iRadio to iTunes

Apple broke the album mold and introduced us to not back to singles but tracks. It priced these at a point that was attractive and tied it t their iPod, iPhone, iMac, iPad and the rest is history. Now they plan to introduce iRadio to the family and hope to cash in on the move to music on demand.

So how will they fair against the established communities such as Pandora, Google’ ‘All Access’ and Spotify. Will they be able to lure customers away from subscription based services to what is reported to be an advertising paid model? Will consumers accept free with ads even if it links seamlessly to iTunes to buy?

The challenges Apple face in trying to close down on this low margin high volume business is not just consumers and attracting advertisers but also convincing the music producers and publishers that another low margin licence service will work for them. They already have disparity between existing revenue models and Apple are unlikely to want to pay the going rate for their licences. It is rumoured that Apple has signed a deal with the Warner and Universal for their music rights but has still to complete on the latter’s publishing rights. It has still to close a deal with Sony with a few days to go to their launch of the service. All deals are based on Apple paying a fee for the music rights and a separate fee for the publishing rights on music streamed. The interesting aspect is the ratio of the number of times an individual will play the same tune versus the cost to purchase. The user doesn’t care and may play a track 50 times but the meter is running and everyone else will be watching. In Apple’s case they have to either pull in the necessary advertising revenues or sales through iTunes to cover the royalties. But why would a user buy a track when they have unfettered access to play it for free?

The challenge for the music business is grappling with the clear migration from purchase to subscription or ad based licence deals. The music business has a track record of poor transition to new models and technology and only recently has started to see the new shoots of a digital recovery, but this has been on the purchase model which may not prevail as more become switch on to on-demand streamed services.

The challenge to Apple is that they are not leading this market and are coming relatively late to the party. They believe that the tie to iTunes will work in their favour but other will argue that it will further heighten the difference between owning all one’s library of music and merely playing it when you want to at a lower operational cost. 

Warner Rolls over to DRM Free

Until now Warner has been resisting selling music downloads in MP3 format without DRM. However this week they relented and signed a deal with Amazon. This raises the number MP3 files available for download via Amazon to close on 3 million songs. Major music labels Universal, EMI and thousands of independent labels had already signed large portions of their catalogues to Amazon. Only Sony remains in the DRM camp and the odds are they will roll over very soon.

Interestingly the recording industry had argued that DRM itself is not what makes some songs incompatible with some digital players, but the fact that there are different versions of DRM in use. The fact that Apple DRM was proprietary and not licensed to others was a major area of concern.

Amazon only sells MP3s, rather than a mix of protected and unprotected music on offer at stores such as iTunes and Zune.

What does all this tell the book industry?
· Multiple, complex and proprietary DRM doesn’t work and is not acceptable to the consumer.
· The major houses dictate the rules and never work as one so.
· The Audible model on audiobooks is not sustainable and is counter productive to the industry.

The industry needs to quickly establish the middle ground on formats and service before others dictate it to them. However this has been the challenge for the last few years and the reality is this consensus is difficult in an industry that is so fragmented and poor at collaboration.