In this USA Today article about Rhapsody's new plan of attack for its subscription service, JupiterResearch's David Card predicts subscription revenue will grow 20% per year for the next five years, and Rhapsody will still be the #1 service. That would put consumer spending at $600 million in 2012.

In the same article, Inside Digital Media's Phil Leigh is less optimistic. "I think Rhapsody will wither away, and eventually reincarnate as an ad-supported business."

I'm neither as optimistic nor pessimistic as the two analysts, but I'm on the side of Leigh. Subscriptions, as they exist now, are going to have to survive with a cult following and can do so as long as the company isn't a pure play (a bad sign for Napster).

Analysts, I believe, are right in one aspect of their assessment: broad demand for subscriptions exists. But it's a latent demand, meaning current products will not satisfy the demand. If that 20% growth materializes it will likely come from a new generation of mobile subscriptions. If mobile subscriptions (think Nokia's Comes With Music) gain traction and even come close to expectations, growth will be more than 20% per year. If in the coming years the subscriptions category includes ISP-based services (fixed number of MP3 downloads for a monthly fee) then subscriptions definitely have growth potential exceeding 20% per year.

Neil Smith, VP of business management for Rhapsody America, said subscriber acquisitions were "doing much better than we had expected" but offered no details.

Analysts have been overly optimistic with their forecasts this entire decade (everybody but Leigh) and regularly tone down their forecasts. JupiterResearch has already lowered its January 2007 growth estimate from the 32% annual growth rate it predicted for 2007-2011. In November of 2005, Jupiter was saying subscriptions would come in at $250 million for the year. In 2002, Forrester forecasted 2007 subscription revenues at $313 million (to be fair, a forecast that far in advance is hard to get right). Right now, Forrester estimates 2008 subscription revenue will grow 15% to $287 million.

I'd be surprised if consumer spending in the U.S. reached $287 million, and I wonder about the estimates of market revenue. The RIAA put 2007 subscription trade revenue at only $103.3 million. That figure was $98.5 million in 2006. For the sake of argument, if we apply Napster's cost of revenue, most of which is royalties for subscription services, to the RIAA's 2007 trade revenue number, we get only $148 million in consumer spending. With RealNetwork's lower cost of revenue for music, we get consumer spending of $184 million. Even if you combine the music revenue from Napster and Rhapsody for their most recent fiscal years, you get only $276 million for all territories in the world -- and that includes revenue from a la carte downloads and advertising. (In 2007, RealNetworks got 63.5% of its revenue from the U.S.)

Verizon would have to do a great job selling Rhapsody to its mobile subscribers. It is, basically, the same product that consumers have greatly ignored for years. Verizon should gain some untapped demand just on the basis of its sales and marketing. Hopefully future SEC filings will shed some light on their progress.

Card sounded less optimistic in a recent Billboard article. "Rhapsody's a great product if you're a sophisticated music fan, but it has not proven to have mass-market appeal yet," he told Antony Bruno. "Putting it on a phone may not make that much difference."

Given Apple's domination and the iPod's entrenchment, the success of the iPhone and iPod Touch as music players, and the limited commercial appeal for binging on tethered downloads, I see little reason to believe subscriptions -- in their current incarnation -- have significant growth in them.