RealNetworks’ iPod hack may screw up Apple’s ‘scheme to monopolize music on cell phones’

This whole flap with RealNetworks’ “Harmony” technology isn’t about the music and the player, according to John Dvorak, “It’s about a scheme afoot to monopolize music delivered to cell phones. Although the online music business is expected to grow to $1.7 billion by 2009, few people realize that the dopey cell phone ringtone market is already past that with $2.3 billion worldwide sales in 2003 according to the Yankee Group.”

Dvorak writes, “Apple and Motorola are working on a deal to put iPod technology on Motorola cell phones. According to published reports, the hope is to create a cell phone/iPod sub-platform that can be licensed to other makers such as Nokia and Samsung. The idea is to develop a proprietary music delivery system with the phone carriers. This gives them a new opportunity to add additional fees to the already burgeoning cell phone bill, this one for music.”

“Billed as either a monthly service or pay-per-tune, everyone expects a bonanza. We already know that cell users will pay a dollar for a ring tone. They’ll pay a dollar for a catchy tune, too. The potential sales could dwarf the music business if the ringtone business is any indication of potential. You could even make these songs your ringtone. Currently any pop songs selling as a ringtone go for as much as $4 each,” Dvorak writes. “This grand scheme only works if the platform is secure. You can’t sell an iPod phone and lock in all this easy money if people can buy from just anyone or just use bootleg music, can you? So along comes the RealNetworks hack, which screws up this scheme. Suddenly the iPod looks a lot like any other MP3 player except for its good looks, and those go away when it’s in the phone.”

Full article with much more here.

19 Comments

  1. there are really that many suckers out there willing to pay money for a f*$&ing; ring tone? Jeebus, people.

    That being said, if Apple wants to dominate a market full of morons, I say more power to them!

  2. I think Dvorak has a point, nevertheless I still believe that Apple sitll holds a card under its sleeve.

    Just a few question that need to be answered:
    � Do Apple really wants to create a mobile phone delivery system in conjunction with the phone carriers? (I think not)

    � Or do they just want to continue using the computer based iTunes software to download tunes, make it work with cell phones by just connecting it to an Mac or PC with a USB cable like digital cameras do?

    Think about it: a song costs 99 cents, Apple gets just 1/4 and makes a benefit of almost 9 cents per cent after server expenses and other stuff. The Labels get the other 3/4. Where do the Carriers come in? By charging per download? Because there’s just no more room for them to benefit from the song. That would mean new charges for cell phone user. They will have to pay even more.

    Wouldn’t it be better to just plug in the cell phone to your mac or PC and upload your newly purchased tune instead of paying the carriers for the download. That means Mac makes profit with their iTMS; Motorola, Nokia and/or Samsung make profit because people buy their phones and Apple make profit again by licensing the iTMS(lite) to these and possible other cell phone makers.

    What I really don’t see is how Real’s Harmony hack really affect the iTMS / Cell Phone deal.

    Sorry Dvorak, but I must take back what I said first. You don’t have a point. Keep writing, maybe someday you will.

  3. People actually PAY $4 for a pop-song ring on their brain cooking cell phones? Having a high energy wavefom device smack up against your head cannot help but create free radicals in your brain tissue. I didn’t realize there were so many lemmings out there. No wonder there are so many PC users…

  4. W, great insight – everyone is suddenly writing crap.

    Dvorak, hello! Wake up call! Apple’s cellular strategy isn’t about the iPod! It’s about the DELIVERY SYSTEM. That is, how can cell phone companies deliver music content to your phone effortlessly? Do you spend a gazillion dollar building your own system, or do you just use Apple’s system? Real has nothing on Apple’s celluar strategy, with or without Harmony.

    Dvorak – what a doofus.

  5. Dvorak’s wrong.

    With Bluetooth on my Mac, I can (and have) transferred songs from iTunes to my Motorola v600 (using Garageband to convert them to AIFF).

    Since Fairplay songs can be converted, they can already be played on a phone. (Who cares about loss of quality through conversions when on a cellphone ?)

    Therefore, Apple and Motorola – KNOWING THAT YOU CAN GET MUSIC ONTO A PHONE ANYWAY – are appealing to folks too lazy to (or who don’t know how to) get music on their cellphone by any means other than purchasing from a wireless provider.

    Consequently, while it is equally possible for a motivated user to put Real/Harmony/whatever songs on their phone, so long as
    he or she sticks with the wireless provider then Harmony is irrelevant ! Whatever the wireless provider chooses to do is what matters.

  6. Re: fef “Where do the Carriers come in?”

    Good qustion. There was an interesting article that came out just after the Apple/Motorola pairing was announced. The author opined that the carriers may have a very strong negotiating tactic at their disposal.

    Goes like this.

    An Apple/Motorola “Mobile iTMS” pairing would, as you suggested, bypass the carriers, meaning they won’t get a cut of the action.

    Most of the carriers have their own premium download services—think AT&T’s mMode for downloading games, ringtones and such. Naturally, to them, a third party coming in and delivering content to their customers would annoy them.

    So, what can they do about it? How can they discourage this arrangement?

    The answer:

    Stop subsidizing new phone prices.

    We all know that the sticker prices on some new phones is not what you actually pay. For example, “$350 MSRP, but only $99 if you sign up for a new plan!” Who do you think absorbs the difference? The carriers. They obviously don’t pay bust out retail, but they certainly pay more than they charge you. They do so because they make it up by siging you onto a one or two year contract. Firstly, they’ve hooked you for monthly service charges. Also, read the fine print and note that if you break your contract early, you’ll pay a hefty fee, sometimes several hundred dollars. This essentially would negate any discount you received on the phone at the start of your service, so the carriers can’t really lose.

    Motorola and the other phone makers are happy to do business this way. They receive sales volume they never would if their phones were only sold at full retail.

    Now, if the carriers want to piss off Motorola, all they have to do is stop promotional pricing on their models. Sure, some people will shell out the dough for the hot phone, but most customers will scoff at paying some $200 more for one when the $79 Nokia will do the job. Motorola’s sales would surely suffer if it ever came to this.

    Well, what if Apple cuts deals with all the phone manufacturers? Checkmate? Nah…the carriers will just end up charging more for service to make up for potential losses due to people not using their own premium download services.

    That is, of course, unless they can score a deal early on to get a cut from “mobile” music sales.

    We’ll see how it works out.

    Pardon the diatribe. I just thought it was an interesting hypothesis when I read it.

  7. Re.: Matt

    I really didn’t see it that way. But you make a very good point.

    Now, my question is:
    What kind of deal can Apple strike with the Carriers?
    Can Apple create some sort of alternative iTMS dedicated only to mobile phones, license the software to phone makers and charge a bit more per song in order for the Carriers to get a cut?

    What do you think?

    Hey, this is interesting! Everybody wants a piece of the action. Money is what makes the world turn.

    I guess that old saying definitely has some truth in it: “Love for money is the root of all evil” as I see all these companies do almost anything to make money �even reverse engineer some propietary technology!

  8. bjh is right. With a bluetooth phone, itunes and flash and throw in a MIDI keyboard you can put any sound or music on a cell phone. This is big business taking advantage of the lazy and uninformed public again.

  9. I think the carriers will be looking to make money on the airtime it takes to download a song.

    The announcement clearly stated that the mobile iTMS goal is to have direct downloading. Seems to me that Apple and Motorola are getting the system up and running early and then sorting out the download bit later. The carriers will love all those premium-rate 5 minute calls spent downloading songs. I think this will be a service aimed at the ‘must-have’ instant gratification crowd.

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