Apple's Chance to Get Online Music Right


By Alex Salkever It's an incredible technological irony: Apple's iPod is the best-selling and most acclaimed digital music player on the market -- but iPod owners can't legally use big-label music sites to download tunes. That because the recording industry has basically shunned Jobs & Co., resulting in the ridiculous situation where the big labels' commercial download sites aren't compatible with the No. 1 MP3 player.

That may be about to change. If the rumors floating around the techsphere last week are to be believed, Apple users will soon have a bona fide legitimate online music service of their own, on par with PressPlay, MusicNet, Listen.com, and other PC-only sites that offer vast catalogs of legal tunes.

Naturally, Apple (AAPL) wouldn't comment for this story on the rumors allegedly leaked by loose-lipped record execs. Those accounts, which appeared everywhere from music and tech trade magazines to wire services and the big local dailies, claimed that Steve Jobs had talked the beleaguered music business into backing an Apple service. It would provide at least comparable terms to the PC-based sites, many of them owned directly by the labels themselves and operated by subsidiaries. That means Apple users could listen to libraries of music for a monthly fee in the $10 range. Or they could pay a buck or so to download a tune and burn it to a CD.

THORNY MANTRA. A Mac-centric online-music venture would fill a hole in Apple's digital-hub strategy by giving Mac users a legal means to enjoy downloaded digital music. This compares to the distinctly illicit pleasures of KaZaA and other pirate file-swapping systems -- until now, the only choice for Apple owners. In addition, a handful of cheap programs have allowed iPod users to override the paper-thin copyright-protection mechanisms on the portable music players that are supposed to prevent the devices from downloading songs on multiple computers.

Apple didn't help its relations with the recording industry much with its earlier digital-lifestyle marketing mantra: "Rip. Mix. Burn." The three-word slogan became a thorn in the side of the big labels, with its semi-veiled reference to ripping off copyrighted materials. Perhaps Jobs is trying to make nice with the music folks and do right by his customers at the same time.

Whatever the case, I was stoked to hear about this prospect. It gave me the chance to fantasize about what the perfect Apple music service would provide. Sure, one-click downloads and total portability are a must. Ditto for no copyright protection on downloaded songs. Also, it should have no limits to the number and type of songs a user can burn onto a CD - among the major-label sites, only Listen.com's Rhapsody service has this necessary provision in place.

SENSIBLE SYSTEM. Apple shouldn't stop there, though. It has a long history of innovation, and I think it can turn the music business upside down with some moves that don't cost a lot of money but really shake up the model of selling music over the Net.

For starters, I would set up a demand-based pricing system. Listen.com now offers unfettered access to its tracks, but each burnable download costs 99 cents, and the service has been very slow to catch on. I think Apple should set up a system that makes more economic sense to customers.

To date, the music industry has failed to capitalize on enormous pent-up desire for back-catalog songs. At the same time, it has missed out on ridiculously strong demand for songs high up on the charts. By keeping prices constrained within tight boundaries, the industry doesn't collect a penny from the millions of people who might balk at paying a buck for an old Miles Davis recording but would take the plunge for, say, 45 cents.

A WIN-WIN-WIN. Likewise, Listen.com's set fee prevents the service from making more money from tracks people might be willing to pay a little extra to download. Think of the millions of fans who might pay $2 to get the new Eminem track a week early.

Apple should break this mold by pushing for floating pricing that actually establishes variable market prices based on how many people are downloading a song. It would be good for Apple by improving its service's bottom line. It would be good for the back-catalog artists who rarely get downloaded at 99 cents a track but might well generate some income at lower prices. And it would be good for Eminem and the record companies by capitalizing on the biggest acts.

As a second step, I would establish a new way for audiences to relate to artists through their wallets. I'd call this program "The 20% Club." Basically, artists who received fair deals from their labels would gain membership to the club. By fair, I mean the artist receives 20% of all revenues derived from sales of music after the label has recovered its recording and promotional costs. All members of the club would get a big logo button, or something like that, on the Apple site.

OUTSIZE FRUIT. This is, of course, a bit of a pipe dream. Labels have been notorious over the years for obfuscating their books to hide royalties due to artists. But I'm personally far more inclined to buy music when I know the artist is getting a reasonable cut. And I've heard from several friends who say they would be much happier buying music if they felt the artists weren't getting short-changed. This initiative on Apple's part would help assuage our fears as well as help to create much-needed reform in the music industry's treatment of artists.

These are two modest suggestions. But I think they would bear outsize fruit. Putting variable pricing in place would free vast amounts of money that the recording industry can't touch right now. Putting a seal-of-approval on artists and record labels acting in good faith will help clean up a business that suffers acutely from its bad image.

Still, Apple will need to do a lot more than this to win with selling tunes online legitimately. To date, the top three label-approved online music services combined haven't cracked 500,000 subscribers. That compares to the 200 million downloads so far of KaZaA's peer-to-peer software.

Overturning those failures requires more than just slapping an Apple logo on a site and saying it's great. This music service really needs to be different. An Apple-branded site that's basically no different from Listen.com, PressPlay, and MusicNet would just indicate that Jobs & Co. has fallen into the same traps that snare the old-line music giants. Salkever is Technology editor for BusinessWeek Online. Regular "Byte of the Apple" columnist Charles Haddad is on temporary leave


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