“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
Salkever is right. There is now one common format for CDs, one common format for audio cassettes, one common format records. The online music biz will converge in the same way over time. AAC/Fairplay has a chance to be that standard, but if they don’t allow others in, then WMA will end up the de facto standard. Microsoft is just too big and too powerful. Apple dominates the market now, but they won’t for long.
If everybody used AAC/Fairplay, then Apple would have a much better shot of dominating long-term, because their product is so much better than the competition.
Hey fef,
Veridisc developed Fairplay, and licensed it to Apple. The website for Veridisc hasn’t been ipdated for 2 years…. One poster on another site said it now pointed to a pr0n site.
That said, Fairplay is on the Apple list of trademarks. It seems (BS alert, this is my opinion only, your mileage may vary) that Apple does own fairplay. Here is the link to the Apple Trademark list
http://www.apple.com/legal/appletmlist.html
As for how Apple should use fairplay, I (BS alert again, this is my opinion only, your mileage may vary) would license fairplay to every site out there. As part of the license agreement, each music DL site would have to display “Works with the world’s #1 digital music player, the iPod”
Re: flash players.. Shipwithsails said Apple should market a removable media iPod…… Nope, don’t think so. Steve Jobs already said that they don’t want to play there. The market research Apple did showed that the majority of the people who purchased those types of players used them a few times, then tossed them into a drawer or closet ’cause they didn’t hold enough songs, and the price for the media was too high.
This holds true to my pre-iPod experience. I got some CF players for my kids. The software was kinda klunky, the card was too small, and the kids (me too) lost interest very quickly. When iPods came out, WOW what a difference. My wife and I use ours all the time. (sorry kids, you’ll have to foot the bill for your own minis)
of course the perfect solution is to have WMA ripped to AAC as feature in iTunes..
then again.. mp3 is far and away the ‘standard’ right now.. checked acquisition lately?
Hey darknite, you’re right!:
It seems that APPLE OWNS FAIRPLAY. It seems that Apple has invested in this technology. Apple and VeryDisc both claim ownership.
I was reading MacNN forums and I stumbled with this post that actually details an email interchange with Business Week’s Salkever.
Here’s the the Link (you’ll have to scroll down to the My email with the author – Brianimator 143936 post): http://www.macnn.com/news/23954
And here’s the actual post:
My email with the author – Brianimator 143936
3/24/04, 3:01 pm EST
I wrote:
“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.”
Wanna License AAC/FairPlay? Talk to the people who own the technology (i.e. not Apple)
AAC: http://www.vialicensing.com/products/mpeg4aac/standard.html
FairPlay: http://64.244.235.240/
You guys need to do your homework – this issue continues to really upset me. Apple is embracing standards all over the place, the iTMS is no different.
Alex Salkever wrote:
Actually, Apple owns FairPlay. Check the trademark listing. Anyone can license AAC. But without FairPlay they can’t play iTMS songs, which is the whole point. If you have any other factual corrections please let me know.
I wrote:
It’s interesting – Apple owns “Fair Play”(http://www.apple.com/legal/appletmlist.html), not “FairPlay” – (this may seem like a silly case of semantics, but they seem to be careful in formatting their other patented names correctly) They use the latter spelling in describing their DRM technology (http://www.apple.com/support/itunes/authorization.html). How can two companies – VeriDisc and Apple lay claim to DRM named “FairPlay” and “Fair Play” respectively (actually, Apple refers to Fair Play as “software technology” in their patent listing)? Why have we not heard any rumblings of a law suit on this from either side? My belief is that Apple has gained early access to the yet unfinished technology, and that when it is finished, we will see it made broadly available. Otherwise, yes, you’re right, it does need to be made available to all.
ed
Good one. Funny thing is, I thought of writing it that way when I shared.
I also agree that a flash based iPod wouldn’t be a terrible idea. I don’t know if it would work, but it would give Apple a way to get in on that $100 music player market.
IT Guy:
If Apple does not own FairPlay and is only a licensee, then you’re right: we’re morons.
But…
If Apple actually owns FairPlay and is not only a licensee, then you’re wrong: we’re not morons and you actually are…
one huge moron.
I have to disagree with MDN this time. iTMS is not profitble, iPod is. Dont make iPod compatible with WMA, make all other music stores liscence Fairplay. Make money from the liscencing of fairplay and sales of iPods. Apple does not want to be seen pulling a Microsoft. Beat MS at their own game and liscence. As soon as the EU makes MS do one of 2 thing, unbundle WindowsMedia Player or bundle Quicktime and Real, the WMA format will crumble like a grahm cracker.
It seems there are a few options (I won’t claim to hit all of them):
First, Apple changes nothing.
Second, Apple offers a license for AAC/FairPlay to other stores. Their music plays on iPod. Helps kill WMA and increases iPod sales, licensing fees to Apple.
Third, Apple offers WMA on iPod. iPod plays music from other stores, increases iPod sales, encourages WMA use, no licensing fees to Apple.
Of these three, the first and second are acceptable, the third is not acceptable.
Is there a reason, from a business standpoint, why any of these lesser online music stores is not licensing AAC and FairPlay? You’d think that they would want to attract the majority of music buyers out there, and that majority is currently using the iPod/AAC/FairPlay. Is M$ giving these guys a sweetheart licensing deal with WMA?
Actually, I would think that the only way Apple got the record companies to sign on to digital music was to have DRM. Converting it to MP3 would seem to defeat the purpose of the DRM and make the music accessible to those who haven’t paid for it, putting Apple on par with any other P2P network. While it is possible to convert it to MP3, it shouldn’t be easy or free music starts getting distributed again. That will only lead to the music producers pulling the plug on digital music until they have some way of ensuring that we all pay for it. I don’t know the feasibility of swapping one set of DRM for another without extending the possibility of more people having access to that music than what was paid for. That would be the stumbling block in any conversion between formats that would have the support of music providers. Unless that stumbling block is solved, we’re probably doomed to multiple DRM formats and I like the Apple model best now. Let them keep it that way until there becomes some reason to really change, whether it be an erosion of market share someplace or the creation of a superior codec.
here’s some info…
http://64.244.235.240/info_about.asp
THAT IS ABSURD!
Apple did this when they started by not allowing other manufacturers to use their OS and LUCKILY they’ve learned from that enormous mistake. If Apple had done with their OS as they’ve done with iTunes, Microsoft would not have the market share they do, Apple would – and evrything would be Mac compatible.
By restricting access, they’d be doing it all over again to themselves; allowing a superior product to become the “wanna be kid” in terms of market share.
IT guy, due to the content and date, it would seem ripe for the picking.
IT guy:
It seems since 2001 Apple has either invested or bought or whatever in VeryDisc’s FairPlay.
Why else do they have Fair Play listed as their own trademark (http://www.apple.com/legal/appletmlist.html)?
Here’s something to think about:
In the same manner HP Licensed the iPod, what if Microsoft approached Apple and wanted to license a Microsoft branded iPod which played AAC/Fairplay AND WMF, giving Microsoft clients the choice of either Microsoft’s music store or the iTMS?
Apple makes the money on (rebranded) iPod, would they care if it was used on Microsoft’s music store?
Something to ponder……
Jeez, all this second, third, fourth guessing Apple … why doesn’t everyone just shut the f&^&ck; up and enjoy how freaking awesome the iPod / iTunes music store combo is? If people can’t compete with that, then that’s their own G.D. problem … and besides, I thought “Apple is dead” according to the Windoze people and analysts … so why now are they shedding crocodile tears over losing the digital music market? Turnaround is indeed fair play …
Nobody ever complained that Vinyl records were “proprietary” and the music was “trapped in that format” — yet think about it, the music encoded on Vinyl, tape, and ever other pre-digital format was locked down tighter than any digital format can be … yet did people stop buying records? Of course it was an “open format” in the sense that anybody with enough money could “write” to the Vinyl format … but the same holds true for digital — anybody can write digital files that are playable on any player out there — it’s called MP3. Remember folks, all this anxiety and fuss about digital music is being created by the lawyers and greedy music companies who see digital music as one of two things: an opportunity to deny consumers the rights to ever own music again, thus forcing them to continuously pay and pay and pay for it (i.e. the “subscription” model for digital music distribution) OR they see digital music as a giant monster that is going to devour their profits and destroy their distribution model (i.e. consumers will no longer pay $19 for a CD in a world of easy electronic distribution and sharing).
Apple has actually struck an amazing balance between corporate greed, legal paranoia and consumer rights. They’ve created the most innovative, efficient, LEGAL digital music distribution channel on the planet. They’ve engineered the most seamless, well-engineered music experience on the planet (i.e. the iPod) … so it’s time for the corporate bully’s, cry babies, greed mongers, whiners and other assorted losers to just SHUT THE F*I&*CK up for one minute and let Apple enjoy it’s much deserved success … and second though, I think i’ll just crank up the volume on my iPod as that’ll do the job better.
Voluntarily handing over your market dominance doesn’t make business sense. Turn this argument around, and it’s obviously just totally irrational:
As rivals multiply, Gates & Co. will make more money from their OS if all the industry’s rivals can share their software standards. Windows puts a barrier between Microsoft and the rest of the computer community because Windows apps only run on Windows machines. That may sound like a good way to lock customers in. But the announcements of new operating systems keep coming. And some of those even sell as much as $5.5 million in software every year (gosh, some make even more).
Gates recently acknowledged that Microsoft could miss its target of owning the whole freaking solar system by April. Add up these discordant factors, and the competition for Windows could start to stiffen. Microsoft may wind up isolated with a standard nobody else is using. If other operating systems could run Windows applications, then customers could move from one operating system to another. True, that would mean less of a lock for Windows. But it would be a big boost to Microsoft Flight Simulator…
Interesting take on MDN’s take:
What HP is doing is in fact equivalent to licensing out the Apple solution. The only possible distinction is that the product is made by Apple themselves and obviously an iPod and of course obviously ITMS. From a monetary standpoint, as long as the profit margins are about the same, Apple licensing out AAC/Fairplay for use by other sites/players would be exactly the same thing. The only difference would be that there was less actual work done by Apple. They would still control the market since they would control AAC/Fairplay.
As more and more sites and player manufacturers switch to AAC/Fairplay, WMA and other formats would effectively die. Apple would still be getting paid and have overall control. Even if the profit margins were a little higher on their own iPod and ITMS (which is certainly the case when you consider the HP situation, Apple of course makes more money off an Apple iPod than an HP iPod), the Apple iPod/ITMS would continue to dominate as long as it was the superior product/solution.
The big difference would be that Apple would be ASSURED that they would continue to control and dominate the market and make their profit even if another player/store gains market share against the iPod/ITMS.
If Apple makes their pods work with WMA, then the sound quality of all iPods immediately takes a dive. I heard there is WMA support built in already…it is just not unlocked. If Apple takes a major dive in marketshare, then simply unlock the code. Makes sense and security to me, if that is the case.
I still can’t believe McDonalds move towards Sony’s current music vaporware, though. Ugh!!
Just some facts:
Apple purchased FairPlay and appear to own it. It seems they have discretion to license it.
Apple will not license FairPlay to any hardware or online music store vendor at this time (per a response back from apple directly)
Opinion:
Until apple starts to lose market share in ether the player or the music download business they should just stay the current course. I have always been puzzled by the statement that iTMS is not a money maker, but yet Apple will not allow the iPod to play WMA songs or license FairPlay to companies like Napster or Real. This does not make sense. Remove as many boundaries as possible to make the maximum number of people want to buy your product.
From this I can only come up with 2 conclusions. Apple is ether the stupidest company in the world and wants to fail or APPLE EXPECTS TO MAKE MONEY ON THE ITMS IN THE FUTURE!
The second one makes a lot of sense. Even at only penies/song with sales expected to get in the billions of dollars this could add a lot to apple’s total profits. And I’m sure they can figure out some ways to increase the number of pennies they keep (reduced ad costs, lower cost of bandwidth, lower server costs, and a huge one would be to negotiate cheaper credit card charge rates)
So to sum up. If you can have it all, why not! But if they start to slip. I hope the license quickly.
I just read the article again and I 100% agree with Salkever (Sorry MDN). Apple has to lock in their domination of this market and licensing out AAC/FairPlay is the way to do this.
Not to say I told you so (but I TOLD you
” width=”19″ height=”19″ alt=”grin” style=”border:0;” />, I have been posting this very same view multiple times over the past weeks/months.
As long as Apple improves the iPod line to be competitive with other devices I see no great reason for Apple to license FairPlay. Making the Pod and iTMS “just like everyone else” effectively places Apple in the pack rather than in the lead.
doug.. those aren’t FACTS.. i sure with someone had concrete evidence as to
Apple’s rights..
it seems that they wouldn’t get into this thing unless they owned the crucial DRM.. it’s apple
“Apple purchased FairPlay and appear to own it.”
If Apple appears to own it, then it is not a fact. A fact is something that is certain.
Apple owns the trademark “Fair Play” (2 words) which was filed on July 21, 2003 (a few months after iTMS was introduced) and Veridisc still owns the service mark “FairPlay” (1 word). If Apple purchased FairPlay, then the service mark would be transfered to Apple. OTOH, Apple always use “FairPlay(TM)” [with trademark]. So, from this exercise we don’t still know anything. What is my point then? Accusing Apple for refusing to license Fair Play (or FairPlay) is pretty dumb if you have no clue what the real facts are.
Here are the results from USPTO:
Word Mark
FP FAIRPLAY PARTNER POWERED BY VERIDISC
Goods and Services
IC 042. US 100 101. G & S: Digital rights management services, namely, providing electronic verification of online access of digital content and generating electronic permission codes which allow the user to access said digital content; licensing of intellectual property, namely digital content via a website
[Snipped]
Owner
(APPLICANT) Veridisc, Inc. CORPORATION ILLINOIS 1011 Campus Drive Mundelein ILLINOIS 60060
==============
Word Mark
FAIR PLAY
Goods and Services
IC 009. US 021 023 026 036 038. G & S: computer software; computer software; computer software
[Snipped]
Owner
(APPLICANT) Apple Computer, Inc. CORPORATION CALIFORNIA 1 Infinite Loop Cupertino CALIFORNIA 95014