All Things Digital

Apple’s much lauded iPhone captured 28% of the smart-phone market in the States by the fourth quarter of 2007–just six months into its launch. Today it holds something less than that–about 19.2%. But to look at the headlines, you’d think it controlled the market in its entirety. A quick search on Google returns 19,035 results for “iPhone”– from Jun. 2, 2008 to today. Why? Because in a few hours, Apple CEO Steve Jobs will address the company’s Worldwide Developers Conference in San Francisco, at which he is expected to unveil the next version of the company’s iPhone.

And for Apple’s (AAPL) sake, I hope he does. Because with expectations running this high, I’d hate to see what happens if he doesn’t. Although the new Apple Store housed in a life-size replica of the Golden Gate Bridge pictured in the invite would certainly take some of the heat off …

Anyway, I’ll be live-blogging from inside Moscone West in San Francisco starting at 10 a.m. PDT. Here’s something to read while you wait …

• From Moscone West: This is crazy. They just opened a single door to let cameras in and the media rushed the gate. Its like that 1979 Who concert in Cincinnati.



• The hall in Moscone West is filling quickly to the sounds of Jerry Lee Lewis. From the looks of it media and developers are here in equal numbers.
• Jobs takes the stage. I’m sitting about 20 rows back, but even I can see he’s looking pretty thin from here. He gets right into it, pulls up a slide of a stool and describes Apple as a three-legged company. Macs, music and the iPhone.
• Jobs will spend the morning talking about the iPhone. This afternoon Apple will discuss OS X “Snow Leopard.”

Read more »

Sony BMG (SNE) has signed on to Nokia’s (NOK) new “Comes With Music” program and really, who better than the pioneer of the rootkit digital-rights management scheme to endorse Nokia’s DRM-hobbled prebundled music initiative?

This morning, Sony BMG became the second record label to jump on board the Finnish phone giant’s Comes With Music offering, which–when it launches in the second half of 2008, will package mobile phones with a year of unlimited access to music. There are, however, certain caveats to that value proposition, as I pointed out last December:

Though Comes With Music does indeed permit owners of certain Nokia cellphones to download as many songs as humanly possible in one year (with no per-song data charges), transfer them to a PC and keep them at the end of that time, they must pay a per-song usage fee to burn them to CD. What’s more, the songs are wrapped in Microsoft’s (MSFT) ironically named ‘Plays for Sure’ digital-rights management scheme, which prevents them from being played on the iPod, Zune, etc. Finally, another 12 months access to the music catalog requires the purchase of a brand new phone.”

Clearly, Sony, like Universal (VIV.PA) before it, doesn’t see these issues as off-putting to consumers. “When you give consumers the key to the candy store without any limitations, there’s a lot more opportunity for discovering music that you might not have found before,” said Thomas Hesse, president of global digital business and U.S. sales for Sony BMG Music Entertainment. “We think this will energize the discovery of music.”

It might energize Sony BMG’s bottom line a bit as well. When Universal first signed up for Comes with Music, sources close to the company said that Nokia would pay the label up to $35 for every phone that offers access to its library. Nokia subsequently denied it was paying that amount, but it’s definitely paying something–to Universal, Sony and whatever other labels it manages to line up for the service.

I hope DVD-D Germany Ltd. has a nice big landfill out behind its corporate offices, because it’s going to need it if its new disposable DVD technology takes off.

Produced with a chemical coating that renders them unreadable after 48 hours or so, the company’s Einmal (German for “once”) discs posit a play-once-and-toss model that, at a reasonably low price-point, could be a piracy-limiting means of distribution (the discs include no DRM, but why bother ripping them if they’re so cheap).

So it’s an interesting idea (though not a new one; Flexplay and SpectraDisc both tried something similar a few years back). Certainly the prospect of not ever having to worry about returning your latest Netflix (NFLX) or Inmotion Pictures airport rental could be quite appealing to some. But isn’t that an annoyance that video-on-demand is already doing away with? And really, who wants to increase their carbon footprint like this anyway?

In the final paragraph of his February 2007 essay, “Thoughts On Music,” Apple CEO Steve Jobs said that should the top four music labels allow their music to be sold online without DRM (digital rights management) technology, it would “create a truly interoperable music marketplace”–one that Apple would embrace “wholeheartedly.”

Well, it’s taken nearly a year, but the marketplace to which Jobs referred is nearly here. Only it’s not at Apple’s iTunes store. It’s at Amazon.

Yesterday afternoon Sony BMG said it will begin selling DRM-free music through Amazon.com MP3 at the end of this month. That makes it the last of the “Big Four” music labels to abandon DRM and begin distributing its catalog through Amazon. “This is such an exciting day for us and our customers,” Bill Carr, vice president for digital music at Amazon, told the New York Times. “All four major labels will be part of our service. It means our customers will really have access to all the biggest artists in the world.”

Which is obviously great news for Amazon’s fledgling music service and for the major music companies as well. What better way to rein in Apple’s dominant iTunes store than by empowering its worthiest adversary–if only for a moment. Because chances are, Apple was planning on taking iTunes totally DRM-free at Macworld next week anyway. Which may make this a bit of a non-announcement, at least as far as Apple is concerned. Said Pali Capital analyst Richard Greenfield: “My guess is that Apple doesn’t care. The reality is, everyone will now start downloading their songs more cheaply someplace else and using them on their iPods.”

Well that didn’t take long at all. Less than a month after Amazon.com began peddling DRM-free music for considerably less than you’d find it on Apple’s iTunes store, Cupertino silently dropped its price to match.

In an interview with The Wall Street Journal, Apple CEO Steve Jobs said the company is reducing the price of DRM-free iTunes Plus tracks to 99 cents across the board, down from $1.29 per track. “It’s been very popular with our customers, and we’re making it even more affordable,” said Jobs, who first called for a DRM-free music marketplace in February in his “Thoughts on Music” essay.

Of course what Jobs really means is more affordable to fans of EMI artists. Because, as of this writing, EMI Group is the only major recording company with which Apple has cut a deal for DRM-free music.

Well, this is sure to set a cat among the pigeons who still believe they have a God-given right to control the retail distribution and pricing of music.

Recently freed of its contractual obligation to major label EMI Group, top-selling British rock band Radiohead is releasing its seventh studio album, “In Rainbows,” on Oct. 10 as a digital download (presumably in delicious 320kbps, DRM-free MP3 format)–and it is letting its fans decide how much, if anything, to pay for it. “It’s up to you,” a message on the preorder site for the album reads. Click through to the pricing screen and a subsequent message adds: “No really. It’s up to you.”

And it is. Fans are free to pay whatever they’d like–as little as one penny (US two cents), plus a 45 pence (US 92 cents) charge for using a credit or debit card. “I like the people at our record company, but the time is at hand when you have to ask why anyone needs one,” said Radiohead singer Thom Yorke. “And, yes, it probably would give us some perverse pleasure to say ‘F— you’ to this decaying business model.”

Question is, given a clear, legal alternative to downloading music for free, will fans choose to support its creators? Just in case they don’t, “In Rainbows” will also be sold as a “discbox,” which will feature the new album on CD and double-vinyl, as well as a second disc with seven additional songs, photos, artwork and lyrics. The materials will be packaged in a custom hardback book and slipcase and sold at a price wisely left up to the band: £40 (US $81.18).

And with that, Radiohead sidesteps the traditional music industry altogether. “This feels like yet another death knell,” an A&R executive at a major European label told Time magazine. “If the best band in the world doesn’t want a part of us, I’m not sure what’s left for this business.”

Apple’s not going to turn iTunes into the Microsoft Windows of the digital music space if Amazon can help it. This morning the retailer announced the public beta of its much-anticipated music download service, breathlessly touting it as “the world’s biggest selection of a la carte DRM-free MP3 music downloads.”

Amazon MP3, as the company’s cleverly named it, offers more than two million songs from 180,000 artists and over 20,000 major and independent labels, all of them in DRM-free MP3 format. Songs are digitized at 256 kilobits per second and cost between 89 cents and 99 cents per track–a bit less than their iTunes Plus doppelgangers, which Apple has been peddling for $1.29 each. That said, songs purchased from Amazon MP3, unlike those purchased from iTunes, can only be downloaded once. If they’re subsequently deleted or lost because of a system or disk error, Amazon won’t replace them free of charge. You’ve got to buy them all over again.

Just like a CD …

Anyway … With Sony and Virgin Digital both shuttering their online music offerings and Yahoo Music reportedly considering the shutdown of one or more of its subscription-based services, Amazon MP3 seems to be launching at a particularly opportune time. And given Amazon’s retail market power, it will likely do well.

But well enough to pose a credible threat to iTunes? Consensus among industry observers seems to be no. Says hypebot:

The Amazon MP3 Download Store IS NOT:

• The iTunes killer.
• Serious competition yes. Killer no. Too many people are used to the iTunes-to-iPod experience no matter how easy Amazon makes it.”

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.”

In his much discussed “Thoughts on Music” essay, Apple CEO Steve Jobs argued that by protecting music with Digital Rights Management restrictions, music companies were stifling the very innovations that might sustain them. “If such requirements were removed, the music industry might experience an influx of new companies willing to invest in innovative new stores and players,” Jobs wrote.

A few months later, Apple proved Jobs’s point by introducing DRM-free tracks from EMI to iTunes. And soon Amazon will prove it a second time. The retailer announced plans today to launch a new music-download store unencumbered by DRM protections. “Our MP3-only strategy means all the music that customers buy on Amazon is always DRM-free and plays on any device,” said Amazon Chief Executive Jeff Bezos in a release announcing the store.

For Amazon, which has said for ages that it wants to get into the digital music-download business, the move is a crucial one. Though Amazon peddles everything from video games to vibrators, the company makes a big chunk of its money on CDs and DVDs. To retain that revenue stream, it’s got to cater to consumers who will increasingly expect digital delivery of audio and video. Which means going head-to-head with Apple.

Amazon’s store will undoubtedly present a credible challenger to Apple’s iTunes hegemony, but can it beat it? Not likely, says Jupiter Research vice president Michael Gartenberg. “The fact that Amazon is offering DRM-free songs and offering them in MP3 format is important but won’t necessarily change the game for vendors offering music players that compete with iPod,” he writes. “If Amazon can offer a greater catalog than Apple at a lower price point or higher-quality bit rates, we might begin to see iPod users begin to use the Amazon offering over iTunes, but unless there’s a marked differentiation, it’s not likely that iPod users would go to Amazon over iTunes, especially given the iTunes ecosystem of music, TV shows, movies and games.”

As lost causes go, few are more futile than the entertainment industry’s quest to lock down its content with Digital Rights Management. DRM is an increasingly outmoded technology protecting an ever-evolving content medium. And so it came as little surprise when the Advanced Access Content System, Hollywood’s latest DRM poster child, was cracked last December and more fully this past February.

What is surprising is that the result of those cracks, the AACS key, would inspire a digital revolt on a popular social news site after being widely available online for so long. Yet, that’s what happened Tuesday when administrators of Digg.com began deleting story submissions that pointed to the AACS key (the publishing of which could be a crime under the Digital Millennium Copyright Act). In a matter of hours, Digg’s users rebelled, flooding the site with posts referencing the key. Turned out Digg Inc. doesn’t entirely control Digg.com. Crowdsourcing does have its disadvantages. Just look at the Digg mob running the asylum.

Finally, Digg’s leadership conceded. In a post published on the site’s blog, Digg founder Kevin Rose said the site would no longer censor stories containing the AACS key. “We had to make a call, and in our desire to avoid a scenario where Digg would be interrupted or shut down, we decided to comply and remove the stories with the code,” he wrote. “But now, after seeing hundreds of stories and reading thousands of comments, you’ve made it clear. You’d rather see Digg go down fighting than bow down to a bigger company. We hear you, and effective immediately we won’t delete stories or comments containing the code and will deal with whatever the consequences might be. If we lose, then what the hell, at least we died trying.”

(BusinessWeek cover courtesy ILoveKetchup)