What is the real value of music subscription services to fans, artists and content owners? The Comet’s legal guru Gary Stiffelman demystifies the landscape.

There has been a great deal of talk in the last few years about subscription music services, and some have already come and gone. A few, like Rhapsody are hanging on, but just barely. And outside the US, Spotify is making a significant splash, although whether it will overcome the rights hurdles in the US is highly debatable.

In the last few years, a lot of people have begun to see subscriptions as the last, great hope for the music industry. I thought I would use this blog to briefly explain music subscription services.

In essence, the subscriber would pay a set sum per month, say $10, to a subscription provider. Ideally, this fee would be buried in the user’s phone bill, such as when you buy an iPhone that comes with the subscriptions service as part of the cell fee. 

For this sum, the user would have access to all of every song then available, literally millions of choices, which the user can download on a “tethered” basis. The songs would be loaded either to the user’s computer and then transferred to a mobile device, as with the current download services, or directly to a mobile device. It is imperative, in my view, that the services be as mobile as the current download model, so that the consumer can take his or her music with them.

The effect of the tethering is that, for so long as the monthly fee is paid, the downloaded songs remain available to the user to listen, to organize into playlists, etc. If the songs are not linked to a paid subscription which is kept up-to-date, the tracks would become inaccessible until the user account is restored. Think of the tether as a rope by which the service provider can yank back the permission if the fee isn’t up to date.

There would be no additional fee regardless of how much music is accessed (although some talk of a tiered fee system based on volume of usage). There could also be a per song fee for untethering songs, so that even if the subscription expires, the access will continue.
The computer and the mobile device would have to be connected on some regular basis to the internet for two purposes: First, to confirm that the monthly fee was up to date, and second, to allow the subscription service to know what songs the user listened to in the past month, so that the service could account to the record labels and publishers. 

The $10 monthly fee would be allocated as follows: The subscription service takes its cut off the top, say 25% (although Google seems to be angling for 50%). The remaining money would be accounted to and shared ratably among all the record labels whose music was played by that user in the applicable accounting period. Thus, if the only songs listened to that month were by Lady Gaga, all the money would go to Interscope, which would account to the applicable music publishers, the producers and the artist.

It is noteworthy that in the era before music was readily stealable, the average dedicated fan spent about $10 per month on music. This average has obviously declined but it does reflect a standard that was once viable.

Any perceived need to offer a service for less than $10 per month could allow a less enthusiastic consumer to download a limited amount of music per month, akin to the Netflix model (for example, 1,000 songs) for a lesser monthly fee, as a method of weaning people off the free model that has become so pervasive.  Spotify demonstrates that there may be a sum that is low enough to persuade people to convert, so long as the other features of the service are sufficiently compelling.  It is those other features that will determine in large part whether the subscription model succeeds.

As stated above, there have been several attempts at a music subscription service but in my view, they have all fallen short for one simple reason – they aren’t brought to you by Apple or another service that is linked to a familiar device like a phone or ipod, and even though Rhapsody has an iphone/ipod touch application, it isn’t sufficient. These services have not been tied to a portable device that is user friendly, which already carries a monthly or other fee for use.  Apart from Apple and perhaps the Android platform, I don’t presently believe that any subscription service will catch on.

The principal knock on subscription services is that people want to own their music. When I voiced my support for these services on an industry blog a few years ago, I was met with reactions like this:

“The subscription model will fail on so many levels. The music fan wants to own music for a reasonable price.  The moment the labels attempt to take away that freedom, their fate will be sealed.”

It is clear that for a subscription service to work, people will have to alter their historical relationship to music.

The concept of ownership must evolve from paying ten dollars for ten songs you can own forever, to stealing those songs for free, to paying $10 per month for a million songs you can enjoy so long as you pay your phone bill.

Offering enhancements of the experience, such as social networking and powerful recommendation engines could make the experience sufficiently intriguing to lure users away from free sources of music.  For example, because there is no additional cost per song downloads, a music service could push songs to the consumer based on his or her historical listening activity. If the user doesn’t like the song, they can delete it at no cost on either end of the transaction. 

Just as music moved from a physical medium (LP, 8-Track, cassette, CD) to a digital format that has no physicality, and just as we have become accustomed to paying for everything from water to television, I believe that subscription music is the way of the future. 

Regardless of whether you agree with this or not, unless we build a better mousetrap to enable artists, songwriters, producers and record companies to continue to stay in business, the future for music as a business will be mighty bleak.