This makes PERFECT sense for the record labels
However, the price will not be $20. It might be something like $50 or maybe even $80. Ask yourself this: How often does the average teenager actually pay even $1 a year for the music he listens to? He torrents all of it or grabs it from his buddies. He is NEVER going to be buying CDs, or even downloading for pay. But, he does buy a new ipod every two years. So, you won't get him to buy the 5-10 CD's a year he might have bought 15 years ago, but you can get him to pay the itunes ipod access fee every other year, because it's built in when he replaces his ipod. Sure, your gross revenue is less, but your production cost is FAR less, you're just sticking bits on a server. You are still raking in huge net profits and you have a business model than now works again for you, and it's one that most people can't, or just won't, try to get around because they want an ipod and, hey, now they get a bunch of "free" music with it.
This also becomes a way to thwart piracy (or pay for it) in pirate happy lands such as China IF the ipod can establish traction in such a place, and, I think it can, the branding is good enough if the pricing is right. Obviously, it would be a cheaper, stripped down ipod with a lower royalty fee to fit that market. But it would be a lot more income than they are getting from such a market now, which is close enough to zero to be zero.
I for one, would have no issue paying $20, 50, or even, maybe, 80 bucks extra for my ipod if it meant I could get unlimited access to all the labels stuff on Itunes and keep 30 songs a year DRM free that I could move anywhere I wanted. I know I'll cycle my ipod every two or three years, so that puts my "music usage fee" at 2-3 bucks a month. I can dig that. I can support that. That's what it SHOULD be costing. And, the labels will still ROLL in money - money they would never have expected to see from most of those users. And, they can still sell CDs and online singles, and etc and derive profits from those things. At some price point, a fairly low one, this makes TREMENDOUS sense for the labels. If they can't see that, they are foolish. Oh...wait...maybe it won't work.
