“As rivals multiply, Jobs & Co. will make more money from its music site and iPods if all the industry’s rival players can share its software standards. With 50 million songs sold as of mid-March, 2004, Apple’s iTunes Music Store (iTMS) owns more than half of the music-download business. Apple execs note proudly that the iPod now rakes in more than 50% of the total revenues in the digital-music-player sector. Macheads offer these numbers as proof that the music battle is over — and that Steve Jobs has won,” Alex Salkever writes for BusinessWeek.
Salkever writes, “If Apple really wants to boost AAC, it would allow other device and software makers to license Apple’s own FairPlay digital-rights-management (DRM) system. DRM is computer code bound to each downloaded track or album that carries instructions on how the music may be used. For example, FairPlay allows unlimited CD burns of single tracks but doesn’t allow songs bought through iTMS to be played on other devices or to be traded on file-swapping networks. While anyone can use AAC — it’s an open standard, after all, and widely available for licensing — FairPlay puts a barrier between Apple and the rest of the online music community because iTMS downloads can play only on iPods.”
“That may sound like a good way to lock customers in. For a while, I thought so. But the announcements of new online music stores keep coming. And Napster’s parent company has raised revenue guidance for its online music sales to $5.5 million, from the $3 million range, for the quarter concluding at the end of March. That translates into a run rate of 5 million or so songs per quarter, which is an improvement — but still a far cry from Apple’s music sales, which are in the tens of millions of dollars worth of songs each quarter,” Salkever writes.
“Jobs himself recently acknowledged that Apple could miss its target of 100 million iTMS songs sold by April. Add up these discordant factors, and the competition for iTMS could start to stiffen in 2005. Apple may wind up isolated with a standard nobody else is using,” Salkever writes. “Apple’s AAC/FairPlay combo already owns the largest share of the music-download market. If music players from other outfits could use iTMS, then customers could move back and forth from one brand to another. True, that would mean less of a lock for Apple’s iPod. But it would be a big boost to iTMS revenues… By most accounts, iTMS is the smoothest, best online music store around. While Jobs & Co. doesn’t make any profit from the store yet — it’s a loss leader for the iPod — Apple could end up making boatloads of money if iTMS becomes one of the handful of default players and stores for what will clearly be a multibillion dollar market.”
Full article here.
MacDailyNews Take: Salkever wants Apple to play nice-nice with the Napsters and BuyMusics of the world to boost AAC. It is really important not to make the mistake of equating Apple’s Mac history with the iPod/iTunes. There is no reason to include others at this point in time and there may never be a reason to do so. There are no third-party developers to woo. Music is music and it can be encoded in any format you wish. It’s not like operating system-specific software. Why does Apple need to boost AAC/Fairplay, when AAC/Fairplay is already used by the legit online music download service that rules 80% of the market (Apple’s iTunes Music Store) and also works perfectly with the market-dominating players – iPod and iPod mini? It it Apple’s mission to help Napster, MusicMatch, etc. survive? No.
Apple has shown the willingness to learn from the past. The deal with HP to rebrand Apple’s iPod as their own and preload iTunes into their PCs proves it. Apple should pursue as many other companies as possible in much the same way. Apple makes the money from the iPod, not the iTMS. Even if Apple grossed US$1 billion per year from iTMS sales, they’d only keep (at best guess) 10 percent of that as their cut – US$100 million per year. Then they have to pay for bandwidth, equipment, marketing, etc. There’d be little profit of note. So, Salkever wants other players to be able to work with Apple’s iTMS, so Apple can make nothing from the player sales and also make nothing from the iTMS song sales? Bad business. You’d think a writer for BusinessWeek would understand that fact.
No, Alex, what Apple should do is exactly what they are doing. Keep AAC/Fairplay iTunes/iPod-only as long as they are ruling the market so handily. The more iPods they get into the market, the less the Napsters of the world will profit; they will suffocate. Nobody with an iPod uses anything but the best online store for their music, iTMS for Mac and Windows. The more HP-like deals for iPod rebranding, the better. If some online music outfit somehow makes significant inroads into the online music service market, then Apple can consider options like licensing or buying companies. But, for now, that’s not happening and Apple is correctly playing the game they created by their rules.
Related MacDailyNews articles:
Real CEO Glaser begs Apple to make iPod play nice with other music services – March 24, 2004
Napster CEO: ‘it would be great’ if Apple iPod supported WMA – March 09, 2004