Wishful Thinking

At this week’s iHollywood Forum Digital Living Room conference in the San Francisco Bay Area, one of the topics of discussion was “Reinventing Music.” As one of the session descriptions put it:

Long tethered to CDs and terrestrial radio, music is hitting the living room through cable lines, satellite, the Internet, iPods, Game Cubes and computer hard drives. The future will be some combination of subscription, download, free and retail purchases. The panel considers the technological, business model and piracy issues that must first be solved and how sales of conventional CDs will be impacted.

This particular session ended up focusing entirely on the merits of subscription-based music services. Unfortunately, the panel was a bit, shall we say, one-sided: It consisted of Robert Acker, VP for Music Services for RealNetworks; Neil Smith, GM for Digital Media Services at AOL; and Ted Cohen, Senior VP for Digital Distribution and Delivery for EMI Recorded Music. All three were clearly subscription proponents. There was no one from the company, Apple, that’s captured approximately 70 percent of the market—you could find an Apple rep on the panel discussing digital photos, but not on the one talking about online music services. Go figure.

But that’s probably a good thing, for two reasons. The first is that the poor guy or gal would surely have suffered from “me against the world” syndrome, considering how many shots the panelists took at Apple. The second is that because there was no one from Apple in attendance, we got to see the full-court PR press put on by the subscription service team.

And that was an interesting thing to see. Obviously, RealNetworks and AOL, with their own subscription-based music services, aren’t fans of the iTunes Music Store. But even Cohen, whose company has undoubtedly made a tidy profit from Apple’s little online venture, was doing his best to convince attendees that a subscription service was in consumers’ best interests.

Don’t get me wrong; I don’t think subscription-based services are inherently bad. The panel made some convincing arguments as to why some users might prefer a service where you have access to a million songs at once, but that you can only listen to them as long as you pay the monthly fee. For example, it can be fun to download 50 songs to your portable player as a way of trying out some new music; if you don’t like them, you just delete them. And if you don’t like the radio stations in your area, you can create your own by streaming music to your computer directly from the service.

The problem is that, right now, the market is speaking, and it’s saying rather loudly that people want to own their music, not rent it—at least some of it. (Note to self: subscription service proponents really hate it when people call it “renting,” despite the fact that it’s exactly that.)

Cohen claims that the reason for this is that “consumers have been seduced by the idea that everything costs $.99—they don’t understand subscriptions.” Neil Smith from AOL echoed these sentiments, noting that the industry “hasn’t done enough to inform consumers.” But what’s to understand? With iTunes, you pay $.99 and you can do pretty much whatever you want with the song. (OK, except play it on a non-iPod portable; that takes some effort.) With a subscription service, you generally can’t burn to CD, you can only play on a few devices, and to keep listening, you have to pay every month. I think it’s pretty clear, and I don’t think these guys give the average consumer enough credit. I felt like I was getting the “talking points” speech, as the panelists repeatedly claimed that people in the industry just need to focus on the benefits of the subscription model rather than the sense of loss users will experience when they stop paying their dues. (Cohen went so far as to say that subscription models are closer to premium cable channels such as HBO than “renting” music, and once people understood that, they’d be more amenable to subs. Unfortunately, there’s a significant flaw in this argument: People generally watch a TV show once, or maybe twice, whereas it’s not uncommon for people to listen to an album 30 years later.)

Another common belief among the subscription crowd appears to be that people who don’t subscribe aren’t really buying music from services like iTunes; they must be stealing it. As RealNetwork’s Acker claimed—in reference to the recent Napster television ads which claim that it would cost $10,000 to fill up an iPod at $.99 per track—most people “didn’t buy that;” they got the music “some other way.” And it was pretty obvious what he meant. News flash: many people still have hundreds, even thousands, of CDs from those ancient years before the Internet; I bet some actually rip those CDs to their computers. And CD sales are actually up over the past few years. And music fans have downloaded over 300,000,000 tracks from the iTunes Music Store. So there are obviously a number of legal ways in which people are getting their music. It’s just not through subscription services.

To be fair, all three panelists spent a good deal of time talking about things that subscription services need to do better in order to attract customers. (Note to readers: the buzzword for this phenomenon—an increase in adoption of your product—is “uptake.” I heard the term hundreds of times over the course of the conference.) However, they all seemed to go to great length to avoid mentioning Apple; either that or they simply aren’t familiar with their #1 competitor.

For example, many of the ideas they had for improving the user experience of subscription services have been available on the iTunes Music Store for some time. AOL’s Smith noted that subscription services will become more popular when they help users find music out of the hundreds of thousands of tracks that are available—something at which the iTunes Music Store excels compared to other music services. Cohen later followed up by describing Amazon.com’s “Essentials” feature as a great way to find music in particular genres or by particular artists; never mind that iTunes Essentials have been around for quite a while now. He went on to say that for a music service to succeed, it’s got to be easy, but instead of using the iTunes Music Store as an example—after all, it’s likely the easiest to use and it’s got 70% of the market—he alluded to Rhapsody and Music Choice. (What I found most interesting was Cohen’s response to a representative from Arcam, the British audio company, who complained that none of the music services offered full-bitrate [uncompressed] music; Cohen touted Windows Media Lossless. Apparently, the fact that most of EMI’s electronic download revenue comes from the iTunes Music Store, which could conceivably offer Apple Lossless versions of music tracks, still wasn’t enough to let Cohen praise his electronic bread and butter.)

It was also telling that none of the proponents of subscription services wanted to talk about how to get that subscription music to play elsewhere. Part of the fine print of such services is that your music will only play on your computer or a supported portable player. Unlike iTunes Music Store purchases, you can’t burn your subscription music to CD to listen in your car or living room. Even Dell’s Mike Horn—not a fan of Apple, by any means—stood up and asked the panel what the subscription services are going to do to help people “get their music out of the house,” specifically noting the ability to burn music to CD. None of the panelists mentioned CDs in their responses.

My impression of the panel wasn’t entirely negative; once they got off the topic of pushing subscription services, they had a good deal of constructive comments about digital music in general. For example, when asked what needs to happen for streaming/wireless media to improve (in both reality and in market penetration), all three offered welcome suggestions. Smith said that wireless networks needed to be more reliable, noting that when he recently set up a wireless network, he often had trouble getting a decent signal twelve feet from the base station. Acker noted his frustration with 16-digit hex keys. And Cohen pointed out that his young son was able to set up a new X-Box in a matter of minutes, but setting up most home wireless networks is nowhere near as easy. Hearing industry heavyweights echo the concerns of mom and pop at home bodes well for the future of such technologies.

And I should also point out that the panel’s comments about the iTunes Music Store weren’t entirely negative. Acker, for one, pointed out the obvious: that the iPod and iTunes are successful largely because they work together seamlessly. And Cohen admitted near the end that the iTunes/subscription battle is not a zero-sum game—that there’s room for both types.

Still, the talking points the panel wanted to impress on attendees is that $.99 per song is too expensive (ironic, considering that the labels have been making noise about increasing the price of such downloads) and that subscription services are not really “renting.” If the latter were true, the former would naturally follow. Unfortunately, it isn’t, so it doesn’t. Sorry guys; this isn’t HBO, and it isn’t a magazine subscription. It’s Netflix—you get to rent a certain amount of content, and only get to keep it by paying the monthly rental fee. As long as people lose access to their music when they stop paying, it’s going to be called renting, and you can’t really compare it to the iTunes Music Store model.

My advice: Embrace the term. There’s always going to be music people want to own, not rent; but people also enjoy trying out new music on the cheap, and a subscription service lets them do that. You’ll do better co-existing with the iTunes Music Store than you will fighting against it—there’s room for both types of services if consumers understand the differences and are able to use both at the same time. At least Cohen agrees with me on that.