Prices need to fall in order to make subscription-based music services succeed, a new report shows.
In a report yesterday, analysts at Parks Associates described a significant reduction in the monthly tariff as "key" for the success of such services, as offered by Napster.
In fact, prices will have to fall significantly for them to succeed - to "below $10 per month", the analysts said, "in order to attract a significant number of MP3 player owners".
Subscription services - a money trap?
Napster, which charges subscribers $14.95 each month, recently launched a war of words against Apple.
Company president Brad Duea accused that Apple's iTunes/iPod dualism has "tricked people into buying a hardware trap". Duea praised subscription services (such as the one offered by his company) as offering music fans access to music.
Duea neglected to tackle the accusation that subscription services form the equivalent of a payment trap, as if a subscriber drops a payment they soon lose that access.
Subscribers need to be able to make a long-term financial commitment to such services, and in making such commitments, price is critical, Parks Associates implied.
One third of users think access should be free
"The report finds that 41 per cent of MP3 player owners in the US are not willing to spend more than $10 per month for a music service subscription," the analysts said.
It's even more challenging in the UK, where 62 per cent of music player owners are unwilling to pay "comparable service costs presented in local currencies".
The price conundrum could be the tip of an iceberg. The analysts also found that on average one third of MP3 player owners in the US, UK, Germany, France and China believe subscription services "should be free".
Yahoo's low-price spells success, danger
Yahoo! operates its own US music subscription service (Yahoo! Unlimited), and charges just $4.95 per month for it.
Discussing Yahoo's price pitch, Parks Associates research analyst Harry Wang explained: "Companies like Yahoo! can afford to keep the price low because they have other revenue streams to subsidize music services."
Predicting strategic moves ahead, he said: "Pure-plays like Napster may not be able to lower its prices, but to counter low-cost competition, it can ally with telecom service providers or other broadband carriers to make its music services part of a bundled package. Napster's recent partnership with Bell South is a positive move in this direction."