Apple will lose its digital-music market share to subscription-based models like Napster, according to an analyst.
Strategy Analytics senior analyst Martin Olausson told ET Magazine: "Downloads tend to be too expensive. If you were to download 10,000 songs at 99 cents each, you are talking about a lot of money."
He continues: "The retail download model popularized by iTunes is costly and inefficient. As the online music market matures, most consumers will place greater value on having access to a wide range of music instead of purchasing a smaller number of songs."
He also notes that major record companies are "dissatisfied" with the revenue they receive from download sales.
Olausson perceives that these subscription services offer access to the same amount of songs as iTunes "dirt cheap" and are therefore more attractive to consumers.
Olausson's claims are based on a report published by Strategy Analytics. "Online Music: Will Napster Be the Next iTunes as Subscriptions Replace Downloads?" predicts that a shift toward subscription music services will be driven by a combination of changing consumer expectations as well as pressure from broadband service providers and record companies.
A number of respected industry analysts have made counter claims however. Top stock picker, Merrill Lynch's Steven Milunovich said recently: "We are not big believers in the subscription model where consumers pay indefinitely to listen to their favourite songs".
Miliunovich, and others, believe that music fans want to own their music outright, and that they will not wish to rent tunes that they will loose if they end their subscription.
Other analysts have no doubt that Apple would offer a subscription service should that method prove to be lucrative. Jupiter Research analyst David Card wrote in March that: "The only reason they have iTunes is to sell iPods. If it turns out subscription services are important to sell iPods, they'll probably get into that business."
In fact, Milunovich earlier this week claimed that Apple could "flick the switch" and turn on a subscription service if they felt it necessary.
All about iPod
Olausson believes that Apple's mistake is tying iTunes to the iPod. He explained: "iTunes is positioned to increase hardware sales for Apple. Other services focus on content. Apple is about to make the same mistake that they made in the PC world. They also lost their lead they had with computers in the 70s and 80s."
Olausson believes that Napster and Yahoo are best positioned to take iTunes' place as the dominating music service. He recommends that "stakeholders in the industry embrace the subscription-based business model and position themselves to take full advantage of the broadband opportunity for online music."