New Hardware Could Affect Online Subscription Pricing

Microsoft has recently introduced a new application, currently called “Janus,” that allows tethered downloads to be exported to Janus-enabled portable devices. There are two devices available that use Janus and retail in the $500 range.

If Janus players become prevalent (although it is hard to see how they will ever overtake the iPod's market dominance), online services that offer both on-demand streaming, tethered downloads and permanent downloads may find a drop-off ' perhaps sharply ' in the sale of permanent downloads, because users will not have an economic incentive to buy permanent downloads when they have access to unlimited tethered downloads that can be transferred to portable devices enabled with Janus.

Some thought is being given to how pricing should be addressed for tethered downloads. First, it may be premature to do much of anything to address the issue as the iPod is clearly the dominant digital music device. The iPod plays only the proprietary Apple Fairplay/AAC code, and is not likely to be transcoded at any time in the foreseeable future to permit interoperability with a Windows operating system or software. Given the clear preference of consumers for the iPod, it may not make sense to introduce a price change in the market until there has been some time to observe how much uptake there is among consumers for Janus-enabled digital music devices.

Some thought is being given to increasing prices for subscription services across the board, rather than distinguishing a price point for Janus and non-Janus devices. This would probably be a mistake. There has been pressure from the major labels to raise wholesale and retail prices, and some proposals have been as high as a 25% wholesale price increase, even without Janus being taken into account. But however much copyright owners may hunger for a price increase, it is still far too early in the life cycle of the online services to risk creating an economic incentive for users to risk using the illegal file-bartering networks by introducing a price shock into the economic system online.

Nevertheless, over time one should expect to see upward pressure on subscription prices for users with Janus-enabled players, at least with respect to tethered downloads. It seems unlikely that including unlimited tethered downloads in an “all-you-can-eat” subscription price can continue if Janus devices result in a significant drop-off in the sale of permanent downloads. It may be time to revisit the entire concept of tethered downloads, and Janus may present an opportunity (and justification) to alter the practice in a way that drives consumers more directly toward download purchases. If one believes that consumers do not wish to “rent” or “rent to buy” their music, it seems that it is only a matter of time until subscription models become a thing of the past. The wildly successful iTunes Music Store ' a permanent download-only model ' would certainly be one clear indication of this trend.

The more sensible approach, then, would probably be the introduction of a tiered-pricing model to mark up subscription pricing for users of Janus devices by some premium, and keeping permanent download pricing relatively constant. Early indications are that the premium may be in the 50%-100% range.

Microsoft has recently introduced a new application, currently called “Janus,” that allows tethered downloads to be exported to Janus-enabled portable devices. There are two devices available that use Janus and retail in the $500 range.

If Janus players become prevalent (although it is hard to see how they will ever overtake the iPod's market dominance), online services that offer both on-demand streaming, tethered downloads and permanent downloads may find a drop-off ' perhaps sharply ' in the sale of permanent downloads, because users will not have an economic incentive to buy permanent downloads when they have access to unlimited tethered downloads that can be transferred to portable devices enabled with Janus.

Some thought is being given to how pricing should be addressed for tethered downloads. First, it may be premature to do much of anything to address the issue as the iPod is clearly the dominant digital music device. The iPod plays only the proprietary Apple Fairplay/AAC code, and is not likely to be transcoded at any time in the foreseeable future to permit interoperability with a Windows operating system or software. Given the clear preference of consumers for the iPod, it may not make sense to introduce a price change in the market until there has been some time to observe how much uptake there is among consumers for Janus-enabled digital music devices.

Some thought is being given to increasing prices for subscription services across the board, rather than distinguishing a price point for Janus and non-Janus devices. This would probably be a mistake. There has been pressure from the major labels to raise wholesale and retail prices, and some proposals have been as high as a 25% wholesale price increase, even without Janus being taken into account. But however much copyright owners may hunger for a price increase, it is still far too early in the life cycle of the online services to risk creating an economic incentive for users to risk using the illegal file-bartering networks by introducing a price shock into the economic system online.

Nevertheless, over time one should expect to see upward pressure on subscription prices for users with Janus-enabled players, at least with respect to tethered downloads. It seems unlikely that including unlimited tethered downloads in an “all-you-can-eat” subscription price can continue if Janus devices result in a significant drop-off in the sale of permanent downloads. It may be time to revisit the entire concept of tethered downloads, and Janus may present an opportunity (and justification) to alter the practice in a way that drives consumers more directly toward download purchases. If one believes that consumers do not wish to “rent” or “rent to buy” their music, it seems that it is only a matter of time until subscription models become a thing of the past. The wildly successful iTunes Music Store ' a permanent download-only model ' would certainly be one clear indication of this trend.

The more sensible approach, then, would probably be the introduction of a tiered-pricing model to mark up subscription pricing for users of Janus devices by some premium, and keeping permanent download pricing relatively constant. Early indications are that the premium may be in the 50%-100% range.