In the wake of an industry-stirring deal with EMI to peddle songs without digital-rights management (DRM) on the iTunes Music Store, speculation is swirling about the possibility of Apple implementing a music-subscription model.
This time, however, it's not Apple CEO Steve Jobs' idea. Industry insiders expect major record labels to ask Jobs to change its 99-cent-per-song strategy to a subscription-based service  much like Yahoo Music or Rhapsody.
Apple is reportedly negotiating with Sony BMG, Warner Music, and EMI to renew contracts for the licensed content it offers on iTunes, and will powwow with Universal next week. Apple executives could not immediately be reached for comment.
Stop the Bleeding
What is clear is that the labels are looking for a way to curb losses they blame on digital music sales. The numbers are telling. A new report from Enders Analysis forecasts global music sales will fall to $23 billion in 2009. That's 16 percent below last year's sales and about half of the $45 billion industry peak in 1997.
According to the Enders report, the decline in CD sales will slow in 2010 as MP3 penetration plateaus. Meanwhile, the International Federation of the Phonographic Industry reported 2005 digital download sales doubled to $2 billion.
Industry watchers are paying close attention. Standard & Poor's Rating Services believes consumers will welcome DRM-free music because they can transfer the digital media from one hardware device to another. That might boost sales at iTunes, but also might make it easier for competing media-player manufacturers to challenge Apple. Of course, EMI is only one label and the smallest of the majors.
Standard & Poor's believes it's unlikely that a DRM-free subscription model would work because, although customers lose access to their downloads in a subscription model, the lack of DRM would make the danger a moot point. Consumers could merely copy the DRM-free music to other devices before canceling the subscription.
Apple's 99 Cents
Apple might very well consider going to a subscription model, according to Boyd Peterson, an analyst at Yankee Group. The iTunes Music Store, he explained, doesn't make money; it sells iPods. In other words, iTunes generates sales of Apple's media players.
"At the end of the day, if the subscription model and the way it is constructed allows for more sales of iPods, then Apple wins," Peterson said. "But a subscription-based service is arguably more appealing on a PC base as opposed to a portable base because there's some clunkiness to how you upload music."
Peterson was not willing to predict what Apple ultimately will do, but he pointed to a factor that most other analysts are considering in the discussion: EMI. The fact that EMI is looking to DRM-free models, he said, does add an interesting dynamic to the possibility of iTunes transforming itself from a buck-a-song store to an all-you-can-consume model.
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