All Things Digital

Turns out the long-playing (LP) record album may not be as much of an anachronism as once thought. As CD sales slip into the mud, and digital music outlets pop up on the Web as quickly as Starbucks stores, vinyl is staging a comeback. According to the Recording Industry Association of America, vinyl LP shipments spiked 36% from 2006 to 2007, to 1.3 million units. CD shipments dropped 17.5% during the same 2006-07 period, to 511 million.

Now, given the vast discrepancy between LP and CD units shipped in the past year, it’s entirely unlikely vinyl will ever claim a significant share of the music market–unless Apple (AAPL), for some reason, develops the iPod Phono. But it may well remain a niche market for some time to come thanks to audiophiles who prefer the LP “experience” and its so-called truer sound.

And so today Best Buy (BBY) is testing vinyl sales at some of its stores, as is retailer Fred Meyer (KR). “It’s not just a nostalgia thing,” said Melinda Merrill, spokeswoman for Fred Meyer. “The response from customers has just been that they like it, they feel like it has a better sound.”

Good thing Forrester Research (FORR) doesn’t run Apple (AAPL), because if it did the company would be well on its way to insolvency.

In an astonishingly unimaginative report called “The Future of Apple Inc.,” Forrester attempts to divine the products Apple will be peddling five years from now. “Apple will aim to become the hub of the digital home, offering eight key products and services to connect PCs and digital content to the HDTV-stereo audio-visual infrastructure in consumers’ homes,” Forrester explains. “To fulfill this strategy, we predict that Apple will launch new products, re-engineer the Apple Store, and expand into in-home installation services.”

Sadly, the speculative product and services roadmap Forrester has devised seems more a roadmap to ruin than anything else, and a laughable one at that. Among the products the company sees Apple developing by 2013:

• A network-enabled “clock radio”
• An AppleSound universal music controller
• A digital picture frame
• A “Genius Bar” that makes house calls just like the Geek Squad.

Huh. So Apple, after reinventing the desktop UI, the digital media player, and the phone, will set its sights on the lowly clock radio and picture frame. Really? If Apple’s product dev team pitched Forrester’s clock radio idea to CEO Steve Jobs, he would probably hurl them one-by-one into rush-hour traffic from the roof of 1 Infinite Loop.

The Amazon bears are growling this morning.

Shares in the company, which have already lost more than 20% of their value in 2008, slipped further in early trading (but recovered later), though Amazon said yesterday that profits more than doubled in its fourth quarter. “This quarter showed accelerated sales growth and record operating profits,” CEO Jeff Bezos said in a statement released with the earnings. “In our view, these unusual financial results are driven by one thing: continuously improving the customer experience.”

But such enthusiastic pronouncements didn’t matter a whit to jittery investors worried about a slowing economy and Amazon’s tight margins. Shares of the retailer, which closed yesterday at $74.21, fell 8.2% to $68.15 before opening bell today. And they slipped even further, to $66.49, after Amazon announced plans to acquire Audible in a deal valued at about $300 million - a premium of more than 20 percent over the audiobook retailer’s Wednesday closing price.

Perhaps investors haven’t yet realized that Audible controls an astonishing 95% of the online audiobook market and, as Staci Kramer over at paidContent notes, is the top spoken-word provider for Apple’s iTunes Store. Amazon almost certainly plans to distribute Audible content wirelessly via its Kindle e-book reader, which may turn it into the iPod of e-book readers whether Apple CEO Steve Jobs likes it or not. “It doesn’t matter how good or bad the product is, the fact is that people don’t read anymore,” Jobs said recently when asked about the Kindle. “Forty percent of the people in the U.S. read one book or less last year. The whole conception is flawed at the top because people don’t read anymore.”

That may be so, but as Jobs well knows they do listen. Which begs the question: Why didn’t Apple buy Audible? “We have long suspected that Apple would be the party most interested in acquiring Audible, considering the close ties between the two companies,” Richard Fetyko, an analyst with Merriman Curhan Ford, wrote in a research note this morning. “Audible’s audiobook content is sold within Apple’s iTunes online music store, which represents about 25% to 30% of Audible’s revenue. Also, most of Audible’s customers are iPod users. We would not be surprised to see [if] Apple made a bid for Audible to preserve its leadership in online-audio content distribution. There are no alternatives to Audible in the marketplace with any significant scale.”

Burst has added another notch to its patent-infringement settlement belt. The scrappy three-man company, which once beat a $60 million settlement out of Microsoft over charges that the software giant had stolen its streaming media technology, has managed to squeeze a few million out of Apple as well.

Bringing an end to an often contentious legal battle that began about two years ago, Apple on Wednesday agreed to pay Burst.com $10 million to settle charges that it illegally incorporated the company’s audio and video-on-demand media delivery solutions into the iTunes ecosystem. In return, Burst agreed to grant Apple a nonexclusive license to its patent portfolio–with certain eyebrow-raising exceptions and caveats. The settlement specifically excludes from Apple’s license one issued and three pending Burst patents on digital video-recorder technology. But it also precludes Burst from suing Apple for any future infringement of the those patents. Now that’s an odd twist, isn’t it? Especially since a patent license is often little more than a covenant not to sue the licensee.

Why promise not to sue for infringement, but refuse to license? Why accept a settlement of just $10 million ($4.6 million after court and attorney fees), when a damages award might have been many, many times greater? And why announce the settlement of a bitter legal battle on the eve of the Thanksgiving holiday when so few people will pay attention to the news? Why do all that, unless there’s something more here? An acquisition in the works, perhaps. Or something else entirely.

Since September 2003, the Recording Industry Association of America has filed more than 21,000 illegal downloading suits. Yesterday, testimony began in the first one ever to go to trial.

The case is Virgin Records America et al. v. Thomas, and it pits Jammie Thomas, a single mother of two from central Minnesota, against the RIAA, which claims she distributed more than 1,700 audio files on file-sharing site Kazaa in 2005. Thomas could have settled out of court for $3,000–perhaps even through the RIAA’s handy online settlement processing site, but refused, protesting her innocence. Now, she faces a potential liability of $3.9 million in damages, plus legal fees.

“The plaintiffs don’t have the evidence that she downloaded anything,” Thomas’s attorney, Brian Toder, told jurors yesterday. “The best that they can come up with is somebody out there in cyberland … offered on Kazaa some copyrighted material.” His point: while the RIAA has the Internet protocol address it claims was used to illegally share the songs at issue in the case, it must demonstrate that Thomas was actually using it in order to win the case. And that may well prove difficult.

“In sum, the case will be the first test of the RIAA’s ability to sell a jury on its investigative methods, which have a degree of imprecision because of the anonymous nature of the Internet,” writes Jon Healey of the Los Angeles Times. “Internet protocol addresses aren’t painted on the side of a computer like a street address, and even if the RIAA were able to trace a shared file back to a specific PC or Mac, it’s not easy to prove who was sitting at the keyboard. It will also be the first chance for a judge to instruct a jury on the legality of making songs available for others to download. And it will be the first time a jury will weigh whether to bring the hefty penalties provided under copyright law down on a consumer–in Thomas’s case, one who probably spends more on music than its members do.”

Sony ATRAC is at long last joining Betamax, MiniDisc, Sony Dynamic Digital Sound, HiFD, (pause for breath) Multi-Media Compact Disc, Memory Stick and Super Audio CD in the company’s Museum of Failed Formats.

After an overlong and unsuccessful campaign to spread adoption of ATRAC, Sony is scrapping the proprietary audio format. This morning the company said it would close its CONNECT digital music store and forthcoming Walkman digital media players will support formats that consumers actually use like Windows Media Audio, along with MP3 and AAC (or advanced audio coding). “Customers don’t want to be locked into one service, consumers are demanding choice in music,” said Jeffrey Van Ede, Sony Europe audio marketing VP. “There has been a fundamental shift in legal downloading, and that is toward DRM-free music.”

And what of those few Sony customers who actually own ATRAC music? For them the company’s offering an MP3 Conversion Tool and some advice that CONNECT users have been likely following for some time now: “For your purchased music from CONNECT, you can burn it to audio CD and rerip it into MP3 format to continue enjoying it for personal use.”