Monday, February 18, 2008

The iPod Tripod: The Writing on the iTunes Music Store's Wall...

I like weird music. Music that not a ton of people listen to, music that's hard to find. I particularly like a British composer named Jocelyn Pook, who's probably best known for her work on the soundtrack of Kubrick's last film, Eyes Wide Shut. I've got every album that she's made, or thought I did. I was trolling around last night, and it turns out that Pook has an album I don't have: she did the soundtrack to some film version of Heidi (which I've never seen). So, I decided this morning to buy the album. More particularly, since all I do with CDs is rip the tracks off them and then store them away, I decided to just buy the mp3 files.

So, I checked on the iTunes store, to see if this album was available as a DRM-free "iTunes Plus" download, and indeed it was, for $9.99 (Apple had this and one other Pook album available); I then went and checked the Amazon mp3 Downloads to see if they had it there: they did, at $8.99, and three other Pook albums as well.

So, of course, I bought it from Amazon.

Here's where the business model that got the iPod 70% of the MP3-player market starts to come off the tracks.

What made the iPod such a success? Availability of easily-obtainable music for it. I've run my entire (large) CD collection through my Mac, a disk at a time, correcting tags, consolidating genres (do I really need "Rhythm and Blues", "Rhythm & Blues", "R & B", "R&B", etc...?), correcting artist names (I like the group Mediæval Bæbes, too, which, everytime I add another album seems to spawn a hundred mutations: "Mediaeval Baebes", "Mediaeval Bæbes", "Medieval Bæbes", and so on), but most folks don't have the patience for that, they get them the easiest way: they pulled them down from where they were available, and the only place they were available was iTunes.

Once you'd gotten your music, what were you going to play it on? Again, you had a single choice, at least if you wanted pocketability: an iPod. Those AAC-encoded, DRM-protect tracks couldn't be played on anything else. So, the sales of iPods isn't a mystery: it was, for all practical purposes, the only game in town for the vast majority of consumers of such devices.

You could buy a Creative Zen (and I did) and you'd get better sound quality than you would with an iPod, but getting that music on there was a lot more inconvenient. Creative, and other makers of music players, suffered as a result.

But things have changed: Steve came out against DRM, having seen the writing on that wall, and started offering the "iTunes Plus" DRM-free versions (of some stuff, at a roughly 10% premium). But then, having let the cat out of the bag, the music producers, beginning with EMI and culminating with Sony BMG, declared that they didn't think much of this DRM stuff, either.

Turns out they didn't think much of the exclusive deal that Apple (and at the time it was the iPod driving the music suppliers to the iTunes Store, the mirror image of the iTunes Store driving consumers to the iPod) had given them for access to all those iPod owners, either. So, they've started offering their tracks through Amazon and other places, as well as selling them directly themselves in some instances.

Now, none of those tracks are locking you into either iTunes or the iPod any more: it was Apple's "FairPlay" DRM that did that, and that's increasingly a historical footnote. If you can play your tunes on something other than an iPod with equivalent ease (and downloading music from Amazon, at least, is trivially easy), all of a sudden the iPod is going to have to actually compete with other MP3 players. I'm sure the folks at Creative, not to mention Microsoft's Zune gang, are not entirely unaware of this.

Apple is increasingly going to have to compete on its technical merits (and the iPod has some issues here: the Creative folks asked me once to find the iPod's total harmonic distortion on Apple's web site--you can't) and on cost. Given Apple's deep love of 50% margins, competing on cost is going to be problematical for them. Here's the disadvantage of doing all your own hardware and software: you've got to get really good margins (like 50%) on the hardware to pay for all those software folks.

Apple succeeded in the music business because of the "iPod Tripod": the three legs were the iPod itself (which was the only thing which could play music from the iTunes Music Store), the iTunes Music Store (which was the only place you could get the music to play on your iPod), and the iTunes desktop (which was the only thing that could connect the two). It looks as though every leg has become a lot shakier in recent months.

And this is happening at a time when--coincidence or conspiracy?--iPod sales seem to be slowing, or perhaps dropping. Apple's reportedly cut its parts orders for iPods and iPhones or all sorts pretty dramatically, first by 50%, then by 60%. The iPhone is reportedly sitting on the shelves at AT&T and not doing so well in Europe, either. It seems to be popular in China, though, which can't make AT&T any happier...