Music Subscription Margins for Microsoft (and Everybody Else)

David Card | October 04, 2005, 08:19 AM

The Journal is spreading rumors that Microsoft's music subscription service -- itself a rumor -- is on hold due to heavy royalty demands from labels.

According to several people briefed on the matter, the labels, in separate negotiations, were seeking royalty payments from Microsoft that would have amounted to a total of $6 to $8 per user, per month. People close to the labels say that is roughly in line with what the existing competitors in the subscription-music business pay.

JupiterResearch still likes the opportunity for subscription music services, a $150 million US business in 2004 that should surpass $250 million this year and hit $1.2 billion in 2010. We estimate that, with 55% royalty sharing, once customer acquisition costs get down to the normal 10-15% levels of other subscription businesses, there are enough margins for everybody. (See Fig. 10)