Our take...
The poor performance of services from high profile companies such as Starz, Real and Napster demonstrates the extent of consumer apathy towards the subscription rental business model online. Apart from sport, where fans will pay a regular fee to follow a team or a league throughout the season, subscription rental services fare poorly across both video and music.

As the movie industry is a few years behind music in the transition to digital, adoption rates experienced by Napster and Real are indicative of the uptake that online movie subscription services can expect. Between the two companies the combined subscriber base has fallen for three successive quarters to 2Q 08, with the rate of decline accelerating. Napster's results have historically been weak in the second calendar quarter but the 7 per cent fall in users comes despite the company actively trying to drive uptake of its mobile subscription service in recent months.

Consumers have proven reluctant to pay a monthly fee for transitory access to online content and this reluctance is exacerbated by the restrictions placed on the consumption of digital movies and music. With no easy way to transfer Vongo's movies to the television screen, videos are tied to the PC. Similarly, although tracks downloaded through Real or Napster's subscription services can be transferred to selected portable devices they cannot be copied onto an iPod due to incompatible DRM. Screen Digest estimates that in the US sales of Apple's range of iPods makes up 70 per cent of all portable device sales. Consequently, the majority of users are limited to playing tracks on their PC.

Movie subscription services such as Vongo must also deal with a second obstacle – the windowing strategy adopted by the Studios. After their theatrical release titles are initially available on a transactional basis, with the subscription window sitting later in a movie's lifecycle. As a result, Starz's cannot offer new release titles through Vongo (or any of its subsequent subscription services) until around 4-5 months after the DVD release, by which point much of the publicity and interest surrounding the movie will have subsided. Disputes surrounding release windows resulted in Starz suing Disney in March 2007, with Starz contending it had exclusive rights to selected Disney titles on Pay TV and over the internet during agreed windows. The lawsuit is still ongoing but even if Starz's subscription services had been the exclusive provider of such titles online it is unlikely the content would have boosted subscriber numbers. Given the failure of both of its previous online movie services and the aversion consumers have shown to online subscription in general it seems unlikely that the company's white-label products will generate meaningful numbers of subscribers.

Although the user base for standalone subscription services is likely to be small for all types of content excluding sport, variations on the traditional subscription model show more promise. Nokia is set to launch its 'Comes With Music' service later in 2008 – with a year's digital music subscription bundled with a handset purchase. Similarly, Netflix provides 'free' online movie streaming to its DVD rental subscribers. Even though movies offered through Netflix's digital option are post first-run Screen Digest believes the service has found a significant audience. Such bundled subscriptions are likely to prove far more popular than their standalone counterparts as consumers are not paying for the online subscription itself but receive it as a value-add supplementary to a primary service or product.