Apple Inc.

Apple's Bizarre Antitrust Problem by George Ziemann -- Sept. 9, 2007 Since Apple's latest offering of new iPod and iPhone models earlier this week, there is suddenly an eruption of media pushing the idea that Apple is "trying to monopolize the markets for digital music players and online music sales." Exhibit A comes from Wired -- Updated IPods Confirm Apple's Monopoly, Lawyers Say The crux of this particular complaint is that the iPod won't play WMA files. "That is evidence that the company is acting like a monopolist and not competitive," says some lawyer. C'mon... That's not antitrust evidence. The PS2, XBox and Wii do not play games from the other platforms. For an extreme example, consider HP's $5,000 per gallon ink. Try to put someone else's ink cartridge in an HP printer. And really, why would Apple want to add a second DRM format when people are already bitching about the one they have? From Computerworld -- It's official, Apple is the new Microsoft -- and even has the subhead "There's a new monopolistic, copycat bully in town". This one is written by Mike Elgan, who says he actually supports Apple, but only to justify supporting Microsoft's previous behavior. The problem is that he's a PC user, so he simply doesn't see reality. Apple the Monopolist -- Microsoft's 1990's bundling of Internet Explorer is compared to "iPods come bundled with iTunes". You need iTunes to buy music from Apple, put music on the iPod, and you need it for an iPhone, too. "Apple not only "bundles" iTunes with multiple products," says Elgan, "it forces you to use it. At least with Internet Explorer, you could always just download a competitor and ignore IE." Reality -- Microsoft made Internet Explorer to compete with AOL and Netscape. Apple made iTunes software because there was no decent mp3 player for the Mac. A few years later, the iPod appeared and it used the iTunes software as an interface because all the Mac users already had it. As far as I can tell, it's still the only decent mp3 player for the Mac. Is it possible to be anti-competitive if no one is even trying to compete? Mac users have always had to struggle with being locked out of things. Try to visit People magazine's website from a Mac. It tells you you have to install Windows. Apple made something specifically for Mac users and ignored the Microsoft formats. Why? At the time, mp3 was the obvious standard. My earlier version of iTunes (2.04 for Mac OS9) only plays mp3 files. But the RIAA doesn't like mp3 files. Never has. The new versions would probably only play mp3 files if the RIAA hadn't forced Apple to develop some sort of DRM in order to acquire licenses to sell songs. The RIAA didn't want the average Joe to be able to move song files to whatever device they preferred. Apple's not being monopolistic. It has been dictated to by a monopolistic cartel. If you've got a problem with the fact that you can't play DRMed music from the Apple store on anything but an iPod, don't blame Apple. Sticker Shock -- "Jobs announced with a straight face that iPhone ringtones based on iTunes songs would cost the full price of the song, plus 99 cents extra. What? The full song costs 99 cents! How on Earth can Apple seriously charge the same amount again for the ability to hear just 30 seconds of the song -- the same length as the free iTunes 'samples'?" Reality -- According to a January 2006 report by the NPD Group, "the current average ringtone price of $2.50 is under-valued for current buyers, yet still too high for those who might consider purchasing ringtones in the future." This seems not to have changed much. An August article at CNet seems to think the price is $2.99. T-Mobile's current price is $2.49 each. Ringtones from Spamalot are $2.49 each. While musing the possibility that Apple would add ringtone capabilities a week ago, MacNN observed that "current carriers typically charge between $1.99 and $2.49 for each ringtone." So Jobs' $1.98 price would be cheaper than what morons are already willing to pay for ringtones. Sticker Shock Part 2 -- "One analyst estimated Apple's cost to build an iPhone is $245.83. I don't know if that's true but, if so, more than half the user cost was profit. That's theater soda pricing." This comes from a comparison wherein theatres "charge $4.50 for a soft drink, when the same beverage is one-third the price at the quickie mart 50 feet outside the theater doors?" It also assumes that the quickie mart is making no profit. Reality -- The soft drink at the theatre probably cost them less than 45 cents, which means "theatre soda pricing" is 90% profit. The iPhone would have to cost $2,458.30 to enter that realm. A 50% profit at the retail level is normal, not monopolistic. Apple the Bully -- "iTunes is increasingly becoming the only venue in which media companies can succeed selling music and TV shows". That's because the competition sucks. Most of them are rentals, with DRM that expires if you discontinue your subscription. And most of them The bottom line is that Apple's first priority is people who buy Macs. The iPod, iTunes and the iTunes Music Store were made, first and foremost, for Mac users because no one else would bother. Most of the "competition" venues -- Rhapsody, Napster, and all the other "legal" sites -- have DRM that requires Windows' swiss cheese operating system and are closed to Mac users. Apple's not anti-competitive, they simply have no competitors. If Mac users didn't have iTunes, we wouldn't be buying songs elsewhere because the competition won't even let us in the door, much less enable us to buy anything. Apple Activity Whips Media Into Frenzy by George Ziemann -- February 8, 2007 Two days ago, I was intrigued by the possibilities offered to Apple under their new agreement with the Beatles, which was followed shortly thereafter by Steve Jobs' "Thoughts on Music," which I took as a pretty straight-forward piece of common sense. To me, it sounded like Jobs was tired of screwing around with DRM because, at the end of the day, none of it really works and it never will. Many people read Jobs' treatise and had comments on it, none of which resembled my summary. One of the early offerings was from the RIAA, who read halfway through, saw what they wanted and stopped reading. They responded by issuing a press release, which says, "Apple's offer to license Fairplay to other technology companies is a welcome breakthrough and would be a real victory for fans, artists and labels. There have been many services seeking a license to the Apple DRM. This would enable the interoperability that we have been urging for a very long time." I assume that the RIAA stopped reading because they act like they didn't make it to the part where Jobs says, "Apple has concluded that if it licenses FairPlay to others, it can no longer guarantee to protect the music it licenses from the big four music companies." Or anything after that point. Over at the Financial Times, we hear from "several music executives" who actually read the whole thing and "dismissed his suggestion as disingenuous and reiterated their argument that inter-operability between devices would be improved if Apple were to license its own DRM to other companies rather than doing away with the protections altogether. They also suggested that Mr Jobs's true motive was to defuse legal problems in Europe, where Apple is being asked to make iTunes compatible with other devices." Specifically, Norway has given Apple until October 1 to make its iTunes Music Store (iTMS) compatible with other devices than the iPod. If he doesn't meet the deadline, they're going to fine him and, uh, write him a nasty letter or something. Today, we hear from Edgar Bronfman of Warner Music, who proclaimed Jobs' perspective as "completely without logic or merit," and vowed that Warner Music was behind DRM all the way. The word "disingenuous" appears again, but not to describe Bronfman, who was trying to explain why sales are down again. Fortunately, there are people out there who actually understand the meaning of the word "logic" and agree that if you actually use some of it, DRM is really worthless to prevent unwanted copying. So why are the record labels clinging to the delusion so desperately? Are they just incredibly stupid or is there a logical scenario in which this somehow still makes any kind of sense to a collective of multi-billion dollar corporations? Yeah, there is. But it doesn't pass the stupid test. Step 1 -- A new "standard" must be adopted that is NOT mp3. All RIAA material will conform to the standard. Step 2 -- The existing CD Audio standard must be abandoned. New players must read the new standard and refuse to recognize mp3 files. Step 3 -- Everyone has to buy new copies of the stuff they already bought once, or twice. Normal musicians are locked out because they can't encode to the new standard without a record label. Step 4 -- $$PROFIT$$ Afterthoughts -- The RIAA has been working on Step 1 since 1998. If Steve Jobs starts licensing Apple's DRM, they get a new standard and move on to Step 2. If Jobs takes his own advice and just drops DRM entirely, the whole interoperability issue disappears. So does the prospect of a new standard. Of course, he'd be sacrificing the licensing fees he would get for the next 10 years or so from everyone who makes music players. For better or worse, Steve Jobs is in a position to tip the scales one way or the other. The iTunes Music Store would survive without the major labels. For the last two years, the RIAA has said that the digital download sales have helped the ailing record industry, but it's just not enough. They need more. And the prices aren't high enough. They need more. If Jobs drops DRM tomorrow, what are the labels going to do? Pull their music? Let's see, iTMS has sold 2 billion songs. We know that 70 cents is "in the range" of the current wholesale price per track. That's $1.4 billion that went to the record labels over 2 years. That's a big pile of change to leave for someone else to take.   Do You Want to Know a Secret? by George Ziemann -- February 6, 2007 At first, it just didn't seem to make any sense whatsoever. The Beatles have been fighting with Steve Jobs over the use of the Apple logo for decades. Suddenly, everything has been resolved. "Under the agreement, the company that makes Macintosh computers and iPods will own the Apple trademark, licensing it back to the record label for its use. Apple will also continue using its name and logos on iTunes." -- San Francisco Chronicle Word is that this cost Steve Jobs about $100 million and details of the agreement are a closely guarded secret, except for this: "The new settlement replaces a previous one from 1991. In that pact, the two sides had divvied up the name so that the record label used it for music purposes while the technology company used it for electronic goods. It also determined how the two sides could use the apple fruit in their logos, down to its color and whether it had a bite mark on it." The immediate question on everyone's mind was "Are the Beatles going to be available on iTunes?" Naturally, the response was that there was nothing to announce in relation to such a scenario "at this time", leaving open the possibility that maybe in an hour or two they would have a new announcement. A few people have already realized that this opens up a few scenarios: Apple could sell CDs and bundle music with iPods Beatles music on iTunes Beatles special edition iPod They all stopped there for some reason. Hopefully, Steve Jobs' vision on this one extends beyond what could happen next week. Don't you think he's tired of locking horns with the label execs every year? Universal is going to ask for royalties from the iPod this year. They'll all try, once again, to get Jobs to raise retail prices. Apple Inc. should start its own record label. It could change everything. Later That Same Day... Steve Jobs Offers 'Thoughts on Music' The entire thing is on Apple's site, an unexpected gem of honesty and common sense which appeared sometime today. I really wish I had seen it before I wrote the preceding article, but it seems to reinforce my speculation. Here's what Steve thinks you should know: The iPod plays mp3 and AAC files which do not have DRM. So does everything else. The only reason Apple put DRM on the songs in the iTunes Music Store was because the four major record labels demanded it. Through the end of 2006, customers purchased a total of 90 million iPods and 2 billion songs from the iTunes store. On average, that's 22 songs purchased from the iTunes store for each iPod ever sold. Less than 3% of the music on the average iPod is purchased from the iTunes store and protected with a DRM. The remaining 97% of the music is unprotected and playable on any player that can play the open formats. A DRM system relies on secrets. There is no theory of protecting content other than keeping secrets. This is why Sony players can't play songs from the iTunes store and the iPod won't play songs with Zune DRM on them. If Apple licensed its FairPlay DRM out to everyone so their songs would be compatible with the iPod, too, then it wouldn't be a secret any longer, thus rendering it useless to actually protect anything. Then Jobs suggests that the wiser plan might be to abolish DRM altogether because it has never worked and probably never will. "This is clearly the best alternative for consumers, and Apple would embrace it in a heartbeat. If the big four music companies would license Apple their music without the requirement that it be protected with a DRM, we would switch to selling only DRM-free music on our iTunes store. Every iPod ever made will play this DRM-free music." "The music companies sell the vast majority of their music DRM-free, and show no signs of changing this behavior, since the overwhelming majority of their revenues depend on selling CDs which must play in CD players that support no DRM system. "So if the music companies are selling over 90 percent of their music DRM-free, what benefits do they get from selling the remaining small percentage of their music encumbered with a DRM system? There appear to be none." Those licensing negotiations that are coming up with Apple and the labels could get interesting.