Merrill Lynch analyst Steven Milunovich said today that Yahoo’s low-priced subscription music service could cause Apple to offer a similar plan of its own through iTunes. “Apple could flick the switch on a subscription model,” Milunovich said in a research note obtained by iLounge. “Yahoo clearly is a problem for Real Networks and Napster, but will it hurt Apple? We do think Yahoo’s entry could cause Apple to offer iTunes as a subscription model later this year, especially if there is evidence of share loss.” He noted that subscriptions account for about 15% of the legal download market with iTunes holding over 70%.
Milunovich also said Apple is working to protect iPod profits. “Meanwhile, Apple isn’t standing still,” he said. “Industry observer Robert Cringely examined the new Tiger OS and found unused icons and support of the H.264 codec that hint at video capability on the iPod and an iTunes video store. Similarly, we have speculated that an iPod running video clips could be out for Christmas and that H.264 was important to future hi-def plans. Cringely also believes Tiger may have support for competing music formats, indicating that if iPod margins get squeezed Apple might license its software and switch to software-driven profits. That’s more of a stretch though Apple does appear to have learned from past mistakes.”