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Talk about Newsnight

Paul Mason's Idle Scrawl

iTunes vs eMusic - the business angles

  • Paul Mason
  • 13 Sep 06, 10:38 AM

ipods_mason_203.jpgI went to the launch of both the new, movie-enabled iPods and the new cross platform MP3 download service, eMusic last night. Not to the actual all singing, dancing and cocktail party bit of course - I had a programme to make (watch it here). There are two more bits to the story that are worth thinking about: (i) what would you make if iPod's didn't exist but you wanted a movie playing device (ii) the startling business transformation story that is behind both iTunes and eMusic, and how un-British both of them sound...

First the technology: the question arises because, despite being the first UK journalist to get to smear my fingerprints over the redesigned iPod, with its 640x480 pixel screen (ie as good as an old Windows PC) I was under-impressed with it as a video device: here's why:
a) I don't want "near DVD quality" - just like I am not greatly enamoured of the "near CD" quality offered by iTunes and the slightly higher bit-rate eMusic. I want as good or better than what I can get off a revolving piece of plastic, since I am paying for the privilege.
b) When am I going to watch a full-lenght movie on an iPod? Answer - in extremis. What I want is to download my movie and have it transferable to any medium I want to watch it on: my computer or even better one of those great big push-off five foot TV screens like my producer has in his bachelor pad for playing Xbox on. Now Steve Jobs previewed a Q1 2007 release gadget called an iTV (hint, Steve, that is not gonna be the most popular brand name in the UK, unless you want to confuse the viewers of a long-running soap with a cult gay following). This device is just really a wireless lan that beams the contents of the iPod to your telly at "near DVD" quality.
Well how about this as an alternative: you design a box that is basically a storage device; you make it little or large depending on whether it needs a lot of storage, a bigger screen or a longer battery life. You standardise the format for download at DVD quality. And you put a plug in the back of it that will play it at that quality straight into my TV?

Second: the business transformation story. What Jobs has done is transform Apple, which was an ailing seller of niche desktops, into a business where a proprietory storage device sells at a massive mark up because it is the only way of buying something you want. If you think about it in analog terms: it would be like someone making shedloads of money from selling shop window space and the bags to carry your groceries home in, and the fridge to store them in. No matter how angry the digital Hizbullah of the hacking world get about this, you still have to tip your hat to Jobs for this. And yesterday he was showing his mettle in the next phase of making that business work: the incremental improvement, the cutting of deals with major partners, the phase that does not really need to have the boss surrounded with attractive pop musicians but in which investment banks pore over the quarterly returns. One example of this is the - I had assumed cheesily unsuccessful - decision to bring out a pair of Nike trainers linked to an iPod. It turns out this has been a runaway success and that the boss of Nike had to get his own figures double checked because he didn't believe they were selling so many.

Now to eMusic. This was one of the first dotcoms. It sold MP3s. Its lunch was eaten several times over by other companies and it got taken over by Universal, who realised they were sitting on a business selling an open standard of music at a low price when what thye wanted to do was sell a copy-protected music at a high price. Cue, inevitably, the venture capitalists. They took eMusic off Universal's hands, moved it from San Diego to New York (ie from the edge of the civilised world to its centre) and wham, bam, within a couple of years it becomes the second biggest download service in the world. They got rid of most of the staff, ripped the original business model to shreds, installed a new one. There are a lot of challenges ahead for eMusic, not least the fact that 8,500 indy labels signed up only account for 30% of the 1.7 million songs in existence, and the big four record companies own the rest. However it is a business transformation story worth studying.

Finally on the Brit angle. There are about 3 million people in this country employed by firms owned by private equity, ie like eMusic. Private equity here is wildly profitable - and as CBI boss Rchard Lambert said last week very under-scrutinised by the media. The thing about eMusic, and iTunes for that matter is: it could only happen in America. In Britain the private capitalists are the entrepreneurs - but they still exhibit a greater penchant for buying and selling high-street fashion stores, carpet warehouses and the like. Or at the other end tiny companies based in university towns that specialise in turning fish DNA into something useful.

iTunes and eMusic were, ultimately, just great business ideas. I am a big fan of Dragon's Den - but I have seen too many real life examples of people with daft car rugs they want to make in China and sell for 拢9.99. Where are the British tech entrepreneurs? There are legion. Where are their world beating business models? Err...

Comments  Post your comment

  • 1.
  • At 01:07 PM on 13 Sep 2006,
  • Tim wrote:

"a pair of Nike trainers linked to an iPod. It turns out this has been a runaway success" - Nice pun

According to their online store, it is still 320x240 pixels.
It is the video file itself whose resolution has been quadrupled. This apparently gives 'near DVD quality', while still resulting in reasonable download times (a consideration which you appear to have overlooked).

  • 3.
  • At 11:19 PM on 13 Sep 2006,
  • Jenny wrote:

Why is it that no 大象传媒 reporter ever manages to get their head right around any technology story? Is it that technology journalists are not considered suitably "rounded" to employ at the Beeb, and the people available have their horizons so limited by the corporation providing technology centrally, and only approved types, so that the latest, outside, stuff is just mind-blowing? The reports are always so disappointing.

In the broadcast report there were two themes, one that Apple might be threatened by their products becoming "uncool", and the other that customers would prefer to download unprotected MP3s, one reason given being that iTunes downloads could only be played on iPods.

Both are simply ideas from press releases from new rivals, which Newsnight should have been wiser than to simply take at face value. Doing so makes Newsnight look foolish.

Apple is cool because they make products that work beautifully, do the coolest things reliably, and look superb, even though they are not the cheapest. You never look uncool, or make a mistake by buying Apple, just as it always used to be said no one was ever fired for buying IBM. Furthermore one's iPod is always as cool as the coolest tune, or movie, or other download on it.

Apple isn't threatened by rival download services as long as the coolest material can be played on iPods. MP3s all can play on iPods. But downloads from iTunes include material which is not available elsewhere because the originators will not sell it without it being digital rights managed. And Apple keep the prices disciplined, far lower for many tracks than the record companies would like. And there are too many stories around for the comfort of the average person of people who have shared stuff for free being sued. It is not true, as was reported, that iTunes downloads can only be played on iPods - they can be played on most computers, can be burned to CDs, and the iPod can be played through HiFis, car audio and radios.

The two things I wanted to know from the report on the launch of the new iPod models was whether the screens had been changed back to a less easily scratched material, and whether movies and TV programme downloads would be available from iTunes in the UK immediately, but you didn't say!

  • 4.
  • At 12:48 PM on 14 Sep 2006,
  • Mr D A Stewart wrote:

It did seem a bit out of touch, as I have been downloading music and movies for free for the last two years. Anyone actually buying music or movies on the internet is either misinformed or just plain stupid.

I prefer the Music from my Windows Media Player.

  • 6.
  • At 03:26 PM on 14 Sep 2006,
  • Rob Dickens wrote:

Hi. Please could you let me know why you took down my comment.
Sincerely,
Rob D.

  • 7.
  • At 11:14 AM on 15 Sep 2006,
  • Paul Mason wrote:

In reply to 3 above, I would just point out that I have been a technology journalist for ten years and was in part employed by the 大象传媒 on the strength of that. On iPods becoming "uncool", that point was put by Accenture's most senior media business consultant, someone totally impartial on the issue. On the trend towards using open standard MP3, this indeed is something Apple's commercial rivals want to push - but it is also something that millions of people worldwide do illegally, and thus, for me, as a seasoned tech journalist who has seen every attempt at capturing a technology for a closed proprietory standard fail, Apple fits into a pattern. As to the screen scratchiness of Apple's products and when they are available, as we are not in the business of product review or promotion, may I direct you to For the record, I own an iPod and consider it cool. Then again I am white, male, aged 46 and when I dance at raves it is embarrassing for those half that age...

"Well how about this as an alternative: you design a box that is basically a storage device; you make it little or large depending on whether it needs a lot of storage, a bigger screen or a longer battery life. You standardise the format for download at DVD quality. And you put a plug in the back of it that will play it at that quality straight into my TV?"

What you seem to be describing here is an iPod with slightly better quality video! I am most definitely not an iPod salesman, but Apple do make a dock with a video-out port... so that would be your storage device that goes straight into your TV!

  • 9.
  • At 07:35 PM on 15 Sep 2006,
  • Jenny wrote:

Paul Mason replied: "In reply to 3 above, I would just point out that I have been a technology journalist for ten years and was in part employed by the 大象传媒 on the strength of that."

I Googled you and couldn't find what sort of technology.

PM: "On iPods becoming 'uncool', that point was put by Accenture's most senior media business consultant, someone totally impartial on the issue."

Arthur Anderson's former technology consulting arm would make no money from saying Apple had secure market dominance, only from alternatives. So I wouldn't be as sure as you that they are "totally impartial".

PM: "On the trend towards using open standard MP3..."

MP3 is not an "open standard". See

PM: "..this indeed is something Apple's commercial rivals want to push - but it is also something that millions of people worldwide do illegally..."

They trend towards it? Surely the trend, if one can be discerned (there of course being no actual figures for how many do illegal things) might well be strongly in the opposite direction, towards legal downloads, since "illegal" (but actually not always illegal at all) MP3s used to be all there was to download and Apple has rapidly pioneered (with other following) a legal alternative of massive proportions.

PM: "...and thus, for me, as a seasoned tech journalist who has seen every attempt at capturing a technology for a closed proprietory standard fail, Apple fits into a pattern."

Microsoft doesn't seem to have fallen yet. I fear you have imagined a pattern of newcomers bringing down the market leaders, but market leaders are sometimes there for a good reason, not that there has been no challenger. And Apple has more than 20 years experience of being the challengers, the innovators, against Microsoft, IBM, Dell, and more.

It is a huge distortion to see Apple's iTunes and iPod as attempting to capture a technology. Remember (if your technology memory goes back that far) tha Apple pioneered music on computers, and was stopped by the Beatles. Then they pioneered video on desktop computers by creating Quicktime, which they made (and still do make) freely available for many platforms, constantly updated. It seems to you to make a story that they are a monopoly set to take a tumble, but they will be market leaders as long as a (very large) majority of paying consumers choose them.

PM: "As to the screen scratchiness of Apple's products and when they are available, as we are not in the business of product review or promotion"

I should hope not, but cannot you see any legitimate story in changes of manufacturing or distribution of content by such a market leader? Was the best question you could think of to ask Steve Jobs, shouted from a distance, whether he feared Microsoft's new player? Doesn't the very apparent coming together of all these forms of expression, and media, through computing, which Jobs has clearly envisaged and helped bring about, over the last 25 years, seem at all interesting?

PM: "...may I direct you to

So kind.

PM: "For the record, I own an iPod and consider it cool. Then again I am white, male, aged 46 and when I dance at raves it is embarrassing for those half that age..."

What makes you think that ethnicity, age, or gender define "cool"? Maybe that misunderstanding is behind your believing that market success spells the end of the iPod.

Oh, and I don't own one, and have no financial interest in Apple.

  • 10.
  • At 03:23 AM on 16 Sep 2006,
  • Chris wrote:

I think the figure you quote for number of available music tracks is 17 million rather than 1.7 million (though I cannot remember the source).

There is nothing wrong with Apple dominating the music market as long as they continue to be market leader. I agree with above comments about Accenture analyst being biassed. Apple are cool because they are reliable and convenient, not because they are used by 'cool' people. They are more than a fashion accessory.

What continues to irk me about their product are technical issues. The lack of replaceable batteries has the potential to cause disruption in their brand going forward. The lossy compression technology is also an issue, but one that will only be addressed by quantum leaps in storage and transmission technology.

As for MP3s, I have studied this for a while both as a user and a software developer, and I am not convinced that it is the final word in compression technology. There are significant audio benefits from the iTunes AAC format compared to MP3 in my subjective experience (iTunes downloads seem noticeably superior to high-bitrate MP3s I have stripped from my CD collection). So it is by no means clear that an 'open' MP3 model promoted by eMusic is an answer to the dominance of Apple's technology.

  • 11.
  • At 09:27 AM on 16 Sep 2006,
  • wrote:

This might not be totally related to this blog entry but I think it's something that needs to be said. It would seem that 大象传媒 is very keen to start pointing the finger at Apple and iTunes.

The BCC is more than happy to let there 7% share of the computer world Apple has to be buried in things like Vista and XP. If for one moment they should take a large market share of one area then we start talking about things like locking us into iTunes or people say things like "I wanna be able to watch the movie I bought on anything and not just at near DVD quality" iTunes has always let us 'rip' our CD's in to it, in what? 5 different formats some locked into iTunes like Apple Losless, but I think there is an .mp3 format there too. Is there not? Does this format play on the iPod and any other device like it? and no DRM is exposed on this. Would this be the same for putting videos on your iPod and into iTunes? The last time I looked it took standard video formats. I'm a bit upset with the 大象传媒 they seem to be to ready to start slaging off Apple and I don't know why? Does the 大象传媒's journalists have some stake in a rival firm? Is there latest OS not running late a little? I will be getting the 'iTV' and I very much doubt I will get a movie from the iTunes store, but then again I know it will be able to the movies I have encoded from my own collection or ones that seem to find there way onto my computer, not to sure how that works think its got something to do with the TCP/IP Protocol.

I'm really not sure what'd going on with the 大象传媒 over this matter.....? I will admit that one of the things I thought I was very nice was the PodCast they made on this topic (Which happens to be listed in the iTunes PodCast section of the iTunes store) using the format they hate to spread the word.

You might have to indulge me for a moment as you might be able to guess from the post I don't have a PC and I don't really keep up with current events with them but I do know that we have something call the Microsoft Media Centre? Or something to that effect. Maybe the 大象传媒 could take my license free and spend in some programs for that.

Sorry if this tuned into a rant but I really am not happy with the 大象传媒 over this matter. I am all for open formats but I think they forget the Apple incorporates both open and locked formats in the things they do. If you don't wanna be locked in then then you don't have to be the system is there for both. I can't wait for the 大象传媒 article showing they disgust that a film they got from Microsoft/Real/Or whoever does not work on iTunes.

It's said I feel better.

vyvyenneMuir

  • 12.
  • At 04:58 PM on 16 Sep 2006,
  • Jenny wrote:

Paul Mason replied: "As to the screen scratchiness of Apple's products and when they are available, as we are not in the business of product review or promotion"

Reading your response again it occurs to me that you really, really missed the point of my comment. What I was gently raising was what are Apple's two genuine vulnerablities on iPods and iTunes, product quality and content availablity.

All digital equipment manufacturers risk market collapse if it seems their product or its quality is faulty. Apple's record on that is way above average, but they have had instances of problems, with some bought-in batteries, with one or two designs of motherboards (on some iBooks for example), and with the very simple issue of easily scratched plastic on one run of iPods. Since a really tatty iPod with a screen that is a mass of scratches is definitely not cool that is important.

Content availability is very problematic here in the UK because rights to music, as with books, and movies, and much else, are traditionally often owned differently in the UK from other European countries, and from the US, and yet, in the digital world, most people get to know of American items when it first appears there, and tend to want it right then. For a service like iTunes, where the copyright owners insist that right to supply items has to be contracted for the country in which the online buyer lives, there can easily be much delay before it becomes available to UK buyers. This caused iTunes' whole initial launch in the UK to be much delayed and caused a lot of resentment. Was that down to UK copyright owners, or to Apple giving priority to other markets, people asked. The same issues apply to movies and TV programmes. If Apple cannot get UK distribution agreements, or doesn't give enough priority to getting them, or leaves some material that is available in the US, or other countries, unavailable to UK customers, they might easily lose market share.

That's why those were questions you might have raised, not in order to review or promote Apple. I guess you didn't understand.

A colleague wishes me to point out that all these major portable music players are open to criticism for not supporting the only truly open digitalisation formats, Vorbis and FLAC.

And if you need someone to guide you on what is truly cool, ask Jeremy P.

  • 13.
  • At 06:21 PM on 16 Sep 2006,
  • Jenny wrote:

I agree with others here that it often seems the 大象传媒 is biased against Apple, except for having adopted Podcasting and having some mentions on the website support pages of the Safari and Firefox browsers on Macs. I did refer to that, obliquely, when I mentioned the corporation's inhouse technical support.

I don't know if it is still the case but they always used to refuse to support anything not Windows. A friend of mine, Apple-savvy, had a contract at the Beeb and wanted her Powerbook there, on the Net, and there was such a hilarious fuss. We decided they were afraid everyone would want one.

I guess that staff, not used to anything but Microsoft, and assured that they were being provided with the very best, just assumed that anything else was inferior and deserved dissing, which was not conducive to unbiased technology or business journalism.

It doesn't help that most computing journalists earn their stripes on Windows-only publications.

But I see the 大象传媒's Apache webservers are running on Solaris and Linux, so maybe things have opened up.

I don't think I ever recall seeing anything but Windows desktops on machines visible on screen in 大象传媒 studios or offices, whereas Apple machines are rather often is to be seen in programmes from independents and abroad. I wonder if Apple's rather wonderful Final Cut video editing software is allowed at Television Centre or on location, or if more expensive alternatives are insisted upon, where the move actually has been made from tape editing.

  • 14.
  • At 08:08 PM on 28 Sep 2006,
  • stuart wrote:

inviting the editor of a leading tory gutter press paper to comment about the labour party conference about sums up the 大象传媒 biased reporting gf govt. affairs. & the labour party in general,throughout the conference the bbc political reporter has been totaly unfair.

  • 15.
  • At 08:25 PM on 30 Jan 2007,
  • justine wrote:

i have had a video ipod for a year now. i cant get video anywhere on i tunes so i download it for free.

i have seen the US stor they get movie the lates ones and tv shows. i have whatched and waited for a long time for these and i am still waiting for them on the UK store.

may people are resorting to complaining aout them on their music comants and peole are complaining about the price too because in america they are getting everything cheaper.

i do surf on american sites for my programs very often and know how they get everything quicker than us but itues is trying to mask the fact that they are cheating us in the UK.

i dont care that they get everything first but i am complaining that what they can bye on itunes we should get here.

i know my mum would love to watch emerdale or corination street and my little sis who is 7 would lovch a brats movie

they think we wont notice and i hope that the bbc and/ horrison looks in to this because someone should highlight this problem.

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