Dueling business cases - subscription vs. single purchase

I just discussed this issue in a post in my Empoprise-MU music blog for the case of songs, but I wanted to extend the discussion.

In my music blog post, I looked at the economics of subscription services. In brief, is it better for the artist if I buy a song for a dollar, or if I stream the song for a penny a play? A simple application of the math shows that if you stream a single song A LOT - as I've been doing with the Wolfsheim song "I Don't Love You Anymore" - then Wolfsheim is better off if I stream the song.

On the other hand, of course, if I'm only going to listen to the song one or two times, then Wolfsheim would prefer that I buy the song.

I'm going into tymshft territory here, but in the olden days your choices were more limited. Unless you wanted to wait around the radio for your favorite song to play, the only way that you could listen to a song was to buy it. Once you bought the song, you could listen to it as many times as you wanted, forever (at least theoretically).

Of course, songs aren't the only thing that can be purchased via either a single payment or a subscription. You can buy a house (single payment) or rent it (subscription); ignoring the appreciation (or depreciation) of the house, there are certain cases in which it's better to buy, and certain cases where you're better off renting.

So if you're offering a product or service, are you better off selling it for a single purchase price, or charging periodic payments as long as the product or service is being used?

The answer - neither model is the best model.

Ideally, you want to do both. Sell the product or service at a particular price, and then continue to charge fees as long as the product or service is being used. Country clubs charge an initiation fee, coupled with monthly dues. My own company (and our competitors) charge a one-time fee to buy and install an automated fingerprint identification system, and then charge annual maintenance fees after the warranty expires. Other companies such as Oracle do something similar.

How long until we get charged for single plays of songs we already own, or conversely until we have to pay a fee before streaming anything? Right now I get Spotify for free (although I have to listen to ads), but that could end at some point if Spotify can get away with it. After all, television content providers charge cable and satellite companies for the "privilege" of carrying their programming - and then they show commercials on top of that.

The Golden Rule - he who has the Gold rules.