“It is a different world in the music industry now – the record companies, old-style CD retailers and everyone else who has ever made a cent in the music business had better be braced for more change,” Cody Willard reports for The Financial Times. “There will be no more bundling of 10 bad songs with a couple of good singles to squeeze $15 out of consumers for a CD. Wal-Mart and Circuit City are not going to be able to depend on CD sales driving foot traffic in their stores. That is just the tip of the iceberg. Perhaps most crucially, Apple is set to become a huge force in the music business.”
“Apple has firmly established itself as the leader in this new music revolution, and it has its sights set on displacing Wal-Mart as the world’s largest music distributor. The company is setting up barriers to entry by keeping its digital music platform proprietary and, thus, incompatible with other systems,” Willard writes. “Many analysts and pundits claim that Apple will suffer the same fate with its closed systems as it did in the computer business, when the company allowed Microsoft to gain critical mass. That is the gamble in this high-stakes game of controlling the next generation of music distribution.”
Willard writes, “But as it stands now, Apple has myself and tens of millions of other iTunes users all but locked in. Even if Microsoft comes up with a better system and Sony some day figures out how to design a decent MP3 Walkman, I will not be switching from Apple. I cannot, because those songs I purchased on iTunes can only be played on my iPod. The switching costs are too high now. It is that way for most iTunes and iPod users.”
“Wal-Mart’s $5bn a year in album sales currently accounts for nearly 20 per cent of all albums sold. The operative word in that sentence is ‘currently.’ With total iPod sales expected to hit the 50m mark by the end of 2006, you can extrapolate another $100 per iPod in revenue for iTunes (the equivalent of only six CDs over the lifetime of the iPod), which would entail $5bn in sales for Apple over the next few years,” Willard writes. “Frankly, it is probably more reasonable to assume $500 (the equivalent of 35-40 CD purchases) in iTunes revenue every three or four years for every two or three iPods sold. That estimate would put the expected sales at iTunes up to $10bn-$15bn in the next few years.”
Full article here.
Cody Willard is a hedge fund manager at CL Willard Partners. He’s right that Apple is set to become a huge force in the music business, possibly the hugest force. However, he’s completely wrong that Apple is incompatible with other systems. Apple offers the only cross-platform music jukebox application and online music store for both Mac and Windows. All of the other also-ran online outfits offer tracks encoded in Microsoft’s proprietary Windows Media format. They exclude millions of Mac users completely. Songs purchased from iTunes are not playable only on an iPod. In fact, you don’t even need an iPod. Users can play them on their Macs and Windows PCs and also burn CDs that can play in cars, home stereos, portable CD players, boom boxes, etc.
Apple will not “suffer the same fate with its closed systems as it did in the computer business.” The fate Apple is “suffering,” by the way, is to own the rapidly growing Mac platform which is simply the best personal computer platform in the world and also happens to sell in excess of well over 4 million units per year. Not a bad fate to suffer.
The Macintosh platform required and still requires huge investments by developers to create compatible software. The iPod simply plays music that can be encoded, for very little cost, in any format the “developers” (musicians and labels) desire: AAC, MP3, WMA, etc. The music doesn’t need to be rewritten, recorded, and remastered. It’s like writing Photoshop once and then pressing a button to translate it for use on Mac, Windows, Linux, etc. To draw an analogy between Mac OS licensing and the iPod/iTunes symbiotic relationship simply highlights the writer’s ignorance of the vast differences between the two business situations.
Related articles:
Apple’s roadkill whine in unison: ‘incompatibility is slowing growth of digital music’ – August 13, 2005
Enjoying Apple’s iTunes and iTunes Music Store without owning an iPod – May 11, 2005
The iPod is not the Mac, so stop trying to compare them – August 13, 2004
The de facto standard for legal digital online music files: Apple’s protected MPEG-4 Audio (.m4p) – December 15, 2004
MDN is wrong here. Cody Willard didn’t say that the iPod’s competition isn’t proprietary too; he hardly mentioned them at all. So MDN’s protestations that iPod is less proprietary than the iPod are irrelevant. Willard merely said that iPod/iTMS platform locks users in. It’s true that other platforms do the same thing, but nobody cares about that because everybody uses the iPod/iTMS platform.
And to that, I say “Wheeeee!” Which is sort of juvenile, but hey a hundred million AAPL stock owners can’t be wrong.
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MDN – nice commentary. Not so “over the top” like somedays.
The article brings up an interesting point about foot traffic. If retailers like Best Buy and Circuit city won’t be able to rely on a new CD release to drive people to their stores, could Apple?
Why couldn’t Apple cross sell Apple computers/software/iPods/accessories in their New Music emails and on the iTunes homepage? (there is that link to the iPod Store).
MDN word: federal
” Even if Microsoft comes up with a better system and Sony some day figures out how to design a decent MP3 Walkman, I will not be switching from Apple. I cannot, because those songs I purchased on iTunes can only be played on my iPod. “
Even if Sony does make the hardware, he forgot software integration. The ease of use that you get from the combo of the iPod with the iTunes & iTMS is something that not even a slick Sony “mp3 Walkman” can cure. As long as the Sony store is donkey and the music player interface is crap, that hardware is still not as desirable as the iPod.
“Apple offers the only cross-platform music jukebox application and online music store for both Mac and Windows. All of the other also-ran online outfits offer tracks encoded in Microsoft’s proprietary Windows Media format.”
You keep going back to the same old tired line, even when that doesn’t address the issue. Nowhere is he suggesting people should use WMA, so why bother mentioning that it’s proprietarty too? The Mac/Windows platform is not the issue, so why bring it up?
“There will be no more bundling of 10 bad songs with a couple of good singles to squeeze $15 out of consumers for a CD.”
For the most part, I shall remain one of those who wants the entire CD. Most of the artists I choose to listen to are more interested in the quality of their entire CD than just trying to kick out one or two “hits”. The above statement goes a long way in explaining why the music industry is in such trouble.
This iPod/iTunes “closed system” argument is simply foolish. It’s been debunked so many times now it’s not even funny. It’s obviously more open than the current Windows only WMA system that M$ has in place, plus you can burn the music to CDs and play your music on virtually any device, not just iPods.
It’s also incredible how many so called experts still say that only iTMS purchased music will play on an iPod, when anyone with a brain knows you can rip your own CDs as well as play any mp3 file on an iPod too.
So-called “FairPlay” DRM only works on the iPod, and that’s what the author meant. You know that, don’t ignore that issue. Apple is playing the monopoly card. Apple has lots of monopolistic practice(s). Great for us that Apple also offers the best in class for the monopolies they have, but that’s now. Later we will see.
Steve Jobs and those around him have incredible vision and an uncanny ability to bring that vision to market with actual working products. If that vision is lost, or Jobs loses his energy for such exploits, we’ll be left with a visionless monopoly and that’s dangerous.
You see here that the most important thing is VISION. When the rest of the money-backed industry has no vision, there’s no competition. I’m wherever the visionaries are and right now, that is Apple.
It’s too bad there aren’t many Apples around. Burt Rutan has Scaled Composites. There’s Google too. Share your favorite visionary companies, groups, or individuals.
Well, he’s half right!
Couple of incorrect points spotted in the aticle, Cody obviously doesnt know that you can burn your DRMd tracks to CD and then re rip them to remove the DRM and then play them on ANY other MP3 player of your choice. Apart from that and a few other comments regarding “locking the customer in” it is actually a pretty good article with the best bit coming at the end
“With total iPod sales expected to hit the 50m mark by the end of 2006, you can extrapolate another $100 per iPod in revenue for iTunes (the equivalent of only six CDs over the lifetime of the iPod), which would entail $5bn in sales for Apple over the next few years.
Frankly, it is probably more reasonable to assume $500 (the equivalent of 35-40 CD purchases) in iTunes revenue every three or four years for every two or three iPods sold. That estimate would put the expected sales at iTunes up to $10bn-$15bn in the next few years.
While Apple shares have soared on iPod’s effect, the impact is only beginning to be felt. You ain’t heard nothin’ yet.”
iTunes Music store customers are locked into the iPod for a portable music player unless they choose to get around the DRM by burning to audio CD and then ripping back or using a program like JHymn to crack the FairPlay DRM from the songs you legally purchased. The more tech savvy user will not be stopped from switching to another DAP (if they wanted to), but less knowledgable iPod users will think they are stuck with iPod. Not that there’s any player out there an iPod user would want to switch to, this is all just hypothetical of course.
Between me and my wife, we’ve owned 7 iPods and have no intention of switching, but I use JHymn to strip the DRM from purchased songs just in case. The main reason I strip the DRM is because I’ve formatted my Mac on numerous occasions without deauthorising the music first and got tired of having to contact Apple to ask them to please let me listen to the music I bought from them.
DRM is a waste of time that only punishes law obiding paying customers.
I agree with Naraa, they meant FairPlay only works on iTunes/iPod, and MDN knows that and chooses to obfuscate the issue.
Now, saying that I must discose that I am loving having Apple in the drivers seat on this right now. I don’t like MS and I don’t like the RIAA. I believe that not licensing fairplay is more of an issue for the iTunes store than the iPod. I think the iPod design is definitely better but they would lose some sales if other FairPlay options were available. What they are really trying to hold on to is the iTunes monopoly on FairPlay (even though they make little to know money on iTunes itself) because they are more worried about giving the RIAA back any control.
I think the tide is turning against MS because of security and the advent of open source, so it’s just a matter of time and their marketshare and influence will slide slowly down. The iPod has competed on a level playing field with other MP3 player and won, but the real playing field is the distribution control of the music.
I am of such mixed emotions about this.
On the one hand, I hate to think that any one company is going to have a monopoly (or “monopsony”) on music distribution. Power corrupts. I love Apple as much as any Mac user, but if they’re placed in a situation where they become the All-Powerful God of Music Sales, the temptation to throw their weight around will be too much. It won’t be a good situation for the industry.
On the other hand, such a situation may be inevitable. Whenever a completely new market is created, initially one company dominates. Later, a competant competitor emerges and knocks the champ off his perch, and a new era emerges with multiple players. But in the beginning, it’s one company. If it’s gotta be that way, I’d rather the company be Apple.
The annoying fact is that Apple’s continued dominance is the old guarantee we Mac users have against being marginalized. Every other “competing” solution is Windows-only. So hopefully, Apple will continue in a dominant position long enough for the Mac market share to grow to a point where the competitors no longer feel they can just ignore it.
By the way, that “competant competitor” that will finally emerge? I can’t help but feel that none of the existing players will be that company. Not Microsoft, not Sony. No, my hunch is that the company that will truly compete hasn’t been founded yet. It may be founded by ex-Apple employees who decide to try their luck on their own.
Why doesn’t Microshaft make their DRM work on a Mac? What’s the problem. If Apple can do it with Fairplay I’m sure MS could do it with WMA. No one would buy it but they should do it to end MDN’s argument.
Since iTunes is not a subscription based service no one is locked in. If I stop using it my music doesn’t go away like the rest of them. I’m extremely happy with iTunes anyway so I feel no reason to use anyone else. Best selection, best DRM, easy to use, and does Mac and Windows.
locked in? burn the cd’s you bought from itunes then rip them in mp3 format. a pain? yes. locked in to itunes? no.
I’d like more news of Apple’s monopolistic tendencies. I remember that Real wanted to make their products compatible with the iPod, but Apple fought them. I don’t understand why Microsoft is criticized because of bundling, etc. while Apple gets a free ride. Why is there so much backlash for any criticism of Apple? I’m tired of the argument that if Apple does X badly, go use Windoze then. Is it too much to demand excellence from all computer companies?
Too bad there’s only a slim margin on a downloaded song compared with a physical CD….
Record owners were locked in and left behind. They replaced their collections with cassettes.
Cassette owners were locked in and left behind. They replaced their collections with CD’s.
CD owners had digital files that were transportable to the next generation players. They took their collections with them.
Protected digital files are still digital files. They will always be transferable to other devices one way or another. There is no problem. There is no lock in. Those who think there is are just displaying their ignorance or are shilling for Microsoft.
<<To draw an analogy between Mac OS licensing and the iPod/iTunes symbiotic relationship simply highlights the writer’s ignorance of the vast differences between the two business situations.>>
If I may change just one word in your statement. That word is “situations”. It may be a small change but I think explains the difference more clearly.
I’d change it to “model”, as in “…the two busienss models”.
I haven’t seen anyone use the key term yet – FUD.
The article is subtle, because he admits that he likes the iPod, but the locked in part is FUD. You aren’t locked in, you have the choice to get your content from CD’s or non-DRM’d MP3s or you can legally remove the DRM by burning and re-ripping.
I think the FUD is being planted by RIAA and MS because they don’t want to see Apple take control. This author may or may not have been paid off, but the seed was planted for the locked in arguement from one or both of those sources.
Who would you rather see have control: RIAA or MS or Apple?
We know the goal of the RIAA: Keep the status quo. Siphon off as much money as possible.
We can guess the goal of MS: Get control so MS can create a revenue stream. However, MS doesn’t necessarily care about artist or customer concerns, just control and revenue.
What is Apple’s goal? I don’t know, but their original goal was to provide a service to promote the iPod. I’m sure that they would like control too, but at least they seem to give lip service to customer and artists interests.
Of the three, I think the most desireable and interesting outcome will occur if Apple gets control. It could be revolutionary.
You (choose to) buy your music from iTMS, you’re pretty much locked in. Right now a better way of getting music is to buy the CDs. Better quality, decent artwork and no DRM. Fairplay terms and conditions / usage can be changed for music you already ‘own’, they just release a new version of iTunes. Sure, buy a few singles from iTMS for convenience, but putting a whole collection together via iTMS is just madness. Just because it’s Apple doesn’t make DRM OK.
All this shit about not being locked in is just drinking the kool-aid. Being able to burn to a CD from iTMS tracks and then re-importing (also probably having to re-enter the ID3 tags by hand because they’ve been stripped and the CD signature no longer matches the one on Gracenote), just absolutely wrecks any convenience that the download may have brought to the party.
And if CDs continue to have clumsy protection on them, well, the best thing consumers can do is stop buying them altogether. The best thing consumers could do would be to organise a week of not buying or downloading any music at all from the major labels. Just show those greedy bastards where their money comes from.
Being able to burn to a CD from iTMS tracks and then re-importing (also probably having to re-enter the ID3 tags by hand because they’ve been stripped and the CD signature no longer matches the one on Gracenote), just absolutely wrecks any convenience that the download may have brought to the party.
Umm, have you tried it? Because I call BS here. I have burned tracks to CD and then reimported to iTunes. With the ID3 tags intact.
if you really care about ownership, sound quality, copying options, ‘album art’, and an automatic back up, you buy a CD, still the all around, best option, just not as initially convenient as iTunes.
iTunes Music Store (and video) is a closed system.
It has to be right now.
If it were not then other makers of music devices would dominate the market through shoddy quality, competing on price alone, slowing innovation and ruin this opportuity like MS did for the PC platform.
If iTunes were not around then we would all be using WMA DRM and that would be soooo bad.
I think all Apple is doing is maturing the market and breaking the industry models (Music/TV), creating/maturing new ones (PodCasts) and generally shaking up entire industries (Movie?).
Once the shakeup is complete Apple will be on top. But I would much rather see them on top then MS.
I believe that once these markets are mature they will be opened up. Maybe even open up as they become mature. For example, once TV really takes off, Apple could open the music DRM allowing selected companies to produce music players compatible with iTMS. Apple will still hold the TV DRM and therefore it’s iPod will still be the number one choice, however there will be other choices… just for music (this is kind of what the ROKR thing is).
Apple, with Steve at the top, is one of the only companies that cares more about delivering create solutions to real people’s problems then $. There is no way that Apple will ever shit on it’s customers. Now it’s at the top (again) Apple will continue to be the driving force. Shaking up stagnent waters.
Apple’s DRM is the only way right now, but wait and see – you’ll thank them later…
You could even use WireTap. It would take forever to convert 100’s of songs in real time but it is doable.