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Microsoft, labels cling to music subscriptions

For anybody wondering why Microsoft and the top record labels continue to promote subscription music services, the answer was revealed Thursday.

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 with 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.”

Prior to Ring’s statement, Chris Stephenson, an executive in Microsoft’s entertainment unit, was ballyhooing the progress made in Zune’s subscription service. Zune is the digital music player that Microsoft launched in November 2006 to compete with Apple’s iPod. This is also the device that saw a 54 percent decline in sales for the fourth quarter of 2008.

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 the margins on 99-cent downloads are so slim.

I was under the impression that eventually the download would replace the CD as the music sector’s main sales unit. I assumed that instead of packaging a dozen songs together on a disc, the labels would just be forced to sell those songs individually. That isn’t what they want to do, according to Ring.

Ring made clear subscription services are not the only business model Universal Music, the largest of the four top record labels, is exploring. Universal execs will continue testing strategies until they find one, or a combination, that works.

What strategies show promise? Panel members discussed some well-worn ideas, such as bundling music fees into people’s Internet-access bills. One idea tossed around was packaging music into Netflix or a similar service.

I asked the panel, which included Cory Ondrjka, a vice president at EMI’s digital unit, and Michael Spiegelman, head of Yahoo Music, how much longer the sector would try to breathe life into subscriptions. Anyone can see consumers just haven’t warmed to the idea of renting songs.

There isn’t a single music-subscription service selling music from the top labels that generates significant revenue. Yahoo couldn’t make a go of it and got out. Napster and Rhapsody, RealNetwork’s subscription service, continue to appeal to niche audiences. People just don’t like the idea of losing their music if they stop paying fees.

Ring never wavered. He said subscriptions work and cited Netflix and cable TV as examples. There’s no arguing that the vast majority of us pay for subscriptions: magazines, cellphones, insurance, Internet access, the list is long.

The music industry, however has yet to produce a subscription plan the public finds as compelling. And what was clear after listening to the panel is that nobody in the sector is ready to give up trying.

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