By Richard Menta 5/02/03
It was an amazing statistic that Billboard released yesterday. In less than 24 hours, Apple's new iTunes Music store sold nearly 300,000 tracks. at $0.99 per.
In one sense I was not surprised - research from Ipsos-Reid last September predicted this - but after it sank in a moment, I was. Who could have honestly predicted such a fast and sizable success?
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I certainly didn't. In fact, I was worried in my first article on Apple's new store that I was giving them too much benefit of the doubt. Depite the risks involved, risks that I plainly laid out, I felt that they would succeed just based on my faith in Apple's ability to see opportunity, devise a smart plan, and then successfully execute on it. The iPod is the perfect example where the company waltzed in with a better mouse trap that, a year later, still has competitors playing catch up to. That player now owns 26% of the market, one in every four players is an iPod!
And it is the iPod that is helping Apple succeed in this venture, by offering what reviews are calling a seemless flow from the Internet to Mac to digital portable. Oh, did I mention that the iTunes Music Store achieved this success with a Mac only audience? Apple CEO Steve Jobs promises a Windows version the end of the year. For now, only the 5% or so of folk who opted for Apple computers over Wintel boxes can use the iTunes Music Store.
Despite the dramatic success, I still feel that $0.99 a track is high, though $9.99 per album is certainly better than the $20 list price and $16-$18 street price of that album in CD form. Those oprices will drop over time if the market dictates it. That pressure will come less from consumers initially than from the floundering pay-per-track services who presently serve the Windows market Apple has yet to enter.
Those services now have a working model - not a hard one really, improve the service and remove the frustrating restrictions - and they will all rush to develop their clones of the iTunes service for Windows before Apple does. Since the present versions of their services all have mediocre if not poor reputations, they will probably use price to lure back customers. To do that they will put even more pressure on the record labels to drop their copyright fees.
Since the record industry owns two of these services, Pressplay and MusicNet, they will want to keep them competitive. That or watch Apple's iTunes Music store become the MTV of Online track sales.
The ultimate winner is the record industry. For years they spouted that such online venues were doomed until the free file trading services were eradicated. This proves them wrong and they are rewarded for it with profits from Apple's service.
Of course, think of all the profits they lost over the last several years, not from file trading, but from failing to produce a viable online service. The chose to litigate rather than compete, a path that the movie industry chose to fight off the VC with. The film folk lost in the Supreme Court and their punishment was to watch the video rental and sale market eventually bring them in more money than the theaters do.
The record industry is now going to receive the same punishment and they will be the richer for it. Few industries can make the same mistake twice and still come out ahead.
But then as we have already said the worst thing the record industry could do to themselves they were doing. Now the iTunes Music Store has proved to them that it is more fruitful to serve the consumer rather than themselves.
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