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The iPod's Achilles Heel? It's er... Reader's Digest

Zune, eMusic, and subscriptions

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So in business terms, the iTunes Store is a deceptive chimera. Pakman has a joke he likes to illustrate it.

"The iTunes Music Store [ITMS] buyer buys 25 songs in the first year, 15 in the second year, and in the third year, the battery has died, so you have to go out and buy a new iPod," he says.

But in putting together Zune, Microsoft has taken note of this year's digital music success story, eMusic. With its 'Reader's Digest' subscription model, eMusic has risen to No.2 in the legal downloads business, grabbing 13 per cent of the market, and growing far faster than its rivals.

Now every company wants to be in the subscriptions business - it means costs and revenue are predictable, and while the cost of acquiring a punter is higher, this can be amortized over a very long time period - possibly a lifetime. (And if you're really lucky, you can keep billing them after they've died). But labels love subscriptions more than most, because it gives them a chance to monetize their dormant back catalogs. They've wanted to do this long before the idea acquired its most recent buzzword, "Long Tail", and eMusic has become the model for low volume aggregation.

eMusic's success is laudable because it hasn't been able to secure catalogs from the majors - it's a tribute to the independent sector, which CEO David Pakman estimates makes up 40 per cent of the music market, depending on how you count it.

From the labels' point of view, eMusic is simply great for business. While it costs eMusic much more to run its store than Apple - because it offers much more than an "airport kiosk" looking to attract impulse hit-buyers - it's more profitable. eMusic employs over a hundred people providing editorial content, and it works very hard on expert-generated and user-generated recommendations. But the value for labels is greater, because the eMusic store exposes material people woudn't otherwise see. (In his desire to make the "Long Tail" a one-shape-fits-all buzzword/religious cult, author Chris Anderson wrongly lumps iTunes and eMusic together as examples of "Long Tail", although one is, and one emphatically isn't). eMusic fuels the value chain.

What Apple has, then, is a subscription scheme for buying hardware - each device rapidly expires, and there is only one supplier providing a repeat purchase that's compatible with your iTunes Store purchases. What the music business wants is a subscription scheme for buying music. Somewhere in the middle they may one day meet.

(Unless ... they agree they'd shift more respective units under a flat fee. With a universal subscription, we suspect, Apple couldn't build iPods fast enough to meet demand, and would begin to rival GM in size. It has the best digital music player, bar none.)

Where does Zune offer Microsoft some hope? Surely not in the Soviet-style industrial design - and surely not from gimmicks such as disappearing, time-bombed songs. Or the fact it brings another incompatible DRM scheme to the public. And while it may do more than the iPod, unless it does the basics very well or better, it'll suffer the same fate as Microsoft's phones. Which also do lots of things, none of them particularly well, and which only gadget-heads want to be seen with.

But where Microsoft can gain some rare good-will from the music business is by nudging the public to a subscription model. Not something in the company's DNA, you may say, but there are plenty who want to see Apple nudged there too. ®

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