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Apple Can’t Make iTunes a Subscription Service… yet

May 13, 2010

After Lala announced that it would be shutting down at the end of May, tons of chatter began about the coming Apple subscription service.  It’s no secret that Apple has intentions of moving some portion of its iTunes business into the cloud.  They confirmed those ambitions by purchasing Lala a few months ago.  However, people forget a huge roadblock that prevents Apple from turning iTunes into a subscription business: they don’t have the legal rights.  As of now, the music sold in iTunes is licensed to Apple only for a la carte sale.  Apple would have to go back and re-license every track in its 10 million+ song catalog in order to be a viable subscription service.  They can’t simply flip a switch that turns iTunes into a subscription service (although that would be great for consumers).

Peter Kafka at All Things Digital reports that his sources at labels have hinted that Apple has begun preliminary talks about securing rights for an iTunes.com.  Kafka points out that these talks are very young and the likelihood of Apple unveiling a subscription service on June 7th is extremely low.  Most likely, Apple will soon unveil a cloud based storage locker for iTunes purchases.  Such an offering will not be the Spotify/MOG/Pandora killer that everyone is talking about.  Also, it’s unclear whether Apple even has the rights to offer this extension of iTunes.  Rights holders are claiming that a cloud based service accessible on multiple devices constitutes a different type of use than the a la carte digital track or album sale.  They are arguing that they should receive adjusted compensation from Apple for this new type of use.  That’s an issue for the lawyers to work out.

In the end, Steve Jobs has to be considering eventually pushing iTunes into a subscription service; it just isn’t going to happen this summer and probably not this year.  Subscriptions services are very low margin compared to hardware sales but he has to be thinking that such an offering will boost iPhone and iPad sales.  In the meantime, competitors like Spotify, MOG, Rhapsody, and Pandora have a chance to entrench themselves in the marketplace.  If they don’t take a stronghold now, Apple will undoubtedly wreak havoc as mighty competitor soon.

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