February 24, 2011 at 11:51 am

Microsoft Music Subscriptions Falter Despite XBox Popularity

Panelists discuss the present and future of music at Digital Music Forum East in New York City (panelists listed below).

Microsoft’s reputation may no longer be seen as a stodgy, business-oriented company, thanks to the success of its XBox platform, but it’s still not cool enough to convince gamers to pay for music.

At Digital Music Forum East on Thursday morning, perennial moderator Ted Cohen pressed Microsoft on how its music subscription is doing — a good question, because XBox users are already used to paying monthly subscription fees for XBox Live, and their devices tend to be connected to nice, surround sound speaker systems.

However, XBox gamers don’t seem to be willing to pony up for tunes, in part due to Microsoft asking $15/month for its ZunePass subscription, but also due to Windows Phone 7′s lack of market penetration to date.

“[Microsoft has] an incredibly engaged audience on XBox,” observed Cohen. “Microsoft is the company that brought you XBox and Kinect, so… [it] is a very cool company to a generation of kids. How are you exploiting that? How do you get across to them, ‘Hey, while you’re here, there’s this [music] service called Zune?’”

“Kinect launched in November, so not that long ago,” responded Microsoft’s director of music relationships, strategy and business development Christina Calio. “[It has sold] about eight million units in six weeks.”

“So if eight million of those people also signed up for a music, you would quadruple the number of people subscribing [to music services],” responded Cohen.

But unfortunately for the music industry insiders gathered at Digital Music Forum East on Thursday, gamers are more into Kinect and XBox Live than they are to paying $15 per month for a ZunePass music service with holes in its catalog and an inability to play on the most popular portable devices.

“November was also the first time that ZunePass, our music subscription service, was available on the XBox,” explained Microsoft’s Calio. “We’ve seen really tremendous trial on the Xbox. We’re not seeing the conversion numbers that we’d like, and so there’s a lot of internal conversation about ‘What do we need to do to get people to sign up?’ Our service is $14.95 a month, and you get to keep 10 MP3s, but for a consumer that maybe has an XBox but not a Windows Phone or a Zune device, that’s a pretty steep price to pay, especially when XBox Live [Microsoft's online multiplayer gaming service] is five bucks a month.”

“It’s still hard for people,” she added. “It’s still a difficult concept. Not all of the music is there all of the time [due to label and publisher deals phasing in and out]. I think we’re getting closer, but we’re not quite where we want to be on subscriptions.”

One of these issues could be solved soon, as Nokia switches its still-wildly-popular mobile phones over to the Windows Phone 7 operating system, allowing ZunePass content to be played there as well. Alternatively, simply releasing a Zune app for iPhone and Android would solve that problem in one fell swoop, though it would constitute a public admission that the Zune player and Windows Phone 7 have failed as music devices.

As Calio mentioned, price is clearly a huge factor here too. Even though Microsoft ZunePass allows users to keep ten MP3s per month even after they stop subscribing, $15/month appears to be too much to ask, especially when every other music subscription service in the States charges $10 — and those are largely struggling too.

However, there is a bright spot in this scenario. As mentioned above, Calio pointed out that adoption of its free ZunePass trial is quite high, which indicates that XBox users do have significant interest in streaming music over those devices to their sound systems. And over 30 million people worldwide pay for XBox Live, so the potential audience is huge. However, people tend to lose interest after the 14-day ZunePass trial expires.

Spotify’s relative success in Europe by offering a free music experience month after month without requiring a credit card indicates that 14 days is simply not long enough for fans to understand the allure of streaming music to their surround sound systems. So in addition to embracing competing mobile platforms and reducing its price, perhaps what Microsoft really needs to do is embrace the “free” part of “freemium.”

(Photo: Eliot Van Buskirk; Panelists from left to right: John Boyle, CEO, The BAM Group; Christina Calio, Director, Music Relationships, Strategy & Biz Dev, Microsoft; Vince Bannon, VP, Entertainment Partnerships & Development, Getty Images; Julie Lee, EVP, Business Development & Business Affairs, VEVO; Gerrit Meier, Chief Operating Officer, Digital, Clear Channel Radio; Ted Cohen, Managing Partner, TAG Strategic)