Business Week is reporting that Universal chief Doug Morris is enlisting other big music players for a service to challenge iTunes and the iPod.
The world’s most powerful music executive aims to join forces with other record companies to launch an industry-owned subscription service. BusinessWeek has learned that Morris has already enlisted Sony BMG Music Entertainment as a potential partner and is talking to Warner Music Group. Together the three would control about 75% of the music sold in the U.S. Besides competing head-on with Apple Inc.’s (AAPL ) music store, Morris and his allies hope to move digital music beyond the iPod-iTunes universe by nurturing the likes of Microsoft’s Zune media player and Sony’s PlayStation and by working with the wireless carriers. The service, which is one of several initiatives the music majors are considering to help reverse sliding sales, will be called Total Music.
While I like the idea of a service that could compete effectively with iTunes and create a more compelling solution for the other device makers, it’s hard for me to see how they will get past the DOJ antitrust issues relating to companies who control 75% of the market joining together to offer a bundled product.
Even more problematic are the issues relating to the economics of the deal.
The big question is whether the makers of music players and phones can charge enough to cover the cost of baking in the subscription. Under one scenario industry insiders figure the cost per player would amount to about $90. They arrived at that number by assuming people hang on to a music player or phone for 18 months before upgrading. Eighteen times a $5 subscription fee equals $90.
Even if they can get past the DOJ anti-trust issues relating to Total Music, it does not seem to me that the economics of a bundled $90 subscription per player would work for either the device or recording industry. Adding $90 to the price of a player would surely depress player sales and probably still not be enough to cover the royalties required for a service that will let you play anything any time.
Is this idea destined for a pileup somewhere along the digital media highway?
[tags]Universal, UMG, TotalMusic, Total Music, iPod, iTunes[/tags]