Online Music Hitting False Notes

Many analysts see subscription services as the long-term future for the business, because they offer greater margins and recurring revenue. Indeed, Chris Gorog, Napster's CEO, estimates that the margins for subscription services are "four times" greater than those for individual downloads.

But today's subscription services aren't compatible with the iPod, which is by far the most popular digital music player. And Apple has shown no signs of losing its lead in the digital music player market or any interest in making iTunes subscription-based music -- or opening the iPod to other music services.

The iPod's success is holding back subscription services "to a tremendous degree at this point," Sinnreich says.

But other analysts say that's not all Apple's fault. Even if selling songs one-by-one online isn't great for music vendors, it's the method consumers are most familiar and comfortable with. Apple has made much of the idea that iTunes allows consumers to own, not rent, music, and that message has resonated with consumers who for years have been buying CDs and, before that, LPs and tapes.

For subscription services to take off, it's going to "require far more consumer education and changes in behavior compared to how they have traditionally purchased music," says Ross Rubin, an analyst with industry research firm NPD Group.

Some analysts believe that there's little future in merely selling songs -- or even subscriptions to digital music. Profitable companies will be those that defray costs in other ways, who use music to lure in customers for other services or products, or who see music as an incremental, not primary, revenue source.

Apple, for example, uses iTunes to support sales of iPods -- not the other way around. Cellular network providers are already making considerable incremental profits off ring tones, analysts say.

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