Why mobile music subscription services will work

Nokias "Comes With Music" (CWM) announcement initially got a very positive reaction when it was announced at Nokia World. After details about the service became known, the service was poo-poo'ed by many, mainly because of DRM. I believe the negative reaction is more than a little elitist, and that music subscription services like CWM will succeed when offered to the general public. Here are some reasons why.

First, what is CWM? It is a subscription service tied to the purchase of a mobile phone. When you buy the device you get a voucher for 1 year "all you can eat" music download to your PC and your mobile phone. When 1 year is over, you can no longer download new music, but you can still play the music you already have on your phone or PC. There is no "renewal" apart from buying another "Comes With Music" mobile phone. Currently Universal Music is a partner, and more labels are expected to join before the service launches around mid 2008.

Do people expect music to be free?

CWM is criticised because the music can only be played on your PC and on your mobile phone. For example by ars technica who thinks that this service would only be interesting if, for the price of $60, you were free to download all the music in the world, keep it forever and play it back on any device you want. Sure, you got to keep your dream alive, etc. But does this sound naïve to anyone else besides me?

Most people do actually place a value on music - they don't expect "too-good-to-be-true" deals.

CWM comes with DRM. Putting DRM on music files that have been bought and paid for creates a lot of problems. When people pay money to buy a specific music track and download that file, they feel that a transfer of ownership has taken place. That they now own this file and can play it whenever they want.
But if people subscribe to a service they have different expectations. Its like a magazine subscription. When you stop the subscription you are not receiving any more magazines. But you can still read the old ones. I think the DRM criticism is irrelevant in a subscription context, and it will have no impact on sales if it is marketed as a subscription service.

Digital music services are more scarce than you may think.

It seems like there is a multitude of digital music offerings: Napster, Rhapsody, Yahoo Music, Zune Marketplace, Amazon MP3, Wal-Mart, eMusic, etc, etc. But try to buy from any of these. All of them are basically US only. None of them are available world wide. The main offers in the rest of the world are iTunes (buy DRM'ed music 99c a song) and mobile operator portals( buy DRM'ed music $2 a song).

How big is the rest of the world? Let's be generous and say that the US is 10%. This means that 90% of "the market for digital downloaded music" is under-served.

People and their record collections

There is an often heard argument that people don't want this type of service because they "loose" their record collection when the service expires.
This is of course an anachronism of sorts, but it may well be one of the main causes slowing the growth of music subscription services. Looking ahead, people may not build up a record collection, but instead build up a playlist and take that playlist to the music service of their choice. I am certainly aware of the "desire for ownership", but I also believe this to some extent is a cultural issue.

Subscription services make more money for the record labels

Each iTunes customer spends $1-$2 each month buying music. Each Napster or Rhapsody subscriber spends $10 per month. (source)
My guess is as good or bad as any, but CWM probably costs Nokia between $60 and $80 per customer per year. I don't think a markup like that for "unlimited music" will be any problem in most mature markets. If the phone is subsidized, the customer will most likely not notice the cost at all.
It is likely that a lot of other record labels want to come on board. A large catalog makes the service more interesting for customers. Currently music subscription services revenue is only 20-25% of music download revenue, but this may change fast.

I believe it is likely that other device manufacturers will offer hardware, both mobile phones and PMPs,  bundled with music subscription during 2008. It will be interesting to watch this space.