying a $200+ phone and have it crap out on me in 6 months because of a crappy battery or what have you.

My iPod is also my PDA and I get far more use out of it than the special features in my phone. Unless the quality goes up on the cell phones it will never take off. Never. I see too many people every day walking the streets of NYC with pods. It's not going to happen. There's a reason why people are buying them and getting away from Microsoft and it's great ideas. I say this as a PC user up until a year and a half ago and I haven't lookeed back.
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post #11 of 23
Quote:
Originally posted by AquaMac
The beauty of iTunes is its simplicity. One price per song. One price per album unless a partial album. Let the subscription services battle over the few that don't want iTunes. Then see if there really is a problem. If not forget it. If so then use it.

This wouldn't affect the regular iTunes service. It would be an addition. Click on the subscription button, and you go there.

People who don't want to buy songs are going this route now. Maybe it's only 15%, but that could still be a big number. Reportedly it's also more profitable than selling songs.

If so, why not let their customers have a shot at it? When someone makes a decision about what format the songs will be in, and what form, WMA DRM, AAC DRM, that's usually it for them. They are rarely going to change. Look at the growth of Real and Napster. It's not something to ignore.

Remember, Apple has only 4% of the domestic computer market and 2.2% worldwide. Are you going to say that they should stop selling computers?

I say do it now if they can.
post #12 of 23
I, for one, bet that Apple have already opreational subscription service, ready for the go sign (or the flick of a switch, if you prefer).
One of the big advantages of iTMS is that an eventual subscription can be an option, rather than an obligation. iTMS' revenue (and arguably profit) is coming from selling songs and if adding subscription Apple can make it more like "advanced preview" (paying to be able to listen to the whole song instead of a 30 sec. snippet). Such a feature may include playlists of streamed songs and the ability to play them on an iPod (for a limited time, say 24 hours and then you have to connect your player to the jukebox to renew the "license"). And you can choose whether you like to use the subscription model or just buy songs, unlike others (i.e. Yahoo, Napster, Real).
This stuff is trivial to make and Apple surely know this.
post #13 of 23
I will not buy a subscription for music. I WOULD buy a subscription for TV shows or movies. Maybe.
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post #14 of 23
Quote:
Originally posted by Not Unlike Myself
I will not buy a subscription for music. I WOULD buy a subscription for TV shows or movies. Maybe.

None of us has to. It should be there for those who want it.

Most people don't buy music online either, but it's there.
post #15 of 23
Quote:
What do you think needs charged to break even with subscriptions?

$9.99 month by month
$94.99 prepaid annual would get my interest. Honestly I like the ability to download almost whatever I want. Imagine sifting through hundreds of megs of music and experiencing new bands without being shackled to 30 second previews. Not a bad thought indeed. I'd still purchase the tracks that I simply "must have"

Quote:
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.

Yup. Dashboards usefulness is directly related to how many widgets you rely on daily. Even stickies would help when you need to take down a number or blurb from TV.

Quote:
I think that Jobs is 100% right when it comes to the public wanting to buy music. If Steve and I are proven wrong I would expect apple to flip that switch and offer its users both flavors

The only problem is I don't think the public has experience the control and access they would have with a subscription service. Imagine a home unit that allows the streaming of subscribed files. Everyone has access to a pool of music and that value would potentially beat actually having to own the music.
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post #16 of 23
There's speculation. This is from Forbes:

Apple: Let's Go To The Video
Yahoo! (nasdaq: YHOO - news - people ) made a big splash this week with its new and very cheap music subscription service. But Apple stayed a step ahead, having quietly rolled out new video features for its iTunes music store. Apple is already selling a few music-video downloads, but the move appears to be a step toward selling long-form films online.

The Title is from a C/Net story here:

http://news.com.com/iTunes+presses+p...l?tag=nefd.top
post #17 of 23
Quote:
Originally posted by macnut222
"With a flick of a switch Apple Computer could debut a subscription-based sales model for its iTunes music download service..."


I honestly beleve that they would do well at $7.99/mo - they are in a position to use their dominance to drive down price for the consumer (ala Dell and windows licenses or Wal*Mart)...BUT I do not look for this to happen without video...my prediciton (and hope)

Air port express with video and remote control will be introduced

Apple will launch a computer based movie DL/ondemand service...going on a flight? DL a flick to your iBook - quiet night at home with your girlfriend/wife/segnifegent other/family? stream it via your dsl/cable connection

What about bandwidth:
Well Apple can affford tons of it - but I would say that a great add-on would be a bit-torrent feature, they could call it Pass-It-On and if you use pass-it-on and share more than say 500 megs per month, you get some sort of discount...

I think a service like this could be done for ~$19.99/mo...all you can eat movies and music...and whynot get popular TV content too - start with stuff that is on DVD and not on tv any more then approche the networks...miss (fill in show here) last night? we got it!

now my friends...that would be sweet - who then would need bit torrent eccept the 12 people who use NOTHING but OGG...
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post #18 of 23
mobile phones are made to take and make calls

mobile music players are made to play music

it is all about interface people
post #19 of 23
Quote:
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 [/B]

We already can in the UK thanks to digital terrestrial TV - just press the red button on your remote and the picture is shrunk to the corner and the five-day forecast appears on the right...
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post #20 of 23
Quote:
Originally posted by nathan22t
mobile phones are made to take and make calls

mobile music players are made to play music

it is all about interface people

I agree. I can't see the point of a phone that can hold a few songs. My phone's for calling and receiving calls and I don't want the battery to die cos I've just been listening to music when I've got an important call to take.
and the iPod's successful because of its menu system etc which is patented, so I can't see anyone coming up with anything quite so useful on a phone.

If the phone is HD based, it'll be too heavy.
The trend at the moment seems to be for phones to get smaller and smaller. Phones and MP3 players are becoming more distinct, not similar.
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post #21 of 23
Who watches the weather for the forecast? If she's hot that's the selling card.

Quote:
Originally posted by Dave Barnes
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
post #22 of 23
Quote:
Originally posted by Lurch Mojoff
... you can choose whether you like to use the subscription model or just buy songs, unlike others (i.e. Yahoo, Napster, Real).

Just to be clear:
Yahoo, Napster, and Real all sell songs for 99c each with no subscription. Yahoo & Real offer their subscribers a discount of 20c per song - they charge 79c each if subscribers want to buy permanent (burnable) downloads.

AFAIK, Napster charges subscribers the same price, 99c.

However, all 3 above do focus on subscriptions so much, it's no wonder that people aren't aware they also sell 99c songs just like iTunes.
(Well, not *just* like iTunes. Yahoo's songs are 192k WMA DRM, Napster's are 128k WMA DRM (IIRC) and Real's are 192k AAC Harmony DRM.)
post #23 of 23
1. As Bob Cringley wrote in his article, the Yahoo price of $6.99/month is probably at the "at cost" level, so if Apple wanted to make no extra money, $6.99 would be it. Anymore is profit. $7.99 would be enough to hold off any other subscription service and give Apple a little coin.

2. Also the music industry seems to have chosen subscriptions as its preferred format. They keep ownership indefinitely and can change the game at anytime, at least once your yearly contract is up. This says to me a few things. iTunes is almost too good for the customer and Apple's 99cents is probably a better deal than we even thought at the time. Can't help but want to go against what the record companies want me to do.

3. iTunes is great so far because I still have most of my music ripped from CD's and such and so I don't want to pay a subscription for my favorite songs that I already paid for - which will be the songs I mostly listen to anyway! The iPod and iTunes then is the perfect transition for both old CD's and new mp3's. However in the next decade, most people will have libraries that they never owned physically - so long term subscriptions will seem more in line with their reality - music as a service, not as a product. Keep in mind most of human history music WAS a service (personal performance) and not a product. I think this will eventually be the case in the future.

4. What I don't like about music as a service is that the service can change or leave without my permission or even knowledge. What if Bob Dylan songs become seen as threatening and the label takes it "off line." Many people will go thru their day and life not even knowing about it. Who will be there with the archive, the vinyl/CD trail that it existed? There is a reason we still use paper for court records and such and I like the idea of the "ownership society" at least for this segment.

5. As for hardware of iPod v. cellphone - why not have the best of both worlds? Build a cellphone with an iPod Shuffle built in. They have their own batteries, they can both be made small and light enough that only ergonomics are a concern now. Either make a cellphone with a slot to slip in the Shuffle so that the control buttons are accessible or make them integrated into the same handset. They just update, synch and recharge seperately and seemlessly so you don't need to know or care. The Shuffle plays until it runs out of power and the cellphone isn't effected in the least. Okay it takes up some room from the cellphone, but batteries are a lot better now and it creates enough of a functional and physical seperation with the two devices that I like.

6. Finally, I believe the subscription model does have SOME redeeming aspects to it, but like someone earlier suggested, Steve won't just imitate the current models. I believe that subscriptions should be based on a different hardware model as well - not the iPod, but the cellphone. In the MacNN fora I suggested a new model in which the subscription is used, not for temporarily downloading mp3's on your harddrive (filling space that is) which will "disappear" if you don't pay. But the subscription is for the ability to stream any song you want and keep it and others cached in a smaller partition of your hd, cellphone, etc. The idea is that it would be an "on demand" setup, not a temporary "store and ignore" setup. There is too much to describe in this thread, but I think subscriptions in an iTunes universe can work for customers and for Apple if it redefines the paradigm again, as with the first iPod.
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