|
|
ONLINE FEATURES
Book Reviews
BW Video
Columnists
Interactive Gallery
Newsletters
Past Covers
Philanthropy
Podcasts
Special Reports
BLOGS
Auto Beat
Bangalore Tigers
Blogspotting
Brand New Day
Byte of the Apple
Economics Unbound
Eye on Asia
Fine On Media
Green Biz
Hot Property
Investing Insights
Management IQ
NEXT: Innovation
NussbaumOnDesign
Tech Beat
Working Parents
TECHNOLOGY
J.D. Power Ratings
Product Reviews
Tech Stats
Wildstrom: Tech Maven
AUTOS
Home Page
Auto Reviews
Classic Cars
Car Care & Safety
Hybrids
INNOVATION
& DESIGN Home Page Architecture Brand Equity Auto Design Game Room SMALLBIZ Smart Answers Success Stories Today's Tip INVESTING Investing: Europe Annual Reports BW 50 S&P Picks & Pans Stock Screeners Free S&P Stock Report SCOREBOARDS Hot Growth 100 Mutual Funds Info Tech 100 S&P 500 B-SCHOOLS Undergrad Programs MBA Blogs MBA Profiles MBA Rankings Who's Hiring Grads | |
APRIL 30, 2003
By Alex Salkever Steve Jobs, Pied Piper of Online Music Apple's iTunes Music Store provides a new model for pay-for-play services -- one that the big music labels will find tough to follow
Apple (AAPL ) has delivered a very marketable, very easy-to-use, and very pretty product that I'm sure will earn millions of dollars in download fees. The 200,000 titles now available at the iTunes Music Store include songs from all genres and all five major record labels. Some tracks also come with video. Others are exclusive cuts that only Apple is selling right now. As with most other Steve Jobs efforts, the buying process is highly intuitive. I found it simple to download tunes onto my hard drive, manipulate them in the newly released iTunes4 jukebox software, and ultimately burn them onto CDs in any of three formats. While I might quibble with the 99-cent per download price, I believe the market will either prove me wrong or force Apple to go lower. FEW LIMITS. Compared to previous online music services, the key thing here is that somebody has finally done it right. You pay your money, and you get your song. You can do whatever you want with that song, store it on up to three computers, share it with multiple iPods (apparently any number of them), and burn it onto as many disks as you want. The only limitation I found was a 10-copy limit of CD burns from individual playlists. According to Apple execs, this was to prevent people from turning their Macs into CD factories burning large quantities of pirated music. Simply put, the iTunes Music Store is a great product, one that will certainly get me to buy more music. A far bigger question now is: How will it affect the music industry? The stock answer: not much. According to conventional wisdom, if Apple's model is successful, then the big labels will simply copy it. If Apple fails, then online music goes back to the drawing board until someone creates a cheaper service (sort of how Apple's Newton debacle proved that the folks at One Infinite Loop truly were too clever and futuristic). STAGE SETTERS. I think those are both simplistic views. Instead, I think Jobs's maneuver will go down in history as the final straw that broke the back of the old music-distribution system -- and the industry's pyramid hierarchy that gives big stars big treatment and gives nearly everyone else squat. Here's my logic. Two key events last week set the stage for this shift. First, a U.S. federal judge ruled that Internet service provider Verizon (VZ ) must hand over records of customers suspected of engaging in acts of piracy over its network. The Recording Industry Association of America had pushed for this ruling, and now it may finally have the long-sought tool to force open private company records on people's Web usage. Second, another U.S. federal court decision found that peer-to-peer file-sharing services Grokster and Morpheus, whose software is distributed by StreamCast Networks did, in fact, have legitimate uses besides facilitating the sharing of pirated music and movies among the masses. Some of those uses include the distribution of software and free movie and music clips, among other things. WHAT KIND OF PROBLEM? Taken together, the two decisions are laying out a new direction for the record labels. Unless the RIAA prevails on appeal of the second decision, it won't be able to litigate file-sharing services out of existence. But it will be able to go after individuals who might be using those services to pirate tunes and flicks through their ISPs. These two decisions also effectively force the music industry to accept Jobs's assertion that the piracy problem is behavioral, not technological. The rulings preserved the RIAA's ability to go after the most flagrant abusers, but they stripped the industry group of its ability to attack the technology that enables piracy and challenges the very distribution network the labels have totally controlled for all these years. The courts, in essence, just told the RIAA that the piracy problem is behavioral, not technological. Into the picture waltzes Jobs. Since Napster's rise, he has missed few opportunities to declare that he thinks the music industry stumbled big-time when it came time to figuring out an online music strategy. All along, Jobs has espoused an approach the makes buying music online easier rather than one that tries to make pirating it harder. IT'S IN THE NAME. The iTunes Music Store is a perfect example of this approach, with minimal antipiracy controls but a low-enough price that lots of people will feel they're getting a good deal when they click the "buy" button. Jobs isn't the only one to push this model, but few other prophets are in any position to do something about it. Of course, the labels could try to keep the music within their own retail operations. But Jobs saw he could do it better and more easily than the labels. His big edge: The labels have been so busy promoting individual artists over the years that they never built a real brand name for themselves. Joe Sixpack looking for tunes online gives a rip whether they're coming from Arista or Columbia. Chances are he doesn't even know who owns those labels. But he does know that he can download his Eminem fix at Apple.com. The labels can try to build brand equity similar to Apple's, but it will be extremely hard -- if not impossible. DISADVANTAGED PLAYERS. The take-away from all this is simple. Apple is heralding a new era of online retailing, where the retailers will have the same kind of brand recognition as Apple -- perhaps Amazon, eBay, or Yahoo!. The labels will from now on play this game at a distinct disadvantage not only because they lack a true brand name but also because they have forever lost control of distribution. I give credit to Jobs for seeing this opening and driving the Apple cart right through it. Now pardon me while I go get those two Peter Gabriel tracks I liked enough to buy even though I hated the rest of the album.  Salkever, Technology editor for BusinessWeek Online, is filling in while regular Byte of the Apple columnist Charles Haddad is on leave Get BusinessWeek directly on your desktop with our RSS feeds.  Add BusinessWeek news to your Web site with our headline feed. Click to buy an e-print or reprint of a BusinessWeek or BusinessWeek Online story or video. To subscribe online to BusinessWeek magazine, please click here. Learn more, go to the BusinessWeekOnline home page  | | |
 Copyright 2003, by The McGraw-Hill Companies Inc. All rights reserved.Terms of Use | Privacy Policy |
Printer-Friendly Version
