Amazon predictions, part 3: Adapting the eMusic subscription model

This is the third in a series of posts (following parts 1 and 2) speculating on Amazon’s rumored entry into the digital music market. In this post I discuss how Amazon might adapt eMusic’s subscription model to its own purposes. To repeat the disclaimer I made previously: This is all fevered speculation and nothing more; I do not have any inside information about a possible Amazon acquisition of eMusic, nor about other future plans of Amazon or eMusic. But enough of disclaimers, on with the wild guesses:

Amazon will offer a subscription service providing extra discounts and/or free tracks in exchange for a commitment to purchase a given amount of music per month or per year. I think that the current eMusic subscription scheme (e.g., 30 tracks for $9.99 per month) will break down somewhat if/when major labels are introduced into the mix, since they’re going to want some form of variable pricing, whether in the form of a true a la carte price model (as in the iTunes Store), a credits-based system that requires more credits for certain tracks (as with Audio Lunchbox), or something else. However at the same time it’s clear that the subscription model is very attractive from the retailer’s point of view, offering as it does a stable revenue stream, and I think it can be made attractive to customers as well.

I think the most straightforward way to implement a subscription model in an Amazon context will be to move away from a model based on a fixed number of tracks and towards a model that essentially offers discounts to those customers willing to commit to buying a certain amount of music per month or per year. (As with eMusic the commitment will be up-front, i.e., customers will pay Amazon each month or year before actually selecting the music they wish to purchase.) In an ideal world discounts offered by a subscription plan would apply to both digital tracks (and digital albums) and to CDs. However because Amazon already offers significant discounts on CDs it’s much more likely that discounts will be offered only for music purchased in digital form, although Amazon could and I hope would count CD purchases towards a customer’s monthly purchase commitment.

For example, a commitment to purchase $10 of music per month (whether in digital or CD form) might get customers a 30 percent discount off standard Amazon digital music prices, with customers willing to commit to higher amounts getting correspondingly higher discounts, up to a maximum discount of perhaps 50 percent or so. (Alternatively the discount could be offered in the form of extra free digital tracks, although with variable track pricing such a scheme would be more complicated to manage and understand.)

By way of comparison note that eMusic’s current Basic plan runs $9.99 for 30 tracks and its new Connoisseur Plan runs $25 per month for 100 tracks. At 33 and 25 cents per track respectively these plans offer 45 and 58 percent discounts respectively from the 60 cent per track price offered with the 10-track booster pack, the nearest thing eMusic currently has to an a la carte single track offering.

Amazon already has one analogous scheme, namely the Amazon Prime program in which people pay $79 per year to get free two-day shipping. As with Amazon Prime and with eMusic currently, customers buying lots of music under the Amazon subscription plan and maxing out their quota will be subsidized by customers who for one reason or another don’t end up using their allotment and thus don’t take advantage of the full discounts to which they’re entitled. The exact discounts for the various plans will in practice be tweaked periodically to ensure that the actual per-track revenue received (after accounting for unused downloads) is high enough to satisfy the various labels, major or otherwise.

Obviously customers on a monthly subscription plan will be very valuable customers for Amazon, and it would be nice if Amazon could offer additional things that such customers would want to buy. In my next (and final) post I discuss two such added-value offerings.