All Things Digital

In a 2004 email to Steve Jobs, RealNetworks (RNWK) CEO Rob Glaser asked the Apple (AAPL) CEO to consider a “tactical alliance” with his company. License us your Fairplay digital-rights management system, allow our customers to play their digital music collections on the iPod, wrote Glaser, and we’ll make the iPod our primary device for the RealNetworks store and for RealPlayer software.

It was an astonishing offer at the time, especially coming from Glaser, who had been a vocal critic of Apple and its decision to make digital music sold through its iTunes store playable only on iPod (”I bought an iPod and can only shop at one store,” Glaser once said. “What is this? The Soviet Union?”)

But it was an offer that Jobs found unappealing. The Apple CEO rebuffed Glaser, declining even to meet with him over lunch to discuss it.

Glaser, of course, took it poorly and spent the next few years slagging Apple and Jobs for declining the partnership. “We think Apple Computer, and Steve personally, are making a mistake by making the software proprietary,” Glaser said at the Digital Living Conference in 2005. “There’s no reason we should penalize Apple customers for Steve’s pigheadeness.”

Course, in the end Real didn’t penalize Apple’s customers. Apple’s customers penalized Real. And today Apple’s iTunes is the largest music retailer in the states. And Real? Well, Real’s “embracing” the iPod.

Funny how that worked out.

This morning the company announced a new MP3 store whose unprotected music files can be played anywhere–even on an iPod. Like Apple’s iTunes, the Rhapsody MP3 Store offers music from all four major music labels at 99 cents per track, or $9.99 for an album. Over five million songs will be made available, at 256k-bit rates. Visitors can preview them in their entirety instead of the 30-second samples offered by iTunes and the like. And, if they’re Verizon (VZ) subscribers, they can download music directly to their phones with the company’s V CAST Music with Rhapsody service.

“We’re no longer competing with the iPod,” said Rhapsody Vice President Neil Smith. “We’re embracing it.”

Pigheadeness, be damned.

Of the 1,770 songs stored in the average MP3 player of the average 14- to 24-year-old, nearly half are pirated. This according to a new study by the University of Hertfordshire, which found nearly two-thirds of that demographic willing to admit it downloads music illegally. Commissioned by the recording industry group, British Music Rights, the study also found that 58% had copied music from friends’ hard drives and 42% had shared their music over a peer-to-peer network. A full 95% said they’d copied music in some way or another at one time or another.

And 80% would pay for a legal subscription-based music service that would allow them to discover, swap and recommend music.

Which, if true, illustrates the great disparity between the consumer and industry views of digital music. Because according to the Hertfordshire study, consumers–at least those in this particular age group–view digital music on the Internet as a sort of giant mixed tape to be explored and shared. They don’t have much of an emotional connection with it: “Respondents seem to attach a hierarchy of value to different formats of music, with streaming-on-demand the least valuable (though still valued); ownership of digital files somewhere in the middle; and ownership of the original physical CD the most valuable.”

The recording industry, of course, has failed to recognize that hierarchy. When, and if, it does, the study notes, it may finally succeed in monetizing that mixed-tape ethos that’s befuddled it for so long. “Survey responses suggest that respondents would continue to purchase CDs and go to gigs, even if they subscribed to a legitimate peer-to-peer file-sharing service,” the survey adds. “Fans want to support or pay tribute to their favorite artists and ownership of a digital music file does not necessarily do justice to their sense of devotion.”

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.”

In the annals of irony, the antitrust suit that accuses Apple of illegally maintaining a monopoly in the digital music market by failing to support Microsoft’s Windows Media Audio format ranks right up there with Ludwig van Beethoven’s loss of hearing and American Civil War General John Sedgwick proclaiming “They couldn’t hit an elephant at this distance” moments before being shot through the eye by a Confederate sniper. It’s so ironic it’s almost post-ironic.

Filed by Windows Media Audio fetishist Stacie Somers in late December, the suit claims Apple’s current dominance of the market for online video, online music and digital music players constitutes a violation of the Sherman Antitrust Act.

“Apple’s iPod is alone among mass-market Digital Music Players in not supporting the WMA format,” the complaint states, noting that America Online, Wal-Mart, Napster, MusicMatch, Best Buy, Yahoo Music, FYE Download Zone and Virgin Digital all support WMA. “Apple has engaged in tying and monopolizing behavior, placing unneeded and unjustifiable technological restrictions on its most popular products in an effort to restrict consumer choice, and to restrain what little remains of its competition in the digital music markets. Apple’s CEO Steve Jobs had himself compared Apple’s digital music dominance to Microsoft’s personal computer operating system dominance, calling Apple’s Music Store ‘the Microsoft of music stores’ in a meeting with financial analysts.”

The suit further alleges that while iPods have the hardware to play WMA files, Apple purposely prevents them from doing so. “Apple, however, deliberately designed the iPod’s software so that it would only play a single protected digital format, Apple’s FairPlay-modified AAC format,” the complaint states. “Deliberately disabling a desirable feature of a computer product is known as ‘crippling’ a product, and software that does this is known as ‘crippleware.’ “

So to summarize: Apple’s hard won success in the digital media market has made it a monopolist. And as a solution to its monopolistic behavior, the plaintiff proposes forcing the company to license a proprietary media format developed by a convicted monopolist. This, in spite of the fact that Apple’s iPod supports not only the FairPlay-modified AAC audio format, but the vendor-neutral AAC format and the MP3, MP3 VBR, Audible, Apple Lossless, AIFF, and WAV formats as well.

See the logic in that?

World War II was won by the Allied forces, not only because we were right, but also because we had more men and women, more weaponry and more money, and that money in turn would train more men and women and build more weaponry.

“But being fair, and being just, is what allowed our civilized society to survive and prosper, while that of our conquering ally, the Soviet Union, cracked, crumbled and collapsed because it attempted to perpetuate a society that was fundamentally unjust and unfair.

“And if the Internet should require an unjust and unfair paradigm in order to perpetuate itself, then it too will crack, crumble and collapse, and it won’t take five decades of Cold War politics for it happen.

“That is why it is in your interest to join our fight to protect and defend the property rights of creators everywhere. And that is why we are bringing our fight to the court of justice and to the court of public opinion.”

–Warner Music Group boss Edgar Bronfman Jr., May 26, 2000

Edgar Bronfman Jr.’s abusive relationship with Steve Jobs has apparently resulted in a Stockholm Syndrome-esque emotional attachment between the Warner Music CEO and Apple. Speaking at the GSMA Mobile Asia Congress in Macau, Bronfman–who’s long been critical of the company that arguably legitimized the digital music business–turned tack and lauded iTunes as a prime example of digital music done right.

“For years now, Warner Music has been offering a choice to consumers at Apple’s iTunes store the option to purchase something more than just single tracks, which constitute the mainstay of that store’s sales,” Bronfman said. “By packaging a full album into a bundle of music with ringtones, videos and other combinations and variations, we found products that consumers demonstrably valued and were willing to purchase at premium prices. And guess what? We’ve sold tons of them. And with Apple’s cooperation to make discovering, accessing and purchasing these products even more seamless and intuitive, we’ll be offering many, many more of these products going forward.”

And so began a paean to Apple which, by the time Bronfman concluded, had heaped adulation on everything from the company’s design chops to its billing-platform savvy. “You need to look no further than Apple’s iPhone to see how fast brilliantly written software presented on a beautifully designed device with a spectacular user interface will throw all the accepted notions about pricing, billing platforms and brand loyalty right out the window,” Bronfman continued. “And let me remind you, the genesis of the iPhone is the iPod and iTunes–a music device and music service that consumers love.”

Clearly, Bronfman’s had quite an epiphany since his war-against-the-consumer days, when he was calling for mandatory peer-to-peer filtering and taxes on recordable media and MP3 players and demanding a share of Apple’s iPod revenue. “We used to fool ourselves,” he said. “We used to think our content was perfect just exactly as it was. We expected our business would remain blissfully unaffected even as the world of interactivity, constant connection and file-sharing was exploding. And of course we were wrong. How were we wrong? By standing still or moving at a glacial pace, we inadvertently went to war with consumers by denying them what they wanted and could otherwise find and, as a result of course, consumers won.”

Does AT&T know how to craft a competitive value proposition or does AT&T know how to craft a competitive value proposition?

This morning, the company said it will soon offer wireless customers the ability to download music over the air from Napster–at a 50% to 100% markup over iTunes and Amazon MP3. AT&T is charging $1.99 a track, or $7.49 for five songs from Napster’s 4 million song library–prices that, while on par with those offered by Verizon Wireless, are double the 99 cents currently charged by not only Amazon and iTunes, but also Sprint, which reduced the price of its music downloads to 99 cents from $2.49 in March to spur demand.

Rob Hyatt, AT&T’s director of premium content, acknowledged the steep price point might be off-putting to some, but insisted it wouldn’t pose a problem for the impulse-control challenged. “They’re very price insensitive,” he told Reuters.

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.”