Greg Sandoval of CNet reports on the EconMusic conference. Specifically on music industry statements that seem to support the “subscription” model of music distribution…
David Ring, executive vice president of business development for Universal Music Group's digital arm, said at the EconMusic Conference that the recording industry simply can't sustain itself from download sales alone.
"If what we're trying to do is one-by-one downloads...that's not a business that can grow," Ring told conference attendees during panel discussion he participated in. "It won't be healthy for the industry."
Ring's statement made a big impression on me. The recording industry obviously continues to work the subscription angle, which is more than 5 years old, because a better way to boost profits hasn't come along. Label honchos aren't ready to discount anything--not when margins on 99-cent downloads are so slim.
To be honest, this is nonsense. I realize why they’re saying it (to have justification for pushing the price of hit singles up) but it’s simply not true. Any product that sells, and has virtually no unit cost to produce, can sustain a valid business model of some kind.
The reason the music industry pursues subscription models is basic economic theory. Companies go through two economic stages in their life cycle: “startup” and “established” (there are even further divisions within this listing but those are the basics for the purpose of this example).
In the startup phase companies are constantly growing which leads to an upward trend in their profits. But as they reach a plateau they start running out of places to expand and they eventually reach the “established” phase.
At this point you start to focus more on consistency.
The model for this phase is Jack Welch era General Electric. Even with very few places left to expand they delivered consistent results in their earning statements and were rewarded in the market for it. GE’s stock performance rivaled many startups based solely on that consistency.
They essentially made their stock as stable as a bond which is very valuable on Wall Street.
This is why almost every company that sees the end of it’s growing years starts to focus on generating consistent revenue (Microsoft’s Software Assurance is just one example of this). Which is undoubtedly where the music industry is right now. So you have to ask yourself how the music industry, which has traditionally been a “hit” based business, will create consistency.
That brings us back around the subscriptions and that is why they continue to push them.