What is Apple’s music strategy now?

2 02 2009

At Macworld Expo 2009, Apple announced that it was officially dropping Digital Rights Management (DRM) on music sold in iTunes and it was making the vast majority of the music sold there available under iTunes Plus. This is a service that Apple began offering back in 2007. Songs are offered in 256-bit AAC encoding, and without copy protection. It is a widely held belief that the only reason Apple has clung to DRM for as long as it has is because the major record labels insisted on it, threatening to pull all of their music off of the iTunes Store, crippling it. To be fair, Apple had it’s own incentives to use their FairPlay DRM. Actually, just one: the iPod.

Apple released the iPod in 2001 and the iTunes Music Store went up two years later, in 2003. Before iTunes Plus came along, all content sold through iTunes was sold with FairPlay DRM. This not only restricted what the end user could do with the music on their computer, it also locked all of that content to the iPod. All FairPlay-protected content could only be played through iTunes on an authorized computer or through an iPod. This arrangement, while not being wholly equitable to the end user, proved successful nonetheless. iPod sales skyrocketed.

I believe that it is fair to say that the iPod dominates the American music player market with well over 70% marketshare. The iPod is not going anywhere. Many so-called “iPod killers” have come and gone over the years, most notably Microsoft’s Zune. None of the iPod’s competitors were able to knock the iPod off its pedestal. I do not believe that any one product will be able to knock the iPod out of the lead any time soon.

With Apple now dropping DRM-protected music and allowing current users to upgrade their protected music for thirty cents a song, iTunes music can be played on virtually and computer or portable player. I think that iTunes provides a good, convenient way to legally purchase music. The only major hiccup being that DRM restricted what you could do with it and where you could play it. I think that this move stands to make Apple a great deal of money in the long term from the iTunes Store. The interesting question to me is: how will this move affect sales of iPods?

As I mentioned earlier, the iPod is firmly entrenched in the portable music player market. People are used to it. They like it. Granted not everyone is a fan of the iPod. Not everyone is willing to buy one. The iPod may not be what some people look for in a music player. So, if you can combine the shopping and buying experience of the iTunes store with a wide variety of music players, besides the iPod, what effect will this have on Apple’s long-term business. I think it will definitely help music sales along on iTunes. On the other hand, it could hurt iPod sales a bit, where the money is really made.

Maybe I am wrong. Maybe the iPod is so resilient and entrenched in the market that an announcement like this will not do any real damage. This could even help iPod sales along, though I am not sure how.

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One response

13 02 2009
colinaclark

I really wonder how connected itunes and ipod really are? I personally use ipod as my player, itunes as my software, but I’ve never bought a song from the itunes store. It would be very unlikely that I would a) Switch to a different brand of player or b) buy a song from the itunes store. There’s too much free music out there. Music needs to suck it up and make itself digitally available for free download. Most people aren’t getting their music legally anyway. Why not embrace it and grow your following. Bands will always make more money on the road and the cost of actually producing albums has fallen drastically. I’m putting up a site for my band later this spring and it will have all of our songs for free download.

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