Apple Paid Digital Music Service. Can it Overcome Record Industry Resistance?

By Richard Menta 3/06/03

It really isn't a surprise that Apple has decided to join the digital music fray, it just smacks of opportunity. This opportunity comes not in spite of, but because the services the music industry feeds have met with mediocre response.

Think about this:

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  1. None of the services presently selling music that is record industry sanctioned offers compelling enough terms to draw and keep many subscribers. Results have been middling.
  2. Ipsos-Reid and other online research firms have concluded that 1/4th of US downloaders would pay for music online if the terms and conditions were right, even with the unabated existence of the free P2P services.
  3. Present services do not serve Mac users.
  4. The Apple iPod became the top selling MP3 portable when it was only usable on Mac systems (and that was with a significant number of competitors already serving the Apple market). Now it works on PCs and has over 15% of the total market despite an average $400 price tag.
  5. Apple achieved this by listening to the desires of users of then available MP3 portables and offering a significantly improved and compelling product.
  6. Apple will now become the only service selling digital tunes to the Mac market.
  7. If they do it right and prove Ipsos-Reid correct, they will be in position to become the lead service to PC users down the road.

Apple believes it is and sees the opportunity. A big fat one.

After witnessing the success of the iPod, I believe they can pull this off too - maybe.

My biggest complaint with this soap opera we call online music goes well above the debates of privacy and piracy. It focuses on the fact that the entertainment industry has stubbornly refused to accept the fact that a new and far cheaper distribution method for music and movies now exists.

Rather that leverage the costs advantages of this method to improve their offerings, they have spent the last several years attempting to disassemble it. They fear it will not be as fruitful as their present distribution monopoly/model.

This adversarial relationship is akin to the monks of the scriptorium burning Gutenberg as a heretic because his printing press challenged their profitable business of hand scripted bibles and classic works.

In hindsight, had the monks simply invested in a press they would have become the first mass-copy book publishers. Such a choice should have proven more profitable for the church.

But, like the record industry, the monks probably would continue to demand the high fees per item they received for the old product. Control the technology, keep production low and revenue inflated would have been their goal. In their mind reduced costs were not for sharing with the people who buy their wares.

That's why monks probably would not have succeeded in the publishing industry. Other would eventually come along and undercut them.

Apple clearly sees the potential to steal this market and create another income stream for a company that needs new income streams. This time around may not be as easy as it was with the iPod. You see Apple still has to deal with a record industry still resisting the changes online music will bring to their industry.

The music industry controls the licenses to the music all the paid services offer. So far they have demanded high fees forcing all the paid services to keep unrealistically inflated pricing. As David Pogue wrote in his recent article for the New York Times The Internet as Jukebox, at a Price:

No matter which service you try, you'll almost always pay more for an album's worth of music than you would by buying a CD in the store. Furthermore, none of these services exploit the virtues of the Web by including lyrics, tour dates and other news.

Pricing is not the only problem. Another issue that Apple will have forced upon it are restrictions that the music industry will put on the wares sold:

…Most of these services offer pretty much the same 250,000 songs because they have all struck deals with the same major record companies. That's certainly enough music to cover, say, an aerobics workout, but it is by no means every pop song every written. You'll encounter big holes in the Billboard Top 100 list, for example… Even if you do find the song you're seeking, the little "CD-burnable" flame icon next to its name is missing on about half the songs in most services' catalogs. In other words, you can listen but you can't download it to own.

Can Apple overcome these issues? I believe they will trancend some, but the record industry has been self defeating by handcuffing these services. Past industry practices have also made may artists wary of offering their digital rights to the record companies too, so many songs will remain unavailable.

I am happy to see Apple give it a try and I suspect they will take the lead in tapping into that audience willing to pay for online tunes.

Will it be enough?


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