Strategy Analytics: Success of iTunes May Be Short Lived; Subscription Services Will Replace Downloads as the Dominant Online Music Model

Business Wire, May 16, 2005

BOSTON -- While online music stores like Apple's iTunes have attracted millions of customers by selling downloads of songs or albums, changing market conditions will make subscription-based music services the dominant model for selling online music in the future. That is the conclusion of "Online Music: Will Napster Be the Next iTunes as Subscriptions Replace Downloads?" a new report from global technology research and consulting firm Strategy Analytics. According to this report, the shift toward subscription music services will be driven by a combination of changing consumer expectations as well as pressure from broadband service providers and record companies.

"The retail download model popularized by iTunes is costly and inefficient," says Martin Olausson, Senior Analyst with the company's Broadband Media & Communications service. "As the online music market matures, most consumers will place greater value on having access to a wide range of music instead of purchasing a smaller number of songs."

In addition to changing consumer needs, the report notes that many broadband service providers prefer to offer a subscription service, such as Real Networks' Rhapsody, which generates steady monthly revenues and helps deter broadband churn. Finally, major record companies are dissatisfied with the revenue they receive from low-cost download sales, and will increasingly focus on alternative business models for selling music online.

As the online music market evolves, Strategy Analytics recommends that stakeholders in the industry embrace the subscription-based business model and position themselves to take full advantage of the broadband opportunity for online music.

About Strategy Analytics

Strategy Analytics, Inc. - a global research and consulting firm - provides timely insights and strategic business solutions to companies operating at the convergence of information, communications and entertainment technologies. With worldwide headquarters in Boston, MA. and principal offices in England, France and Germany, Strategy Analytics focuses on market opportunities and challenges in the areas of Automotive Electronics & Multimedia, Digital Consumer, Wireless Strategies and Enabling Technologies. For more information, see www.strategyanalytics.com