Apple is leading a race of lemmings into the zero-profit business of closed music downloads, says the founder of MP3.com, Michael Robertson.
"It seems kind of crazy to me, the economics don't make sense," Robertson told us Thursday. "Why are all these guys like Microsoft and Wal-Mart rushing into a business where the industry leader says 'we cannot make money with the contracts that we have'?" "This is a race where the winner gets shot in the head." And William Tell-style, Apple volunteered to be the first into the firing range. Canny Apple has had to swallow the pigopolists royalty fees, and DRM restrictions, but it thinks it has a business because its closed business model sees downstream profits from iPods sales.
Robertson started MP3.com in 1998 and after a barrage of lawsuits, sold it to Vivendi Universal in 2001. Last week, after a night on the tiles, Vivendi sold the mp3.com domain name to CNET, leaving the million-song archive to the vultures. (Robertson is striving to find a host for this, and we shall have more news of this later today). The computer industry traditionally opposed the copyright cartel, but Apple was the first snitch to cut a deal with the pigopolists. Was this wise, we wondered? "If one company got a huge market share - say 50 per cent or higher - they could negotiate better royalty rates," notes Robertson. "But they forget something. The music industry is tens of thousands of publishers and just five major record labels. Getting all of them to agree is a real tough thing to accomplish even if you're market leader."
News source: The Reg
"It seems kind of crazy to me, the economics don't make sense," Robertson told us Thursday. "Why are all these guys like Microsoft and Wal-Mart rushing into a business where the industry leader says 'we cannot make money with the contracts that we have'?" "This is a race where the winner gets shot in the head." And William Tell-style, Apple volunteered to be the first into the firing range. Canny Apple has had to swallow the pigopolists royalty fees, and DRM restrictions, but it thinks it has a business because its closed business model sees downstream profits from iPods sales.
Robertson started MP3.com in 1998 and after a barrage of lawsuits, sold it to Vivendi Universal in 2001. Last week, after a night on the tiles, Vivendi sold the mp3.com domain name to CNET, leaving the million-song archive to the vultures. (Robertson is striving to find a host for this, and we shall have more news of this later today). The computer industry traditionally opposed the copyright cartel, but Apple was the first snitch to cut a deal with the pigopolists. Was this wise, we wondered? "If one company got a huge market share - say 50 per cent or higher - they could negotiate better royalty rates," notes Robertson. "But they forget something. The music industry is tens of thousands of publishers and just five major record labels. Getting all of them to agree is a real tough thing to accomplish even if you're market leader."
News source: The Reg
Changes:
- feature: implemented ringtone manager
- feature: implemented 'block user' feature
- feature: "delete" key works in address bar dropdown
- feature: friends list hints show username and Fullname
- feature: improved voice quality and call setup
- feature: added check for audio hardware presence on startup
- feature: added application-wide hotkeys and keyboard tab under options
- feature: "Esc","N" and "H" act like the hangup button on the calltab, "Y" and "A" act like the green button on the calltab if there is an incoming call
- feature: "F1" key anywhere in main window opens the help url
- feature: autocompletion in send contacts form
- feature: users can set global hotkeys for using main features of Skype under options
- feature: added view text message history items to Friends List and call-log context (right-click) menus
- change: faster online presence updates
- change: new Estonian language file
- change: new English language file
- change: calltab context menu (right-click) has mute/unmute item
- change: picking up usbphone focuses Friends List tab now
- change: space key is disabled on call tab (some users were inadvertently answering calls)
- change: call and search results tabs can be closed with Ctrl-F4
- change: some minor changes in Dutch translation
- bugfix: echo cancellation is enabled even when little echo is detected (fixes version 0.94 echo problem)
- bugfix: confirm dialogs are unicode enabled now
- bugfix: usbphone support - several bugfixes, more error handling
- bugfix: fixed problem with detection of multi line hyperlinks
- bugfix: sound streams are now always correctly closed after they are played
- bugfix: friend is now marked as offline when message or call fails with "user not online" message.
Even if the sums do add up now, there comes a point when the number of people who have iPods and are downloading, added to those just downloading, will outstrip people buying new iPods. iPod sales are not exponential. The "Apple tag" price bump factor wont cover everything.
Given the link between iPod and iTunes, what will Apple propose when this loss-leader starts to eat bigger losses?
They already had servers hosting Apple software files and Quicktime media.
I dunno if you ever used this from them but I always got stuff fast from their servers, and dont think its because there was not too many concurrent users downloading. So most of the structure on their end was already there.
But back to your logic...
"Spreading to the PC, Apple has to compete with a wider selection of MP3 players."
Um, they were and still are the leading HD digimusicplayer even before iTunes for PC came out. I don't see this as a problem. For all the claims that everyone would undercut them on price, I'm still seeing products that are only slightly cheaper $60 or so, that aren't as good all-around.
"Bandwidth, servers and software development?"
They already had a huge investment in this, and this investment can be leveraged into many areas. Some existing. (QT Movie Trailers, .Mac, Software Updates and downloads. A movie service? etc.) Also, these costs decrease over time (or rather the margin decreases and then moves out of the red into the postive. After all, they did basically support this infrastructure for no gain at all for several years -- QT Trailers.)
"Even if the sums do add up now, there comes a point when the number of people who have iPods and are downloading, added to those just downloading, will outstrip people buying new iPods."
A few things here. For one, you presume once an iPod sold, that's the end of the sales opportunity. It's not. I'm more interested in upgrading my iPod than my computers. I also buy a bunch of peripherals, a couple I have bought from Apple Stores. Secondly, Apple continues to sell iPods quicker than they can make them. I don't see sales stopping or even diminishing any time soon. In fact, they continue to grow.
"The "Apple tag" price bump factor wont cover everything."
This sounds rather petulent. What is your point? The fact is people aren't buying it for the name. It simply is the best player. I would say it's rather the opposite: I'm always shocked by the people who refuse to buy something because of the Apple name; however, in this case, those very people who say they will never buy an Apple product are willing to do so because they recognize it is the best. It is the most developed platform -- it has far, far, far more peripherals than any other player. It is more ubiquitous than any other player. etc...
Jobs and Apple haven't claimed there is never going to be any money at all in Downloads. They said there is little money. Apple doesn't enter markets at a whim, without ever making any profits the way MS does. If Apple can break even, the pace of iPod sales or Mac sales will more than make up for the zero sum of downloads.
But this also implies there is no profit at all. Something I disagree with. If Apple can hold something like 50% of the mp3 player market for the next five years and can also maintain 50% of the download market (Which I think is reasonable, probably very conservative.) than they will probably profit, depending on how licensing goes down the line, depending on how international licensing works out...
You presume the losses get bigger but the losses actually get smaller. Don't poeple know this? With greater and greater volume, distribution costs, licensing costs, development costs go down. Not up.
PS: Music is not the only thing that is being traded on the internet, it seems that copyright pictures are also being traded freely and they aren't doing much about though cause they don't have a RIAA of there own.
The other problem that Apple is already facing is that you can't make a profit in the sale of online music. Sure Apple can because it is a hardware company that sells computers, software, and hardware. I suspect that Napster will be a failure or so with iListen's Rhapsody (or whatever they are calling it now). A dollar a song, no matter how many you sell, is no business plan. Add in the fact that most songs on the network are very poorly encoded and substandard WMA (less than 9) and you have a poor mix that is doomed to fail as a business model. If I was Microsoft I would stay the hell away from it, and just license out the technology to those who want to attempt this.
P.S.
The DMCA is rather flawed and will be a huge legal issue and burden for both sides soon.
--Obviously from my statment there I understand that other files are traded. To name a few: bin, iso, and cd images; zip, rar, ace files holding movies, pictures, or full album worth of MP3s; avi, mpg, qt, rp, and wmv movies that are either adult or theather movies; then we screeners; there are pdfs that are copies of books or magazines; and we have various softwares like Nero and Oses like Windows XP being shared illegaly. The RIAA does not become involved in a lot of this, but their are other laws and acts (DMRA or DMRC, I dont remember) against filesharing.
Oh ya, and the whole point is to sell those MP3 players and let the public get sued for downloading and uploading the MP3s later in the long run.
lindows blows as well
They've been receiving good press and take a note that Neowin has been posting Apple much more lately. iTunes will sell iPods, it will make Apple cash for each song, and *MOST* importantly, will entise people to make the switch......which many people seem to overlook. So many people focus on the Linux vs. Microsoft battle when lil old Apple is the real competition. The transition from OS9 to OSX is what Microsoft is doing today with XP to Longhorn. Keep an eye on Apple not Linux.
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