iTunes and the music industry

Published on Wednesday, October 22, 2003 By Brad Wardell In Personal Computing

The release of iTunes has really sparked an on-line debate over the future direction of the music industry. You see it on websites, forums, news groups, heck my friends and I, who are not exactly music nuts have been debating it too.

However, the pattern in discussion seems to mix business and sports.  Let me explain: In sports it's a win/lose proposition. One way will win, another way will lose.  In business, the goal is win/win. A winning strategy is merely one that generates more net revenue for the company.

For example, at Stardock in 1999 to 2000 there was a strong internal push to dump all the OS/2 software. "OS/2 is doomed, why sell it? It's dying. Why bother selling something that hardly sells any units?"  But when I looked at the books, OS/2 software was still generating $60,000 annually even in 2001.  Sure, that's a trivial amount relative to our other software but $60k is $60k.  There is no bonus for having fewer, more popular things. The goal in business is just to increase the NET revenue.  We only stopped selling OS/2 software when support costs started to close on the revenue.

The same thing is true with music.  iTunes, BuyMusic, whatever are not out to replace anything.  But in discussions on Neowin, WinCustomize, and even in email with my friends, there seems to be a tendency to say "I don't see what the big deal is, there's all these restrictions and buying CDs at retail isn't a big hassle and there are good deals out there. I don't see everyone just switching to buying music on-line."

But that's not the goal. iTunes doesn't exist to replace retail. It exists to expand the customer base for music.  To take people who might have been pirating music or weren't willing to purchase entire albums for songs or just don't care about music enough to go and order a CD and wait for it or drive down to the store and wait in line.

The people who don't see the features of iTunes and similar programs will probably not use it. But it is not as if those people will simply stop buying music. They'll continue to buy (or not) music as they did before.  But now, millions of people (like me) will be added as customers. 

So now, someone like me, hearing about a new Weird Al album can jump onto iTunes, quickly find the album, and listen to 30 seconds of each track. if I want the whole album it's $9.99 or I can pay $.99 per song (a lot of people seem to be under the impression that it's 99 cents per song period but full albums are a cheaper too).  I like that convenience. And I suspect millions of others.

There are legitimate issues with buying music on-line:

  • Format problems - they're not MP3. They're either a special version of .WMA or .M4P
  • They don't work on most portable players right now (.WMA support isn't enough, it has to support .WMA DRM)
  • The quality may not reach the same level as CD music (depends on who you talk to)
  • Many full albums these days include extra goodies. If I buy the full album from iTunes or BuyMusic do I get those goodies?
  • The whole copy protection thing can be a pain. This is one area iTunes has a big advantage -- I put iTunes on all my machines here at home and as long as it's only being played by 1 person at a time I can play it anywhere in the house.
  • If I want to store it on CD, I have to burn my own CD which takes time and requires buying blank CDs. Pretty obvious but still another issue.

But these caveats don't matter equally to all people. For me, they're minor. To others, they're significant barriers to entry. But remember, the music industry isn't looking at this like a sport. Their goal is to increase net revenue. And if they can draw in millions of new customers because of the convenience and lower costs for most demographics that's a win win for them.