Apple 2.0

Covering the business that Steve Jobs built

Why would Steve Jobs rent music on iTunes?

March 19, 2008: 11:33 AM ET

itunes-ad.pngIt's all the talk on tech and music blogs: The report in Wednesday's Financial Times that Apple (AAPL) is negotiating with the big music companies for a deal that would give customers free access to the entire iTunes music library. (link)

In exchange for what? There are several answers to that question in the FT account, and that's the problem.

In one model, customers would pay a premium -- up to $100 extra -- for an iPod that would have "all you can drink" access to the iTunes library for the lifetime of the device. This is similar to the "comes with music" deal Nokia (NOK) struck with Universal Music last year. The Nokia deal, however, is for streaming music to a phone. The iPod deal would require download access and some kind of digital rights management scheme to prevent a user from siphoning off the entire library and putting it on a big hard drive.

In the other model, customers would pay a monthly subscription fee of $7 or $8 dollars for full streaming access to the library -- like RealNetwork's (RNWK) Rhapsody.com service -- and the right to keep 40 to 50 tracks per year. This model would only work with the iPhone, which is sold on a subscription basis.

According to the Financial Times, the negotiators are haggling over the price. Nokia is reported to be offering up to $80 per handset to Universal. Apple, two sources told the FT, is offering only $20 -- which happens to be roughly what the average iPod owner spends at the iTunes store today.

"If that's really the only thing keeping this from happening, then this is a done deal," writes Peter Kafka at Silicon Alley Insider, echoing much of the commentary this morning that likes the way this deal sounds.

"I won't speculate whether the rumor is correct or not but I can say that it does make sense," writes Michael Gartenburg.

Color me skeptical, and not just because Steve Jobs has repeatedly attacked the idea of "renting music." People rent movies and watch them once or twice, he believes, but they listen to their favorite music over and over and they want to own it.

Jobs, of course, might change his tune if he could find a way to make subscription services as simple and transparent as the 99-cent-per-song download model that he's stuck with since he opened the iTunes store.

But the business models outlined in the FT story are anything but transparent. In fact, as MG Siegler points out in VentureBeat, the store and service the FT describes is more complicated than many of Apple's chief competitors'.

"Does Apple," Siegler asks, "really want to mess with a good thing?" (link)

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About This Author
Philip Elmer-Dewitt
Philip Elmer-DeWitt
Editor, Apple 2.0, Fortune

Philip Elmer-DeWitt has been following Apple since 1982, first for Time Magazine, and now on the Web for Fortune.com.

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