It’s been just two and a half weeks weeks since popular soap operas One Life to Live and All My Children were reborn as online-only shows — but production company Prospect Park has already decided to cut back on the number of new episodes released online each week. The change in schedule, the company claims, is due to the fact that viewers are “binge-watching” instead of watching one episode a day, and this makes it too hard for them to keep up.

Starting on April 29, Prospect Park — which licensed the soaps from ABC — ran new, 30-minute episodes of each show every Monday through Thursday, followed by a recap on Friday. The shows are available on Hulu and Hulu Plus, or can be downloaded from iTunes. They’ve received “millions” of views, Prospect Park cofounders Rich Frank and Jeff Kwatinetz wrote in a letter to fans (PDF) this week, and have “consistently been in the top ten shows viewed on Hulu.”

But most viewers aren’t watching these shows the way they traditionally watched soap operas on TV. Instead, as with other TV shows online, “our shows are primarily consumed on different days than when they originally air,” Frank and Kwatinetz wrote:

“Primarily, fans have been binge viewing or watching on demand, and as a result, we feel we have been expecting our audience to dedicate what has turned out to be an excessive amount of time to viewing these shows. (As an example, for the substantial audience only watching on the weekends, we are currently asking them to watch five hours of programming to keep pace with our release schedule).”

In addition, viewers aren’t adhering to traditional soap-watching habits. When the shows were on ABC, “viewers watched only 2-3 episodes on average a week and picked up with whichever day’s episode it was.” By contrast, online viewers “seem to primarily start with the first episode and then continue forward episode by episode…yet starting from the beginning with the amount of episodes we are releasing is asking too much for viewers who need to catch up.”

Prospect Park is also concerned by the fact that, when the shows aired on ABC, viewers often watched both — but online things are different:

“The majority of our viewers are watching one show or the other, not both, and they aren’t viewing the shows when they did before. Part of the reason for choosing between the shows may be that the largest viewing takes place either between 12 PM and 1 PM (when people generally can only fit one episode during lunch time) or between 5 PM and 7 PM (when the vast majority of competing shows are a half hour long). We are finding that asking most people to regularly watch more than a half hour per day online seems to be too much.”

Overall, Frank and Kwatinetz conclude that “When it comes to online viewing, most of us are just trying to find time to watch series comprised of 13 to 22 episodes a season — so asking viewers to assign time for over 100 episodes per show is a daunting task.”

So starting Monday, May 20, the schedules will change. Each soap will now air just two new episodes a week: New episodes of All My Children will air online on Mondays and Wednesdays, and new episodes of One Life to Live will air on Tuesdays and Thursdays, with a recap episode on Friday. “Because Hulu agrees with our findings,” the founders wrote, “for the meantime they will keep all of our episodes on Hulu.com for free to give viewers the opportunity to find us and catch up.”

Frank and Kwatinetz acknowledge that “our most dedicated viewers will be upset,” but “we need to devise a model that works for all viewers and follows how they want, and are actually watching, online” in order to ensure that the shows “not meet the fate they experienced previously.” The

The charts show how iTunes content revenue has been steadily growing upward and to the right. But they also show that Apple saw an increase in iTunes net sales by $300 million just from the holiday quarter (when Apple always sees its biggest concentrated pop in downloads) to the March quarter, making $2.4 billion in sales. This is also up from $1.9 billion during the same quarter a year ago.

Relatively, this is still very tiny compared to the $23 billion in net sales Apple derived from its most essential business, the iPhone. And to the $8.7 billion from the iPad last quarter. But iTunes alone is close to half of Mac net sales, which were $5.4 billion.

The reason for the increase is mostly due to Apple’s steady expansion of the iTunes Store to new countries around the world in recent quarters. iTunes Music sells in 119 countries, videos in 109 countries, while the App Store and iBookstore are both in 155 countries.

According to Asymco’s calculations, this wider availability in the store has driven up the amount the average user is paying Apple for content:

In March Apple reported that they have 500 million iTunes [users] so one way to think about the iTunes business is to say that  iTunes users purchase content and services at the rate of about $40 per year.

This is really interesting in the context of the long-rumored Apple video subscription deal and the still-being-hashed-out “iRadio” service for subscription music content. Imagine if just in just some of those countries Apple introduced a $10 per month streaming solution. So instead of $40 per year from a user, Apple started getting more like $120 per year. And that would be just music. If there was a separate video package some day that figure would get even larger. Plus, that doesn’t include money spent on and within both Apple’s own iOS and Mac apps and third-party apps.

iTunes has always been more of a bonus source of revenue than a meaningful contributor to Apple’s bottom line — the songs were originally there to sell iPods, in the way mobile apps are there to sell iOS devices. But software and services — from iCloud and Maps to Siri — have begun to play a more prominent role at Apple, and in its customers’ experiences. A subscription service of digital content, if deployed and priced correctly, could actually turn into a meaningful new source of revenue for Apple.

If current trends continue, with software and content sales going up and laptop and desktop sales dropping off, it’s not impossible that Apple’s content business could someday soon outpace the Mac segment as its third-largest business.

The partnership, which comes a year after a similar deal between Flipboard and the New York Times, will grant full access to FT subscribers while casual visitors will be able to read a smattering of FT blog posts and cultural stories.

Rob Grimshaw, managing director of the FT.com, said by phone that the deal will involve the FT and Flipboard sharing advertising revenue, but would not disclose what the exact revenue split is. In the past, the ad splits have been a source of contention for some publishers, including Condé Nast, which pulled back its advertisements from titles like New Yorker and Wired. (A Flipboard spokesperson said the company has an “excellent relationship” with Conde and is partnering on ads for six other titles).

Grimshaw also said that the FT is exploring selling subscriptions through Flipboard, and would be willing to share some of the proceeds with the platform. This is significant because the FT made waves by leaving iTunes in part due to the 30 percent commission (or “vig,” as the Brits call it) that Apple takes from every publisher.

So why is the FT willing to partner up with Flipboard so soon after leaving Apple? Grimshaw says the difference lies in how the two platforms treat customer relationships.

“The issue is not so much a percentage, it’s the relationship between publisher and audience. Paying a 30 percent finder’s fee is okay. Paying 30 percent in perpetuity and not knowing who the customer is not okay.”

The Flipboard partnership also reflects the fact that the FT and other publishers are keen to get their stories in as many places as possible at a time when readers are consuming more and more content on mobile. As for the future role of Flipboard, which some describe as a “giant iceberg” in the way of publishers, Grimshaw had this to say:

“I think the really interesting aspect to the platform is the way they’re giving readers the ability to create a bespoke user experience. I personally think this is going to be a strong strand in publishing and consumption of news in the digital space.”

Correction: This article was updated at 2:40pm to state that Conde Nast titles had pulled ads from certain titles; Conde did not, as previously stated, break off the relationship.

Production company Prospect Park, which licensed the shows from ABC, will run new, 30-minute episodes of each show Monday through Thursday. (Previously, each episode was an hour long and a new one ran each weekday.) On Fridays, there will be a recap of the week. Episodes are available for free streaming on Hulu and Hulu Plus, or can be downloaded from iTunes for $0.99 apiece or $9.99 per month (20 episodes). The free version of Hulu will only make the most recent episodes available, while Hulu Plus will have all of them.

The New York Times calculated that, because production costs are lower (due in part to having shorter and fewer episodes) and because ads on Hulu can be targeted, Prospect Park needs 500,000 streaming viewers to break even on the soaps. By contrast, the shows attracted three million viewers on TV. In addition, Variety noted that Prospect Park has the rights to sell the the shows to U.S. cable and broadcast networks starting in September (where, in an interesting twist, they’d be available a week after they air online) and is also distributing them to international television networks.

Even so, some longtime fans of the shows who are not accustomed to online viewing may be confused about how to find new episodes online. (That theory is borne out by many of the user comments on this paidContent post from January.) “We would hope that all [fans of the shows] would call their friends to make sure they watch them,” Prospect Park cofounder Rich Frank told Soap Opera Digest recently. “The way to ensure that this is going to work, because we’re really totally advertiser-supported, [is] that we’ve got to get the eyeballs to be watching this. They’ve done it before; it’s just a matter of rallying the troops and getting them to watch.”

According to figures reported by CNET and confirmed by Spotify, the company now has 24 million active users and 6 million paying subscribers across the world. Spotify is also growing rapidly in the United States, where it arrived in July 0f 2011 and is this week hosting musicians at its “Spotify House” at the SXSW festival in Austin, Texas.

Despite the hype, the underlying economics of Spotify’s business model remain uncertain. The service is beholden to musicians and studios, which request a 70 percent cut, and it must contend with a growing list of competitors that include Pandora, Rdio and SoundCloud. Meanwhile, YouTube is expected to launch a subscription service of its own in coming months and even Apple is expected to get into the streaming game too.

This competition validates the underlying premise of Spotify — that people want access to a giant catalog of music instead of buying it piecemeal through iTunes — but the arrival of deep-pocketed rivals may hurt Spotify’s ability to compete in the longterm.

The launch of the iTunes Store, which had been scheduled for today, has now been “delayed indefinitely”, according to local news reports.

Two reasons: Apple does not yet have all necessary music licenses, according to Vedomosti, and “retailers do not have gift cards at their disposal so far,” according to RIA Novosti.

While Apple remains on the sidelines, a rival music service has managed to launch. Browser maker Opera Software has debuted Muz in Russia and the surrounding CIS countries.

Priced at 150 rubles ($4.78) per month for a subscription, Muz offers unlimited downloads. The service works in the Opera mini browser and including on iOS. Opera could get 1.5 million active users by the end of 2013, an analyst tells Vedomosti. The outfit is hoping for bundling carriage with mobile operators.

Russia will need such services. Digital music sales revenue there has actually been falling in recent years, blamed by the music industry on social network VK, which has built-in file sharing.

“If Russia’s burgeoning legitimate business can effectively protect itself against such infringement, the country could become a top 10 music market,” International Federation of the Phonographic Industry CEO Frances Moore wrote in her organisation’s annual report in March.

Partners so far include HBO, Sony Pictures Home Entertainment, STARZ, Viacom and Warner Bros. Entertainment, plus “favorite movies” from Walt Disney. “Other leading studios” will be announced soon, according to the release. For now, Paramount and NBC/Universal are missing.

Barnes & Noble is partnering with UltraViolet, the initiative from Hollywood studios that lets viewers watch content across devices and aims to break Apple’s stranglehold on the digital movie market. (Amazon is also an UltraViolet retail partner.)

Many details are missing from the press release, including prices, availability and free streaming options (if any). It’s also unclear which devices — Nooks and otherwise — will support Nook Video. Barnes & Noble is expected to release a new tablet soon, and the company also promises “soon-to-launch free Nook Video apps.”

And that’s just fine. Such a move, when it happens, will redefine the industry forever – but Apple, and music, can afford to wait.

Pay TV-like subscription access to unlimited content is the hot new consumer furrow being ploughed by the likes of Netflix, Spotify, Rhapsody and more. Ethan Kaplan, a Warner Music Group technology SVP until 2011, says:

“When Apple goes subscription streaming, it won’t be a surprise. Apple has had a subscription product ready for a while.”

Before it goes live, however, two things will likely need to happen:

1. Streaming rivals must prove that there is a meaningful enough business opportunity in subscription to draw Apple out.
2. iTunes Store’s track download business must plateau or begin shrinking, pushing it to discover new pastures.

We’re not there yet

Right now, subscription services may be gaining traction, but there were only 13.4 million music subscribers in the world last year (source: IFPI), and a crossover with downloads is some way off. It is as yet far from certain that everyone will want to move from ownership to access.

Growth in digital music sales may have slowed since Apple’s download store brought the business in to the 21st century in 2003, but U.S. digital music revenue still rose a worthwhile nine percent through last year (source: IFPI).

Selling an estimated 70 percent of digital music, which itself is now the largest revenue slice, iTunes store is far from “doomed”, as one blog post put it. In fact, the industry’s IFPI umbrella says Apple’s service is still “growing healthily”. Simply killing iTunes Store in its current form would do significant damage not just to iTunes but to the entire music business.

For these reasons, Apple is unlikely to slaughter the downloads cash cow on which it and the music business depend. Spotify is the canary in the subscription mine shift – Apple can wait for the bird to surface before it commits to a trek of its own.

As Kaplan says: “Their hand will be forced when this pain is less than the pain of ignoring it. Meaning when the ARPU possible from a subscription product eclipses their ARPU from a la carte download revenue.”

Why wait?

All that being said, much of iTunes Store’s growth is now coming from previously untapped emerging-markets seams, not domestically. And Apple should not necessarily leave it so long that rivals really do challenge its downloads before pushing ahead itself. In Sweden, where Spotify is popular, streaming already supplies the lion’s share of music revenue (source: IFPI Sweden). Worldwide, where adoption is less so, Gartner forecasts music subscription revenue will rocket to an impressive half of downloads revenue by 2015.

Apple can be the master of its own destiny, launching a streaming service alongside its conventional iTunes store – not instead of – thereby controlling the extent of its own cannibalisation. It has already sowed the seeds with iTunes Match and iCloud, and it has built significant server farm capacity to deliver such a service.

Music analyst Mark Mulligan says the industry needs exactly such a big direction change, because downloads – really just a digital equivalent of retailing analogue units – have not brought significant enough new sales to a business once ravaged by P2P.

Slowly to the edge

But most people outside of streaming services themselves hope for evolution, not revolution. “If Apple experiments and gets it wrong, then the music industry will hurt more than Apple will,” Mulligan says.

When labels finally overcame their reticence to the streaming model in 2010 and 2011, they realised that exponents like Rdio, Deezer and Spotify present an opportunity to ween themselves off their iTunes downloads dependence. Apple entering the subscription market would not only shake up the music industry’s biggest money pot, it could also put it back at square one, reliant on Cupertino.

So it is fortunate that any subscription play by Apple would likely require new licenses be earned – and the labels would likely drive a hard bargain, requiring massive upfront payments for finally making their entire catalogues available for the cost of an album.

Spotify has only got as far as it has because major labels hold a rumoured 18 percent of its equity in exchange for them having written off these advance payments. That is largely favouritism – Apple would need to do real business with the labels; and, this time, it is missing Steve Jobs, who charmed label bosses back in the early noughties for iTunes’ current iteration.

Even easier, in licensing terms, would be Apple launching a personalised “radio” service, comprising non-interactive streams, rather than a fully on-demand service. This would have a far less profound impact.

Bigger pie, smaller pieces

Artists, who are, of course, the lifeblood of music, may be wary of Apple flipping models. They have come to know and love royalties from per-track purchases, roughly equivalent to plastic equivalents – but some complain that rates from streamed plays are too low.

Existing services like Spotify argue that ephemeral streams can in no way be equated with downloadable tracks, which consumers buy once and play again and again. With increased usage, they say, artists will see more and more returns.

Although some may fear Apple launching the same model against whose rates they already lament, a streaming iTunes could yet take the subscription streaming model to significant enough new heights that artists start seeing streaming income at significant scale.

Overnight hit

An iTunes streaming subscription would popularise the still-nascent model overnight.

“Their impact on the market will be catastrophic,” Kaplan says. “Consumers will love it.  For competitors though, Apple would have more paid subscribers within hours of announcement than they’ve ever seen in their entire existence.”

iTunes already has a billing relationship with 435 million customers. That is more than four times the threshold Mulligan has previously forecast subscription needs to achieve to become viable. The result will be an earthquake that will change the economic base of the music business. If everything goes according to plan, that means lower individual royalty rates, accrued at higher scale.

But no-one is sure how much scale needs to be built to make up for the lower income. ”For the labels, the short term gains in terms of (payments) will be great,” Kaplan says. “Long-term, though, it tosses traditional artist mechanical revenues off the cliff.”

Go-to-market

This is high-wire stuff. Apple will need to get it right – and not just for the music industry’s sake. Some of its latest music innovations have not fared well – iTunes Ping was poorly adopted and killed on Wednesday, its iOS Podcasts app has been derided, leaving Apple simply to iterate on the same old product it introduced nearly a decade ago.

Fortunately for it, iTunes’ existing adoption means Apple will not need to work as hard as its streaming challengers to introduce a new service.

On the road to subscription custom, some services stream free, ad-supported music to the majority of users. Its a classic conversion tactic, and one to which Apple is entirely unaccustomed. An ad-supported streaming iTunes would require a significant advertising sales operation like that built out by Pandora and Spotify. Instead, Apple’s core competency is in getting people to pay up for content right away.

This may be good for the music industry. Broadly, the freemium services are currently thought to pay two tiers of royalties – a lower rate, from songs listened to by free, ad-supported users; and a higher rate, accrued from plays by paid-up subscribers. It is the former around which most consternation lays – an Apple commitment to the latter could go some way to promising dreamed-of returns.

Tim Cook/Dave Grohl photo is used with thanks, courtesy of Tim Bradshaw.

Other notable new features include:

• The traditional iTunes sidebar is hidden, making more space for covers when browsing your library or the store.
• Artists can now share photos, tour dates and other information through dedicated artist pages.
• There’s a bunch of UI magic to reveal contextual information, revealing upcoming songs in your queue and top songs and albums in the iTunes store for each title in your personal library.
• There’s a redesigned mini player with integrated search functionality.
• Cloud syncing makes it possible to start watching a movie on the iPad, then continue on your Mac desktop or laptop where you’ve left off.

Rumors about a new iTunes release popped up on tech blogs earlier today after reporters figured out that the search engine on Apple.com was surfacing results to unpublished press releases, one of which was titled “Apple Unveils New iTunes.” Eddy Cue, Apple’s senior vice president of internet software and services, said on Wednesday that iTunes 11 would be available some time in October.

Notably missing from the announcement was any mention of a new streaming service, which is rumored to be under development by Apple to compete with Pandora. Reports about such a service first popped up last week, when the Wall Street Journal and New York Times reported that the company was in negotiations with music publishers about a streaming service.

We saw yesterday that HarperCollins has already entered into new contracts with ebook retailers like Amazon, Barnes & Noble and Google. Now Apple has a new deal with HarperCollins too. This morning I compared the prices of 12 HarperCollins titles across ebook retailers. Like Amazon, Apple is selling new bestselling ebooks for $9.99. (I’ve asked Apple for a comment on its pricing strategy for ebooks and will update this post if I hear back.)

Amazon is already dropping its ebook prices to match Apple’s, in the cases where Apple had priced a book lower than Amazon did. For instance, James Rollin’s Bloodlines and J.A. Jance’s Judgment Call were each $10.94 in the Kindle Store this morning and $9.99 in iTunes. Just a few hours later, both books are down to $9.99 at Amazon as well.

Sure, we can’t draw major conclusions about Apple’s new ebook pricing strategy based on what it’s done with one publisher’s books. But in the case of HarperCollins, we’re already seeing that even if Apple would prefer agency pricing, price bands and MFNs for books, it’s willing to compete on price in the absence of those things. And it has a lot more money to do so than other ebook retailers like Barnes & Noble and Kobo.

Under agency pricing, Apple’s ebook market share hovered around 10 percent. But if customers are drawn to Apple’s new low prices on ebooks, it’s actually possible to envision a world in which Apple’s ebook market share rises — under the terms it didn’t want.