Is Apple Playing Nice With iTunes?
On May 25th, The New York Times reported that The United States Department of Justice had begun an investigation into Apple's conduct concerning its online digital music and media store, iTunes.
Eyebrows rose at the DOJ when it was brought to their attention that Apple's iTunes was bullying MUSIC LABELS(!!!) into not doing an exclusive deal with Amazon's iTunes competitor, Amazon MP3. Labels that got into bed with Amazon supposedly saw marketing support dry up over at iTunes. If this isn't a perfect time to say the words pot, kettle, and black then I don't know when is.
Clearly there are things going on that need 'splainin.
For instance, when the hell did music labels become sad vulnerable victims? Aren't these the companies that stomped on bands and ripped off artists while executives rode around in Rolls Royces and banged models? So why are they upset at Apple? Isn't it Apple's store? If I owned a store I am pretty sure I would be able to decide what customers saw first when they walked through the door. Music labels don't have to sell their product through iTunes. Amazon, Walmart and Best Buy and countless other stores sell music. The New York Times forgets that labels can and have made exclusive deals with these retailers to shut out where and when you can purchase music. Music labels are savvy businesses. They're big enough to decide what's best for them. And how did this happen:
Apple is by far the largest seller of online music in the United States, with 69 percent of the market, according to data from the NPD Group, a marketing consultancy. Amazon’s MP3 store was in second place, with an 8 percent share. Apple is also the largest seller of music, with 26.7 percent of the overall market, up from 12 percent in 2007.
Apple's iTunes didn't exist seven years ago and now it's being investigated by the DOJ for abusing its market share? Amazing. Obviously there's a lot going on we don't know about, like the contracts between the companies, the exact nature of Apple's behaviour, and how much pull iTunes really has in the US market.
I actually thought about this issue a couple years ago. This is what I came up with (notice the different tone).
If Apple does not want to be investigated it should alter the way it operates its iTunes music store. With one click consumers all over the world can easily purchase a song or album from a catalog of millions. The sound quality approaches that of a competently mastered compact disc and the format has copyright protection. This system relies on honesty. It gives its customers certain rights, but also some responsibilities. The owner is allowed to transfer his purchases to multiple computers, portable media players, and to a certain extent CD duplication. The scheme simply asks that you don't abuse it. Such a system should be rewarded. It respects its customers. Apple iTunes is unique. It sells the same product you can buy in stores but has no shipping, no handling, and little storage costs. Purchasers receive their products over the internet. Outside of MMO type video-games and the money transfer business, Apple is one of the few heavily monetized internet companies that can reliably do this.
The iTunes experience is not perfect. Sometimes items that you placed your shopping cart in the past are marked "now unavailable." In the digital world no media of this type should be unavailable. If iTunes does not have the license to sell some product there should be a link to a reputable online store (such as Amazon MP3, eMusic, Calabash/Mondomix) where you can immediately download it. It should not be just a link to another site. It should interact in the same window and behave like a normal iTunes purchase from the user's perspective. Apple should develop iTunes API's to allow this to occur. In fact, if Amazon MP3 has an album cheaper than iTunes does the consumer should be able to buy it from Amazon MP3 via iTunes. Apple could act as acquirer - like banks do for charge card transactions - for those operations and retain a slight portion of the generated revenue.
Opening iTunes to other merchants would transform it from a being merely a store to being a mall. It would also make iTunes Anti-Competitive Proof. A company cannot be a monopolist or abuse market share if in its own market it allows its competition to sell the very same product in the very same space. How can that be anti-competitive? By becoming a Media Mall it becomes the market with competition contained within it. And competitors could keep their stand alone stores. Apple could answer any question about its scheme simply by pointing to the countless pirates operating outside of the market distributing the same content for free. How do you compete with free? Apple's answer: trust the honesty of its customers and offer them a good product at a fair price. Its worked but just barely. Apple makes most of its money from media player sales and gets residual revenue from its sales of music. As the media player market matures Apple will have to increasingly draw larger revenues from its media sales. The scheme described above would allow it to do so.
And two years later here we are. Maybe someone at One Infinite Loop is listening.