The Post-iTunes Music Store World
OK -- iTunes music store (iTMS) is now available for both Macs and PCs. There is broad agreement that it combines reasonable value ($1/track, good selection) with reasonable protection (burn to your hearts content, then re-rip if you really want to, otherwise tricky to share). iTMS is tightly integrated with the iPod, but the software is free, runs on the vast majority of computers, and good. So the overall strategy is to make the fairly popular iPod even more desirable than other mp3 players.
The iPod is kind of a surprise hit for Apple, being the first true piece of consumer hardware that the traditional PC hardware company has ever produced. People are talking about Sony being on the ropes, while others opine that AOL, MSFT, Yahoo!, MTV etc. will dominate.
This is all a little nuts. There are three pieces to this technology stack -- the music copyright holders, the network distributors, and the hardware playback manufacturers. Napster played in the middle, was great for the hardware guys, but seriously threatened the copyright holders, who have since used the fact that copyright infringement is illegal to shut the system down.
Apart from lawsuits, the RIAA has also begun to license music for various online systems, and they do not seem to be very exclusive about who they offer distribution rights to. This suggests that copyright holders do, in fact, hold all the cards and they want to commodify the distribution and hardware parts of the stack down to marginal cost so they can re-licence their content at 100% margin. If a distributor (or hardware producer) enjoyed market power, they would require the copyright holders to give them exclusive rights to the song, weakening rival distributors (or hardware producers).
There are two different models of hardware producers -- integrated and high price (iPod+iTMS) and open and low price (Dell, or Gateway, if they have one). Sony briefly flirted with an poorly integrated and high price option which looked pretty but was horrible to use and thankfully is no longer for sale. We've seen the integrated and high price strategy play out for Apple in the PC market, and we'll see what happens with music. With the consumer electronics business being as cutthroat as it is, and the labels holding all the cards around distribution, neither of those are going to make any profit long term as separate segments. So the only person left to create the sort of ease-of-use and value that makes the for-pay music biz compete with the P2P networks is the RIAA, which means they are a cartel that play nice sometimes and fight other times. If the RIAA does not create standards that allow easy integration and commodification down the distribution and hardware parts of the stack, someone like Apple can potentially take some of their profit from them by building a powerful enough distribution+playback system.
So, expect consolidation within the RIAA, which I believe we see through the Bertelsmann/Sony deal. Look to see many more distribution services and hardware producers, and the labels license their music more aggressively and desperate PC manufacturers enter the mp3 player market. A standard, single price rate (ideally enforced by law) would cap the cartels power, and allow it to collude on prices with the government acting as contract enforcer.
All Apple can do about this is reduce the copyright owner's power by giving distribution ability to more desperate copyright holders. So look to them cutting deals with small labels kept out of the big stores. Apple is limited in how much it can do in this area because it costs them real money to host and deliver each song -- they can't drop the iTMS price to zero even if the copyright holder wants them to because it costs them more than that to offer the song. Apple could integrate P2P functionality within iTMS that would let people share free (non-RIAA) mp3s between each other, and this would require the very strict sort of DRM that a combined distributor-playback company can offer. It is strong DRM that makes it tough for the RIAA to open the floodgates to all distributors and hardware manufacturers, and it is strong DRM that is best made convenient by integrated distribution/hardware companies.
The iPod is kind of a surprise hit for Apple, being the first true piece of consumer hardware that the traditional PC hardware company has ever produced. People are talking about Sony being on the ropes, while others opine that AOL, MSFT, Yahoo!, MTV etc. will dominate.
This is all a little nuts. There are three pieces to this technology stack -- the music copyright holders, the network distributors, and the hardware playback manufacturers. Napster played in the middle, was great for the hardware guys, but seriously threatened the copyright holders, who have since used the fact that copyright infringement is illegal to shut the system down.
Apart from lawsuits, the RIAA has also begun to license music for various online systems, and they do not seem to be very exclusive about who they offer distribution rights to. This suggests that copyright holders do, in fact, hold all the cards and they want to commodify the distribution and hardware parts of the stack down to marginal cost so they can re-licence their content at 100% margin. If a distributor (or hardware producer) enjoyed market power, they would require the copyright holders to give them exclusive rights to the song, weakening rival distributors (or hardware producers).
There are two different models of hardware producers -- integrated and high price (iPod+iTMS) and open and low price (Dell, or Gateway, if they have one). Sony briefly flirted with an poorly integrated and high price option which looked pretty but was horrible to use and thankfully is no longer for sale. We've seen the integrated and high price strategy play out for Apple in the PC market, and we'll see what happens with music. With the consumer electronics business being as cutthroat as it is, and the labels holding all the cards around distribution, neither of those are going to make any profit long term as separate segments. So the only person left to create the sort of ease-of-use and value that makes the for-pay music biz compete with the P2P networks is the RIAA, which means they are a cartel that play nice sometimes and fight other times. If the RIAA does not create standards that allow easy integration and commodification down the distribution and hardware parts of the stack, someone like Apple can potentially take some of their profit from them by building a powerful enough distribution+playback system.
So, expect consolidation within the RIAA, which I believe we see through the Bertelsmann/Sony deal. Look to see many more distribution services and hardware producers, and the labels license their music more aggressively and desperate PC manufacturers enter the mp3 player market. A standard, single price rate (ideally enforced by law) would cap the cartels power, and allow it to collude on prices with the government acting as contract enforcer.
All Apple can do about this is reduce the copyright owner's power by giving distribution ability to more desperate copyright holders. So look to them cutting deals with small labels kept out of the big stores. Apple is limited in how much it can do in this area because it costs them real money to host and deliver each song -- they can't drop the iTMS price to zero even if the copyright holder wants them to because it costs them more than that to offer the song. Apple could integrate P2P functionality within iTMS that would let people share free (non-RIAA) mp3s between each other, and this would require the very strict sort of DRM that a combined distributor-playback company can offer. It is strong DRM that makes it tough for the RIAA to open the floodgates to all distributors and hardware manufacturers, and it is strong DRM that is best made convenient by integrated distribution/hardware companies.
posted by winterspeak at
12:32 PM
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