When you boil it down, there aren't that many consumer models for media. I count 3 basic ones... advertising, subscription, and sell-through. Sure, there are others (like product licensing and bundling), and there are combinations, but I'm going to be simplistic today to make a couple points.

Let's take each of the 3 models and discuss them for a moment. These models apply to both video and music, but I'm going to limit the discussion (and conclusions) to music for today.

Subscription
For years, the music industry has focused on pushing subscription (ala Rhapsody and Napster) as a business model. Subscription makes a lot of sense for the labels, offering predictability and longevity to a consumer's spend on music. And, the proposition sounds good for consumers too.

Well, sounds good for consumers in theory, but that hasn't borne out in practice. Ten years into the promise and potential of subscription, the market is still only 10% to 15% of the digital marketplace. Subscription has always been the business model that is going to really take off next year. Meanwhile, consumers have shown an overwhelming propensity toward ownership, leaving subscription to languish.

While 2008 may be the year that subscription finally takes off, I find that to be unlikely for two reasons.

First, I think there's probably a reason that US consumers haven't really adopted the subscription model. You might write that off to technology issues, but I think there is something around consumer psychology at play too. And, psychology is hard to change.

Second, I believe that the subscription model may end up being collateral damage of the labels' move to DRM-free. As a consumer, I'd much rather buy an unfettered track (that I can use as I see fit) than pay for a subscription that only plays on a limited number of devices and includes all the platform limitations that drove the abandonment of DRM for sell though.

Of course, if I was sitting in the labels' shoes, I'd be working hard to solve these problems and make subscription a viable business model. I gather that's the focus of efforts like TotalMusic and UMG's deal with Nokia. If the labels can pull it off, it'd be a major coup. But, the proof will be in the pudding.

Advertising
Ah, advertising, the panacea solution to any business model ill.

I never believed that SpiralFrog was a good idea. Trying to use advertising to support an ownership model just doesn't work. Even if a service could consistently secure a $30 CPM, it'd have to somehow present over 23 ads to the consumer... just to have it make sense for the label.

From where I sit, advertising should be viewed as a “gravy” model for the labels. It's a great means to make some incremental dollars off music discovery, the driver of sales.

The labels may still be upset that radio flourished off advertising atop their content, but there's another side to that story... Radio built LP's, cassettes and CD's into a mass market phenomenon.

Radio was the great discovery tool of the 20th century. While radio (and Internet radio) will certainly play an important role in the future of discovery, I'd bet on social networks like iLike to take the reins and drive digital music sales to mass market levels, something the labels desperately need.

To do that, the discovery networks need to be viable businesses, with their profitability necessarily fueled by advertising. The labels deserve a cut of that ad revenue, but I caution the labels from taking too greedily there, because it stands to choke off the market for sell-through... which is where the labels will make their real dollars.

Sell-through
For the past 50 years, sell-through has been the dominant business model for labels in the US. That isn't going to change, even after CD's fade from view. I'll wager that digital sell-through will be the biggest label revenue source for a long time to come.

iTunes just announced passing of the 4 billion mark in total track sales. Sure, it's slowing down, but I think that's a reflection of appetite for the channel not the market. From what I understand, Amazon is on track to build a solid long-term business.

Were I sitting at the label, I'd be putting the bulk of my energies to aggressively growing digital sell through. The move to DRM-free was a big step in the right direction, but there's more energy to be spent on improving the consumer experience for digital sell-through. More on that tomorrow.

Which brings me to my point today... I'd place my horses behind sell-through as the primary model for music in the future. For the labels, I maintain hope on the subscription side, though I don't see the evidence in the market that things are truly heading in that direction. As for advertising, well, I see it as a supporting model that fuels music discovery and, in turn, generates sales.