Milking iTunes for Every Penny

by Chris Seibold Mar 03, 2005

Apple announced that the iTunes store has now served up a whopping three hundred million songs. This is impressive for a few reasons. First Apple accomplished this while peer-to-peer networks flourish and the second really interesting thing about moving 3 hundred million songs is the pace of acceleration. Take a look at this nifty graph. You don’t have to be Johann Gauss to note the graph is trending upward in a fairly astounding manner. Of course, if you remember the success of the iPod, the graph really isn’t too surprising. Surprise or not it is obvious that there is something about iTunes that people really like. 

There’s a lot to like about iTunes if you’re a consumer. A la carte pricing, convenience, a clean layout and a way to stay legal. Of course consumers aren’t the only ones who really like iTunes. iTunes offers a lot to a great many people. To Apple iTunes offers a method to make a little cash and incentivize everyone to buy iPods. Recording artists benefit from iTunes by exposing more people to their music. Perhaps no one benefits more from the iTunes store than record companies; with minimal effot they’re selling music in a manner once thought impossible. I suppose the only people that aren’t pleased with the success of iTunes are the Ogg Vorbis fans out there. And, honestly, if you only disappoint twelve people you’ve done a pretty good job.

Wow that seems like a win, win, win win…with a small loss for the Ogg Vorbis users. At this point most parties involved would be pretty satisfied with the results. By and large most people do seem fairly pleased with the current situation but one group doesn’t, the recording industry executives, and unfortunately that group has some stroke. The latest word about is that the music labels are chatting up the idea of raising prices for downloaded music. Here the most common thing is to solidly lambaste the label as bloodsucking fiends willing to do anything to get a little more money out of a consumer or artist. Why even the late, great Hunter S. Thompson has been quoted as saying:

“The music business is a cruel and shallow money trench, a long plastic hallway where thieves and pimps run free, and good men die like dogs. There’s also a negative side.”

Which is a misquote a lot of people seem to enjoy.

I don’t know any music executives so I can’t vouch for the accuracy of the description. It may be true that the labels are full of pimps and thieves or it may be that all those folks are really great people who keep their lawns neatly trimmed and have lots of barbecues for the neighbors. The question is moot, either way they are exceedingly forgetful business people.

The evidence for their forgetfulness is easily found, one only has to look to the RIAA website and wander through all numbers. Doing so is a tedious task but when all is said and done the careful researcher will note that, generally, as CD prices increase, demand decreases. Not exactly shocking if you’re Nobel Laureate in Economics but apparently beyond the ken of most music executives. At this point it is tempting to delve into demand curves and maximizations but suffice it to note that concentrating on growth (also known as DOING NOTHING in this case) is generally a good idea in a fledging market. And make no mistake, online music is still a new market, 2003 may seem like eons in terms of technology but in terms of business it is a very short period of time. New users are still coming aboard and occasional users are still becoming comfortable with the entire process. There may be an opportunity to raise prices in the future but this isn’t the moment.

Of course executives could be forgiven if they were suddenly incurring new costs for selling music over the internet. Predictably the cost is minimal as far as the labels are concerned. Apple and you pick up the bandwidth cost, there is no packaging to produce, and no songs to rerecord. It is as simple as uploading a file to a server. So without added costs and minimal added trouble it is hard to see any justification for a price increase other than pure unadulterated love of money.

Oh, wait. What about all the lost revenue because of, aargh matey, music pirates? Surely they have an effect (not nearly what the labels would have you believe) but why alienate the extremely honest folks? You’ll probably end up making more pirates. Finally I suppose the record companies might argue that the profitability of downloads is not as great as the profitability of selling physical CDs. Well, even though it is like arguing that you’re now making money by the mere fist full instead of by the wheelbarrow full there is a certain twisted logic to the argument. Oddly enough the CD sales seem to be rebounding, 2003 (the year the iTunes store was introduced) saw the drop in sales declining. Last year sales of CDs saw an increase. The industry folks will probably call it coincidence but I suspect online downloads are moving more product than the execs are willing to admit.

In a not at all related topic (because I still get e-mails on this): If you need a gmail account send and email to: chriskseibold@gmail.com. I’ll send invites out as long as the fine folks at Google allow.

Comments

  • You’re marvelling at that graph, possibly under the mistaken impression that this reflects a renevue stream for Apple, or the rate at which songs are sold. It doesn’t - it seems to show the aggregate: how many songs were sold in total. If you plot the figures in a more meaningful way, that is, to show songs sold per month, you’ll get a much more linear increase. Still, very impressive, but not a crazy exponential growth.

    Yet, you don’t have to be Gauss to realize that…

    David Reitter had this to say on Mar 03, 2005 Posts: 4
  • Try [url=http://www.magnatune.com]http://www.magnatune.com[/url] for an idea of how online music should be sold.

    It really shocks me that people are not only happy to buy music that restricts their use of it and offers low quality but actually seem to think its a good thing!

    I encode a lot of music to OGG, I did not realise I was one of only 12! ITMS does not support MP3 either, I wonder how many MP3 users there are looking from within the RDF? 25? 50?

    ITMS *may* be the best of a bad bunch but don’t try and talk it into something it is not. The proprietary and restrictive nature of the ITMS *should* concern everyone interested in music.

    It upsets to me see users of a “niche” OS ignore the advantages of open standards when its their side thats winning.

    vortigern had this to say on Mar 03, 2005 Posts: 25
  • Hi Dave,
    I didn’t have time to make a graph before the deadline so I found one on the web. You are correct it is an aggregate. This morning I took a few minutes to create a graph of songs sold per month going with the limited data available. Take a look:
    http://homepage.mac.com/cseibold/graph.jpg
    An impressive trend and one that is difficult to express linearly. (Note: I never called it exponential only “astounding”). You can get a pretty good fit with a quadratic polynomial but, really, that is a little bit of overkill for this kind of stuff. Of course it has been a while since school so I won’t maintain that my math abilities haven’t atrophied. In short take the graph for what is worth which isn’t all too much.

    Thanks

    chrisseibold had this to say on Mar 03, 2005 Posts: 48
  • *** encode a lot of music to OGG, I did not realise I was one of only 12! ITMS does not support MP3 either, I wonder how many MP3 users there are looking from within the RDF? 25? 50?
    ***

    The ipod and iTMS have always supported MP3.

    hmurchison had this to say on Mar 03, 2005 Posts: 145
  • The supply and demand on music is incredible. I would bet that the labels would sell three to four times as much music if the price were to drop in half.

    Another consequence of the lower prices, is that filesharing would fade away, based on the nuisance factor (when it is easier and cheaper to buy the music, that’s what people will do).
    - Itunes music store is a good first step).

    At 50/song-$5 album I for one would certainly buy a lot more of it. The risk factor at +$10/album is just to much to justify buying a lot of lesser known artists.

    I’ve put together a list of a few places to go for great free music downloads and to learn about new artists.

    The emphasis is on quality, rather than free.

    On the other hand if the labels put prices up, you are correct, filesharing will return with a vengeance.

    alec had this to say on Mar 03, 2005 Posts: 2
  • “The ipod and iTMS have always supported MP3. “

    I did not mention the Ipod! (please do not put words in my mouth, I am pretty careful with what I write, spelling excepted grin ) As I said I was unable to access the ITMS but I would be happy for you to explain to me how to buy MP3s from there. My understanding was that only Apples DRMed AACs were available.


    The Ipod is a totally different matter to the ITMS IMO, it is a device for the playback of content and it will play back unDRMed content (either AAC or MP3 IIRC). This does not affect what you can do with the content you have purchased (provided the content is not DRMed of course).

    To explain myself better, owning an Ipod does not affect my ability to play my legal owned content, ITMS does indeed restrict my ability to play my legal owned content (purchased from there, of course). At the moment it is easy to bypass but you it is a slippery slope once DRM is accepted, we have accepted unreasonable limitations on what we can do with content, there is no reason to belive they will not get more severe in future.

    I would expect to get through several content players over my lifetime but I would not expect to have to repurchase the content for each and every one of those players.

    If you just look at how much it cost to fill an Ipod with music from the ITMS you can see how the content far outvalues the player.

    I have no problem with proprietary players but I do have a problem with proprietary content.

    As an example, I am quite happy to use Photoshop (I actually use the Gimp and PSP but I mean in principle) however I would unhappy if my digital camera took photos that could only be viewed and used in photoshop or if any work I produced in photoshop could only be viewed by people with photoshop.

    The formats used for the exchange of infomation should be open, what the end user decides to use to absorb that information is irrelevent.

    I have also been thinking about that jibe at OGG with *only 12* users, it really gets up my nose from a Mac site. I would not be suprised if there were more OGG users than Mac users. Are Mac fans happy with the idea that they are a small enough market to be dismissed as irrelevent?

     

    vortigern had this to say on Mar 03, 2005 Posts: 25
  • hmurchison

    Actually I have just signed up for an ITMS account and the T&Cs; are unbelivable f you actually read them!

    And despite your assertions that ITMS supports MP3, I can see no way of even telling what format the tracks are in prior to downloading them. When I purchased a track (canceled just before downloading) a track it did not offer me a choice of MP3 or DRMed ACC. And having search ITMS support for ages I can find no mention of MP3 downloads nor for that matter exactly what format ITMS tracks are actually in (other than vauge refs to AAC.).

    If you could please help me to find those MP3s you claim ITMS supports I would be very grateful. I would actually consider using it if I could find these elusive MP3s.

    vortigern had this to say on Mar 03, 2005 Posts: 25
  • Hopefully this will clear up some confusion. iTunes and the iPod will play MP3s and MP4s.

    The iTunes Music Store will sell you music in MP4 format.

    I don’t really see why you would still want to use MP3 however: unless of course you are listening to your music on a device other than the iPod. (if you are, my apologies: you really should get an iPod)

    But if you must have your music as an MP3, you can simply burn it to an audio cd and rip the cd as an MP3.

    Gregory Ng had this to say on Mar 03, 2005 Posts: 54
  • “Hopefully this will clear up some confusion. iTunes and the iPod will play MP3s and MP4s.”

    You are, obviously, the one confused, I never mentioned the ipod in my orig post ( and you are the first to bring up itunes). I have nothing against the ipod it plays all my music (and anybodys music if they have not bought DRMed music, although in limited formats) my beef is with the ITMS this offers music that is unplayable on many operating systems and devices and is controlled by Apple. It infringes fair use and imposes unreasonable demands on customers.

    The fact that many Apple fans confuse ITMS and the Ipod is shocking. One is a device for the playback of content, the other is a provider of content that limits the devices that you can play back that content on.

    I am, and always have been, well aware of what iTunes and the ipod will play, my post is regarding the ITMS sells, crippeled music that offers you less rights and quality than a CD.


    As to me wanting to use MP3, it is far prefferable to DRM ( and available at far higher quality then ITMS), and as to what device I am listening to my music on its called a HI-FI, FLAC or WAV allow me to get the best quality from it by burning to CD, 128kb/s drm acc however sounds like poo.

    When I need to transport my music on a portable device with limited storage i can take my WAV file and encode it to an OGG or MP3 with the best quality available rather than transcoding from an already lossly format such as AAC, Oh I forget you are can’t even do that with ITMS music as its DRM.

    My argument is nothing to do with the Ipod it is an acceptable, if stupidly priced, device. it is in the DRMing of information and the tieing into a platform that is worthy of MS, which you guys seem happy with because its steve Jobs and not Bill gates!

    If its not clear enough: YOU can play your OGG files on any platform you wish to, now and in the future, the same applies to a red book CD, it does not apply to a track from the ITMS nor a WMA DRM.

     

    vortigern had this to say on Mar 03, 2005 Posts: 25
  • “But if you must have your music as an MP3, you can simply burn it to an audio cd and rip the cd as an MP3.”

    you need to read the T&C, you cannot do this with music from the ITMS. Even if you are prepared to do this (why not just download from P2P in this case?) the quailty goes from poor to very poor.

    vortigern had this to say on Mar 03, 2005 Posts: 25
  • “(if you are, my apologies: you really should get an iPod)”

    My apologies if you are trying to do XYZ on anything but an MS Windows platform, if you are you should really just get Windows.

    grin

    vortigern had this to say on Mar 03, 2005 Posts: 25
  • “I encode a lot of music to OGG, I did not realise I was one of only 12! ITMS does not support MP3 either, I wonder how many MP3 users there are looking from within the RDF? 25? 50?”

    Dude, it’s context. You stated the above. The context is “encode”. So, the response was about encoding your music. If you want to encode your music in mp3 then it’s a non-issue.

    And, further, if they are “MP3 users”, presumably they are because they have been encoding their music in mp3 and have no problems using iTunes. If they want to buy from the ITMS, then their AAC files will still have no problems with iTunes. The only problem is the one you have, the fact that you can’t read your own post and realize the context you put your comments in, led to the confusion.

    KenC had this to say on Mar 03, 2005 Posts: 1
  • Vortigern, For your information, when purchasing songs from the ITMS, the songs are saved in iTunes. Therefore my point about iTunes’ capabilities is not irrevalent.

    And according to the ITMS Terms and conditions:

    Usage Rules.
    “You shall be entitled to export, burn or copy Products solely for personal, noncommercial use.”

    To me, that sounds like you can burn it to a cd. In fact, as an actual user of iTunes and a customer of the ITMS, I can tell you with absolute certainty that you can burn these songs to a cd.

    I have no confusions whatsoever between the ITMS and the iPod. What i am confused with is why you don’t try out the ITMS before writing false information about it.

    Gregory Ng had this to say on Mar 03, 2005 Posts: 54
  • Its not false, you can burn to a CD, I never said you could not!

    But you are not allowed to circumvent the copy protection which your suggestion of burning to a CD and then Ripping to MP3 most certainly is. 

    If you don’t understand, your suggestion to me was not to listen to the CD but just to get around the copy protection.

    vortigern had this to say on Mar 03, 2005 Posts: 25
  • “Vortigern, For your information, when purchasing songs from the ITMS, the songs are saved in iTunes”

    If this has not been my entire point I will kill myself.

    I wish to purchase the CONTENT, not the fscking *apple experience* that you seem to want, I want to play my CONTENT on the player of MY choice, not APPLES. You may be happy will the, very limited, iTunes but I would actually like something more from a player. And be able to use my PURCHASED CONTENT as I WISH, without paying for additional hardware and software over what I already own which is perfectly capable of playing Audio in a variety of formats.

    I must apologise if I have come across as beligerent this evening, I intend no harm but this topic really irks me, I run windows, linux and mac a HI FI and a car CD player, I want to pay for the CONTENT and play how the hell I like. and I don’t want to step through hoops to do it, nor do I want to violate the law, when I might as well just download it at no cost if I would do that, so suggestions of getting around the DRM on ITMS music are as welcome as “use Kazaa”.

    Frankly magnatune suits me fine, just look at the T&C, want to use it as a backing track on your home movie to give to your family, ITMS, tough SH1T, Magnatune, go ahead.

    My feeling is, I’m afraid to say that if the ITMS was the MS MS that only allowed music to be downloaded in an MS format and played only on an MS player, peoples view here would be somewhat different .

    That really annoys me I may own a MAC and love MacOS but I feel no part of a Mac community that acts just like an MS community, you are just as bad as each other.

    As i said I don’t want to upset anybody, but I giving up now.

    vortigern had this to say on Mar 03, 2005 Posts: 25
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