Inside Apple's iPod Subscription Plan

No doubt those of you who follow the music media business have heard that Steve Jobs is supposedly working on a program with the major labels to sell fully-loaded, "all you can eat" iPods with virtually everything ever recorded.

Well, if you have you may not be getting the real story.

My contacts at the record labels confirm that discussions have been going on for sometime -- for Europe.

No deal can happen in the U.S. very easily because of publishing issues.

Nokia apparently has set the bar for what it would take to get the labels to offer their libraries as a benefit for buying a fully-loaded MP3 player -- that's $80 per unit.

Jobs is reportedly offering $20 to be divided by market share as he is playing the labels for a sucker -- something he is very good at.

There's no deal here in the U.S. but the press is all abuzz over the thought that Steve Jobs may actually switch over to a rental model for music on iPod and iPhone devices.

But Jobs has a plan.

There are some who think he must have been involved in leaking the story. Apple is air tight when it comes to which of their secrets get out so the Jobs theory is plausible.

Some at the labels think that Jobs' motivation is to -- duh, sell more iPods and iPhones. The year ahead is not a slam-dunk in an uncertain economy and there is some evidence that the dew is off the lily for iPods.

Because the new "all you can eat" version of iTunes won't work on old iPods or iPhones that means we'll all have to simply buy new ones -- that is, if we want the fully-loaded music feature.

What do you get?

No one knows for sure but some scenarios out there indicate that consumers would buy new iPods or iPhones and then get the entire universe of recorded music for the price of the device.

That is, music included for a certain period of time that has not yet been established.

And at the end of the term, it is possible that the consumers who bought these new fully-loaded iPods and iPhones would get to keep a set number of songs permanently. That number has not been determined but it would likely be more songs than the difference paid for unlimited music and what the same songs would have cost purchased separately on the iTunes store.

The labels might be better off sticking to the 99 cent model.

There's another issue.

In the years I've been working with the next generation I see little evidence that renting music is appealing to them. Witness the demise of AOL music or the lackluster performance of subscription services like Rhapsody.

The MP3 player and mobile device is fast becoming the new frontier in music sales.

iTunes' top downloads are purchased by older, white consumers.

Cell phone users are heavily into hip-hop -- almost exclusively. This is so big it is one-half of the labels' digital sales. The cell phone customer is younger and they are willing to pay more for less when it comes to cell phone music.

The record labels are certainly motivated to sell more music, but they've been had by Steve Jobs before.

After all, its the record labels that made it possible for Jobs to start the iTunes store and launch his iPod device because he argued successfully that it was the anti-Napster. Because labels were being robbed blind by free downloading at the time, they saw iTunes as no big risk and it might even help sell music.

They would have been better off to buy Napster and take them out instead of suing them. Instead, the labels enabled Steve Jobs and Apple to succeed with iTunes and become a major player in their business.

Now Jobs is back for another bite of the -- dare I say, Apple.

This time he is peddling a way for the labels to get their way -- revenue from monthly subscription service while at the same time paying them a small premium per phone.

It's like the Trojan Horse.

To the eye, it looks like the music rental service the labels are clamoring for. But when you look inside, Jobs' plan is really a way to purchase music at a price lower than 99 cents a song after the initial grace period is up.

My advice to the labels this time around -- beware of geeks bearing gifts.

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