Two days after Apple (AAPL) began cutting the price of its DRM-free music for new customers, from $1.29 a song to 99¢, the company is still charging the higher price for existing customers.
The fact of the 30¢ price cut was confirmed yesterday by Steve Jobs, although the company denied that the move was in response to competition from Amazon (AMZN), which charges 89¢ to 99¢ per song, or Wal-Mart (WMT), which charges 94¢. “It’s been very popular with our customers, and we’re making it even more affordable,” both Jobs and spokesperson Natalie Kerris insisted.
But the price cut was not applied across the board. The discrepancy arises in the Upgrade My Library feature, which is still charging existing customers 30% extra for DRM-free songs.
For example: 
A new customer who buys Norah Jones’ Feels Like Home on iTunes pays $12.99 for a 256 kbps, DRM-free version of album. That’s the same price existing customers paid for a 128 kbps, DRMed version when the album first came out. To get the higher-quality, iTunes Plus version through Upgrade My Library, those customers have to shell out an extra $3.86.
Of course, there is no competition for Apple’s Upgrade My Library feature. It’s the one thing you can’t do at Wal-Mart or Amazon.
However, Amazon sells a DRM-free, 256 kbps MP3 version of Feels Like Home for $8.99. They also sell the “Enhanced” CD for $12.97 new and $6.47 used.
Written by Philip Elmer-DeWitt on October 17th, 2007 with no comments.
Read more articles on AAPL and AMZN and DRM-free Music and Digital Rights Management and WMT and iTunes.
On hearing the news that Amazon (AMZN) had put 2 million songs, free of copy-protection, for sale on its new MP3 music store, I — like nearly everyone else who writes about Apple (AAPL) — went straight to the site to do a cost-comparison with the iTunes Music Store. My choice: KT Kunstall’s Suddenly I See, $1.29 (without copy protection) from Apple, $.89 (also without copy protection) from Amazon, a 40% price differential.
Which raises an immediate question: why are they doing this?
Apple, which sells songs for $.99 a track (protected) and $1.29
(unprotected) probably makes a lot less on each download than the music
labels, which have been complaining loudly that they aren’t making
enough — at least for their most popular songs.
Steve Jobs of course, can look at the music as something like a loss leader. He’s
happy to make just a few cents profit per song as long as he’s cleaning up
on the 100 million or so iPods and iPhones we’ve bought to play them.
But EMI and Universal, whose intellectual property represent the
lion’s share of the music on Amazon’s new site, must be getting even
less from Amazon than they were from Apple. And having fought for years
to keep their music copy-protected with so-called digital rights
protection (DRM), they’re selling it on Amazon DRM-free. At a 40%
discount. What’s their motivation?
The smartest answer to that question I’ve seen was posted yesterday by David Kravets at Wired.com. He heard Warner Music’s Edgar Bronfman, Jr., tell Goldman
Sachs investors last week that he was thinking about removing DRM
from Warner’s music downloads — a few months after suggesting
Warner would never abandon DRM. The money quote: "We need some online competition" for Apple’s iTunes Music Store. As Kravets explains:
The self-created headache for the industry is that the highly popular
iPod and new iPhone only play music protected by Apple’s proprietary
FairPlay DRM solution or music that isn’t protected at all. And Apple
chairman Steve Jobs has repeatedly balked at licensing FairPlay for use
on competing download services or devices.
That meant music companies had to choose between using iTunes
or going DRM-free. The industry stood by and allowed most of its
music-download sales to come from Apple.
Recognizing opportunities lost to Apple’s dominance, the music industry
is moving toward throwing DRM overboard in a bid to open up new retail
markets and promotional opportunities.
In other words, the labels are using the fire-sale of DRM-free music on Amazon to try to break Apple’s stranglehold on their business. It must be worth an awful lot to them to win a bit of leverage with Steve Jobs in future negotiations.
All
of this is great for the consumer, who now has two or three (if you
count Wal-Mart) places on the Web to shop for digital music downloads.
And it’s not even so bad for Apple. Sure there’s pressure on them now
to lower their prices (especially for EMI titles, which are available at
both Apple and Amazon’s music stores at a 40-cent per song price differential).
But since Amazon’s songs slide seamlessly into iTunes music libraries
and play beautifully on Apple’s hardware — which is where Apple makes its money — what’s not to love?
One last thought, again from Kravets’ Wired.com piece, quoting Bronfman on how dramatically Apple has disrupted his business:
"Never before in the history of content has the hardware been more
valuable than the software," Bronfman said. "You think about the VCR or
the video cassette — the video cassette always had more value than the
VCR that you shoved it into. Apple has been able to turn that model on
its head." (link)
Drastic disruptions apparently call for drastic measures.
Written by Philip Elmer-DeWitt on September 26th, 2007 with no comments.
Read more articles on AAPL and AMZN and DRM and Digital Rights Management and Music and iPods and iTunes.
Until yesterday, Apple (AAPL) had kept mum about attempts by various
third-party programmers to free the iPhone from the binds that tie it
to a particular carrier — AT&T (T) in the U.S. and now O2 in the
U.K. and T-Mobile in Germany. As recently as last week Apple responded to questions about the
release of iUnlock with a terse “no comment.”
But when asked a direct question at the “Mum is no longer the word”
press conference in London yesterday, Steve Jobs couldn’t remain silent
– especially in front of Matthew Key, CEO of O2 UK, which by all
accounts has paid a pretty penny to be the iPhone’s sole provider in
Britain. Jobs responded to the question “Is unlocking a concern?” as
follows:
“It’s a constant cat and mouse game — we have the same thing with the
iPod with music.” Steve looks at Matthew, “Are we the cat or mouse? We have to stay one step ahead of them.” (quote from Engadget’s live blog)
The analogy to music is a curious one, given that Jobs has argued
forcefully against DRM (digital rights management) schemes that make it
hard to copy digital music files — despite the fact that Apple uses them in iTunes. This may explain his professed
confusion about whether Apple is the cat or the mouse in this new game.
Should unlocked
iPhones proliferate much beyond the hacker community,
Apple would be less at risk than the cellphone carriers. Apple
gets paid for its hardware in any event, whereas user fees are the
carrier’s main source of iPhone revenue.
Apple has not yet deployed its most powerful tool for combating unlock programs:
firmware updates for the iPhone so far have disrupted some third-party apps, but haven’t touched the unlock solutions. That will almost
certainly change, and when it does the cat-and-mouse game Jobs
describes will begin in earnest.
Meanwhile, as Gregg Keizer points out today in Computerworld,
Apple and O2 have found other means of encouraging British customers to
stick with authorized iPhone dealers and carriers. The flat-rate plans
(with unlimited data transfers) that O2 announced yesterday are a
pretty sweet deal in the Europe smartphone market, where pay-as-you-go
is the norm. An even better sweetener may be the free account British iPhone customers will get with The Cloud, which has blanketed London’s financial district with Wi-Fi and
boasts some 7,500 hot spots in Great Britain and Ireland.
Given that only 30% of the U.K. is covered by O2’s EDGE network, iPhone
access to those hotspots could turn out to be key.
[Photo courtesy of Shaun Curry/AFP/Getty Images via the New York Times]
Written by Philip Elmer-DeWitt on September 19th, 2007 with no comments.
Read more articles on AAPL and Digital Rights Management and Steve Jobs and T and iPhone.
