By now you’ve probably heard of the scandal that erupted over the past few days over a “Baby Shaker” app that debuted on Monday. Apple pulled it from its App Store Wednesday after a public outcry.

The 99-cent app presented a crying baby the user quieted by shaking the phone. The silenced baby had two red X marks over its eyes.

In a week that otherwise featured great news from Cupertino – a record non-holiday quarter and the billionth app sold from the App Store – the affair was an inopportune distraction.

Responding to multiple media inquiries, Apple spokesperson Natalie Kerris delivered this brief apology Wednesday:

“This application was deeply offensive and should not have been approved for distribution on the App Store. When we learned of this mistake, the app was removed immediately. We sincerely apologize for this mistake and thank our customers for bringing this to our attention.”

The developer responsible for Baby Shaker, Sikalosoft, apologized as well. A statement on its Web site says, in part: “Yes, the Baby Shaker iPhone app was a bad idea. You should never shake a baby! Even on an Apple iPhone Baby Shaking application. In case you are unaware Baby Shaker was an Apple iPhone application that was greatly lacking in taste.”

But several organizations concerned with the prevention of head trauma to infants and children remain unsatisfied. In particular, the Sarah Jane Brain Foundation has announced a prolonged national demonstration against Apple and iPhone partner AT&T that will run from May 3 through May 17 across 15 U.S. cities unless Apple does more to atone for its error.

This is one of those times when Apple’s characteristic reticence does not serve it well.

The Baby Shaker app is offensive in a way much more profound than some of the other questionable offerings on the App Store, such as those that make rude noises or simulate bouncing breasts. This app made a joke out of a deeply serious and tragic issue.

And because from the outset Apple has insisted on screening every app, it assumes responsibility for anything objectionable.

That means Apple is on the hook for more than just a terse 44-word statement. It has a raging PR fire on its hands, and the quicker it acts to extinguish it the better.

The folks at the Sarah Jane Brain Foundation have requested Steve Jobs publicly apologize to the families and victims of Shaken Baby Syndrome, provide a full explanation of how the app got through Apple’s screening process and take action to “mitigate the damages it has caused to the many prevention efforts throughout the country.”

Mostly, I agree. One of Apple’s greatest assets is its image. Allowing that image to become further tarnished by this incident is unwise and unnecessary. Waiting for it all to “blow over” would make Apple look like just another big, callous corporation.

Here’s what Apple should do:

Get personal: Tim Cook, not Steve Jobs, should apologize to the families. Cook is in charge during Jobs’ medical leave; it’s his responsibility to deal with any crisis. Showing some heartfelt contrition here would help defuse much of the anger.

Fix the system: Apple is loath to offer any details about how it does anything internally, but could at least say it is investigating how the Baby Shaker app got approved. Better still, it could promise to identify the responsible employee(s) and discipline them. That could mean involuntary discharge, though that would be up to Cook. Apple needs to fix whatever went wrong not only to placate the offended, but for its own good.

Make a contribution: Since it was sold for only two days, the Baby Shaker app likely caused little actual harm, so I don’t see much need for Apple to create a plan to mitigate damage.

But that doesn’t mean Apple shouldn’t try to help. The company has a vast pile of cash – $28.9 billion -- at its disposal. Some large donations to a few organizations working to help victims and families of Shaken Baby Syndrome would be a great gesture and could make a real difference.

Ironically, the publicity from this unfortunate incident probably will help those organizations by focusing a great deal of attention on an issue most people rarely think about. Raising public awareness is a major function of these groups.

Although Apple never should have let this happen, a pro-active approach could mitigate damage to its image while aiding a worthy cause.

But only if it can defy its obstinate corporate culture. Frankly, I’m not sure that’s possible.

Posted by David Zeiler at 4:25 AM | Permalink | Comments (2)
                       

Apple may not quite be recession-proof, but it’s darn close.

Reporting earnings for the March quarter yesterday, Apple exceeded Wall Street expectations by a resounding 24 cents per share. Its profit of $1.21 billion translated to $1.33 per share, well above the $1.09 predicted.

To put this achievement in perspective, consider that Apple’s total profit was 26 cents per share as recently as the September quarter of 2004. In its fiscal 2003 Apple’s entire annual profit was just 19 cents per share.

So once again Apple made the gloomy prognosticators look foolish. (Even I admit I had my doubts.)

Overall Apple had its best non-holiday quarter ever, said Chief Financial Officer Peter Oppenheimer, with revenue increasing 9 percent year over year and profits increasing more than 15 percent.

Though Mac sales declined 3 percent from 2.29 million units in last year’s March quarter to 2.22 million, the iPhone picked up the slack and then some.

Unit sales of the iPhone rocketed 123 percent resulting in a 302 percent revenue increase year over year. The iPhone contributed $1.52 billion to Apple’s revenue total for the quarter, compared to $378 million last year.

Of course, the comparison isn’t exactly fair. The iPhone now is sold in 81 countries; in the early part of last year it was available in just four, including the United States.

Meanwhile, iPod unit sales grew 3 percent to 11 million, though revenue declined 16 percent from $1.818 billion to $1.665 billion.

I found this odd since Apple Chief Operating Officer Tim Cook said iPod Touch sales had more than doubled year over year. I’d have thought the Touch’s higher margins would have helped prop up overall iPod revenue.

But the iTunes Store segment (which includes “iPod services and Apple-branded and third-party iPod accessories) had a nice 18 percent bump in revenue from $881 million to $1.049 billion.

The amazing success of the App Store – which is on the verge of selling its 1 billionth app -- apparently gave the iTunes Store an extra boost this quarter.

A less likely contributor to Apple’s successful quarter was the Software, Service and Other sales category, which also saw revenue increase 18 percent to a tidy $625 million. Oppenheimer said that sales of the iLife ’09 and iWork ’09 suites, introduced in January, were better than anticipated.
A few more nuggets from the conference call:

Mac holds its own: For the past three months, numerous analysts and pundits have berated Apple for refusing to lower prices or introduce a low-cost laptop to compete with cheap netbook PCs. Apple has stubbornly held its ground, but was not punished as harshly as some predicted.

In fact, given the “challenging economic environment, Oppenheimer said the company was “very positive about our Mac performance.” He noted that IDC data showed the larger PC market contracting by 7 percent in the quarter, making the 3 percent decline in Mac sales look better by comparison.

No wonder Oppenheimer prefers IDC’s data; its report last week showed Apple’s market share increasing from 7.2 percent to 7.6 percent. Gartner’s report showed Apple’s market share falling from 8 percent to 7.4 percent.

The 2Q results could have been much worse. Cook said the refresh of the entire Mac desktop line March 3 gave sales a big boost at the end of the quarter. He said Mac sales in the U.S. suffered because both creative professionals and education customers were putting off buying due to the poor economy.

Unit sales of laptop Macs dove 22 percent, and many of those who did buy went for the previous-generation model $999 MacBook. Cook called that a “good thing,” seeing it as strength among the consumer market.

The dreaded netbook question: Asked about the diminutive PCs, Cook blasted the category as he has before, criticizing the “cramped keyboards, terrible software, junky hardware, [and] very small screens.”

Cook said Apple had no interest in creating such a product, then deftly pointed out that the iPhone and iPod Touch can perform many of the tasks for which people buy netbooks, such as e-mail and light Web browsing.

And then he hinted once again that Apple might be developing some sort of innovative product in the genre, offering teasers such as “the product pipeline is fantastic for the Mac.”

Retail Stores: The stores made a bit less money, but Apple is selling its wares – particularly the iPhone – in more places these days. Still, Oppenheimer said “about half” of all Mac sales in the stores were to customers who had never previously owned a Mac, same as he always does. So apparently people haven’t stopped switching from Windows to the Mac, no matter what Lauren says.

The money’s in the mattress: Apple’s cash position grew by $841 million, bringing its war chest to $28.9 billion. And no plans to spend it. “Our investment priority for the cash continues to be preservation of capital,” Oppenheimer said. So there.

Steve Jobs: When asked for an update on the recuperating CEO, Oppenheimer reiterated the company line: “We all look forward to Steve returning to Apple at the end of June.”

The iPhone platform: The combined sales of the iPhone and iPod Touch have reached 37 million units, with about 21 million iPhones and 16 million Touches. Both Cook and Oppenheimer spoke often of the new platform’s potential, particularly with the iPhone OS 3.0 coming this summer. “I think it unleashes a whole new level of innovation that keeps Apple years ahead of everyone else,” Cook said.

Feeling the love for AT&T: Piper Jaffray’s Gene Munster, citing survey data showing that some people don’t buy an iPhone just to avoid AT&T, asked why Apple maintains the exclusive relationship in the U.S.

Cook replied that AT&T has “done a very good job with the iPhone.” He said Apple is happy with AT&T and has no plans to change the relationship. He also admitted that Apple’s choice of GSM technology – driven by the need to make the iPhone work with the most common networks globally -- precluded a relationship with Verizon, which uses CDMA.

Posted by David Zeiler at 7:13 AM | Permalink | Comments (1)
                       

It’s been a week. Are you still hopping mad about Apple introducing a triple-tiered pricing scale at the iTunes Store that tops out at $1.29?

Maybe some of you still are. But in all probability you’ll get over it in time. And if you bought music from the iTunes Store before, chances are you’ll continue to do so even if you boycott it for a while.

As of April 10, Apple did what it said in January it would do – leave behind the 99 cents for each song doctrine for variable pricing at three levels: 69 cents, 99 cents and $1.29.

Although I’m just as displeased about this development as everyone else, from a business standpoint it makes sense for Apple.

It’s obvious the record labels pushed for this increase, particularly considering that both Amazon and Wal-Mart both added a more expensive tier to their services ($1.29 for Amazon, $1.24 for Wal-Mart) almost immediately after the iTunes increase went into effect.

But I wonder how much Apple protested. With its dominant market position, Apple can best afford to risk charging more. And you can bet Apple gets a proportional cut from the price increase, which will make the iTunes Store more profitable.

Some have argued that the price increase will deter customers and eat into profits for all digital music vendors.

In particular a Billboard report last week that noted how many of the $1.29 songs slipped several positions in the charts, while several 99-cent songs moved up.

That’s to be expected, but it won’t last. Anyone who prefers shopping at the iTunes Store will recover from the sticker shock within a few weeks or, at most, months.

Let me share a little story. A couple of years ago, the snack vendor at the Baltimore Sun raised the prices on everything in the machines. For the first week, I bought nothing out of those machines.

But after another week or so, I cracked. I bought a bag of chips. A few days later, a cinnamon Danish. I wasn’t buying as much as before, but I was buying.

As the months went by, my snack purchasing gradually climbed back to its previous health-endangering level. I eventually stopped thinking about the price increase.

You may be ticked about $1.29 songs now, but you want your music and you’d rather not go the piracy route. Otherwise, you wouldn’t bother paying for legal downloads.

The reality is neither Apple nor its rivals needs the 99-cents-fits-all policy anymore. Yes, it was genius in 2003. It kept things simple and encouraged a wary public to try out iTunes.

But as a business tool, it has outlived its purpose.

Truth be told, the new pricing structure is not all that bad for customers. Apple has succeeded in completely eradicating digital rights management from legal downloads. Most albums remain $9.99. And if we ever see more of those 69-cent songs, fans of less in-demand music will actually pay less than before.

As for Apple’s competitive position, it remains unchanged. Amazon and Wal-Mart have less expensive offerings on the whole, but that was true before last week.

Apple will continue to dominate. According to research firm NPD Group, 87 percent of people who download digital music use the iTunes Store. Amazon is second with 16 percent, Wal-Mart a distant third.

Digital music customers seem less fixated on price and more on convenience and ease of use. Having the dominant MP3 player helps, too.

“Customers are pleased with the Apple ecosystem,” says NPD’s Russ Crupnick in his blog.

Another Apple advantage is those ubiquitous gift cards.

Crupnick says gift cards usually negate concerns over price. “Let’s face it, many consumers look at the face value of the gift card, rather than the cost of each song they’re purchasing.”

Finally, many downloads bought elsewhere end up on iPods anyway. The iTunes Store profit is a bonus. As long as people keep buying iPods, Apple wins.

Posted by David Zeiler at 8:15 AM in iTunes/iTunes Store | Permalink | Comments (7)
                       

The ad-supported music Web site SpiralFrog went dark Friday just short of 18 months after it launched with the goal of luring customers from pirate sites.

The music was free, but only as long as the customer maintained a subscription. Songs could not be burned to a CD. SpiralFrog-obtained music is expected to stop playing for current customers within 60 days.

Although many in the media at the time SpiralFrog launched suggested it could grow into an “iTunes Store killer,” I disagreed. I predicted SpiralFrog would fail with a year because of its many drawbacks, not the least of which was incompatibility with Apple’s market-dominating iPod.

SpiralFrog employed Microsoft’s PlaysForSure digital rights management, limiting the service to WMA-compatible MP3 players only. That excluded Microsoft’s own Zune as well as the iPod.

Customers also had to renew their subscription every 60 days or lose access to their music. And SpiralFrog could only get two of the four major labels on board (Universal and EMI), which restricted the breadth of its catalog.

Changes in the competitive landscape since SpiralFrog’s Sept. 2007 launch further destabilized its business model. Within a few months Amazon was selling DRM-free MP3s. The iTunes Store went completely DRM-free this past January.

According to a story on CNET, the collapsing economy and the resulting shrinkage in advertising pushed the company over the brink. A heavy debt load didn’t help, either.

The demise of SpiralFrog, along with another ad-supported music Web site (Ruckus, which shut down Feb. 6), implies that particular model may just be unworkable.

Certainly such sites have never seriously threatened Apple’s iTunes Store, although I think they would have fared better had they been compatible with iPods.

How is it all those iPod killers, iTunes Store killers and iPhone killers never quite land that fatal blow?

Posted by David Zeiler at 6:16 PM in iTunes/iTunes Store | Permalink | Comments (6)
                       

Yesterday I received a suspicious e-mail informing me that I had a “billing problem” with my iTunes Store account, a sign that Internet-based scammers again are targeting Apple customers.

The goal, of course, is to trick the recipient into clicking on a fake Web address contained in the e-mail. Those that take the bait land at a fraudulent Web site where they unwittingly surrender their credit card or account password information to the criminals.

A similar wave of e-mails aimed at iTunes Store customers went out last May. I received a phishing e-mail regarding my (then) .Mac account last June. And less than two weeks ago Gizmodo reported on a phishing e-mail directed at people due to renew their MobileMe accounts.

Most people recognize these scam messages for what they are and delete them immediately. But a few click impulsively, driven by false concern over their account. Don’t be one of those people.

The e-mail I got yesterday was not as sophisticated as others I’ve seen. Though I admit seeing the words “iTunes Store” and “billing problem” in my e-mail caught my attention.

But the message within clearly was a phishing scam, riddled with red flags: the “undisclosed recipients” in the address line, the blank space next to “Dear,” the numerous spelling errors, the awkward English.

It’s been said many times before, but it always bears repeating: Never click on links in e-mails that propose to take you to a page where you must “verify” any account or password information. Not for Apple, not for a financial institution, not for eBay. Never do it.

If you’re concerned about a personal account, go directly to that company’s Web site and log in as you would normally. You can then safely check your account.

Posted by David Zeiler at 4:17 AM | Permalink | Comments (2)
                       

More mundane than magic, Apple’s final Macworld keynote produced no blockbuster iPhone-caliber product, with the bulk of the 90-minute presentation consumed with product updates.

Perhaps the biggest surprise was the musical guest at the end – legendary singer Tony Bennett, rather than the usual more pop contemporary John Mayer. Steve Jobs made not so much as a cameo.

Jobs’ designated replacement, Apple Vice President for Worldwide Product Marketing Phil Schiller, spent more than half of the keynote demonstrating features in the new versions of Apple’s iLife and iWork software suites. The lone hardware announcement concerned the high-end 17-inch MacBook Pro.

Schiller saved one long-awaited chunk of news for last – as of today, 80 percent of the songs on the iTunes Store will no longer have copy protection, with the remaining 20 percent following by the end of March.

The lack of copy protection means users will be able to copy the music they buy on to as many devices as they like without restriction. The issue has caused much controversy since the iTunes Store launched in 2003.

Other online music vendors like Amazon have been selling DRM-free songs for over a year, so this move just catches Apple up. But because iTunes is the market leader, the move hammers the final nail in DRM’s coffin, at least for music. Schiller made no mention of TV shows or movies.

Apple also said as of April it will offer flexible pricing at the iTunes Store, finally caving to years of pressure from the major music companies. Instead of all songs for 99 cents, some will cost a mere 69 cents – 5 cents cheaper than even a Wal-Mart’s discounted downloads – or $1.29. Some songs will remain 99 cents; most albums will remain $9.99.

Expect new releases and popular songs –in other words, most of what people will want to buy -- to tip toward the $1.29 price.

Those who have purchased a lot of songs and music videos from iTunes over the years can obtain DRM-free versions, but at the cost of 30 cents per song and 60 cents per video.

The new MacBook Pro Schiller unveiled really belongs to the family of new MacBooks announced in October, the ones with shells carved from a single block of aluminum. At the time many noted the missing 17-inch model.

Maybe Apple felt it needed to save this monster MacBook Pro for the keynote so it would have at least one cool piece of hardware to show. The new 17-inch MacBook Pro is less than an inch thin, weighs a sleek 6.6 pounds, and comes with 4 gigabytes of memory and a 320 GB hard drive. Alas, the processor is a 2.66 Intel Core 2 Duo, not a quad core as I had hoped.

The most compelling feature of the 17-inch MacBook Pro is its battery. Schiller said this MacBook’s custom-made battery can supply an amazing 8 hours of computing time on a single charge – 3 more hours than the previous 17-inch Pro -- and that it will endure 1,000 recharge cycles, roughly five years of use.

The down side is that the cell is not user-removable, but Apple has a program for exchanging the battery. In all probability, a typical user would only need to exchange the battery once over the machine’s life.

And it can be yours for (ahem) a reasonable $2,799.

The bulk of Schiller’s talk covered the new features in fresh versions of the iLife suite (iPhoto, iMovie, GarageBand) and iWork suite (Keynote, Pages and Numbers).

The noteworthy twist here is the beta launch of a Google Docs-like service called iWork.com. People using the iWork apps will be able to share documents over the Internet via iWork.com. However, users will only be able to edit the documents if they download it to their computer and, presumably, have a copy of iWork on their Mac. Apple doesn't make an iWork version for Windows.

All that means Apple will have to do better if it wants people to give up using Microsoft Office for creating and sharing of word processor, presentation and spreadsheet documents.

Google might have something to worry about if Apple 1) didn’t plan to charge separately for the service and 2) if Apple did what I’ve suggested and create platform-independent online versions of its iWork apps that people could access via its MobileMe service.

Schiller didn’t say how much iWork.com would cost, or whether it would be a monthly or annual fee, but charging for it is bad strategy. As a new player competing against free services Apple needs to find a better way to monetize it, like my MobileMe suggestion.

Schiller gave lengthy demos of new software features that should appeal to many Mac users, though perhaps not enough to inspire them to pay for an upgrade.

iPhoto ’09 offers several nifty new organizational tools. Faces will remember a person’s face and create a category of photos of that person.

Better yet, this feature can integrate with such Web 2.0 sites as FaceBook and Flickr. Slowly Apple has shown recognition of the importance of making its products more Web 2.0 friendly. (Note to Apple: Better integration of iMovie with YouTube would also be a good idea.)

Places uses the GPS data in some cameras (and, as Schiller pointed out, the iPhone) to organize photos according to location. You can see where you’ve traveled by looking at an iPhoto map that puts virtual stickpins in the places where you’ve taken photographs. If your camera lacks GPS data, you can tag your photos manually.

Schiller half-admitted last year’s version of iMovie wasn’t quite a hit with many customers: “not every feature was there for every customer.” This year’s iMovie adds several appreciated features, such as auto-stabilization for shaky video (like those taken on a bumpy car ride) and animated travel maps.

GarageBand, the music creation part of iLife, adds a “Learn to Play” feature that provides nine video lessons each on how to play the guitar and piano.

Once you’ve completed those, you can learn how to play a some individual songs tutored by the artists themselves. Yep, you can learn how to play “Proud Mary” from John Fogerty himself. Other artists include Sting, Sarah McLachlan and Norah Jones. Apple will provide more lessons via download for $4.99 each.

Among the iWork apps, the coolest addition was not part of the suite but a 99-cent iPhone app called Keynote Remote that turns your iPhone or iPod Touch into a touch-screen remote control of the Keynote presentation program.

The iLife 09 suite ships in late January at the usual price of $79 -- $99 for the Family Pack. The iWork suite is available today, at the same prices. It requires the Leopard (Mac OS X 10.5) operating system. You can get both suites along with Leopard as part of he new “Mac Box Set” package for $169.

Posted by David Zeiler at 3:43 PM in MacBook, Macworld & WWDC, Software by Apple, iTunes/iTunes Store | Permalink | Comments (1)
                       

While we’re waiting for Apple Corps Ltd. and EMI Music to iron out their differences so that the Beatles’ catalog finally can appear on the iTunes Store, music fans can seek out music by old favorite local bands.

Last year I noted on this blog the availability of several albums by Crack the Sky, a band not originally from Baltimore but one that became very popular in the region.

The iTunes Genius feature pointed me to another home-grown favorite available on iTunes: KIX, a glam metal band that hailed from Hagerstown. After several years as a club favorite in Baltimore, particularly at Hammerjack’s, KIX went on to national renown with such AOR staples as “Don’t Close Your Eyes,” “The Itch,” “Cold Shower,” and “Blow My Fuse.”

Oddly, though most of KIX’s albums are present, not all have every song that appeared on the original. Luckily you can find just about all of the band’s best stuff scattered around in the compilations, but fans will have to hunt for their favorites.

I was more surprised to find several albums by the Ravyns on iTunes. The Baltimore-based Ravyns played Beatle-esque dance rock in area clubs for most of the 1980s.

The Ravyns’ released one self-titled album with MCA Records and had a minor hit with “Raised on the Radio,” which was included on the “Fast Times at Ridgemont High” soundtrack.

In addition to the MCA album, iTunes offers “Remnants,” the songs planned for the Ravyns’ second album; and “Live at Maxwells 1983,” a must-have for the regular fans who showed up many a night at that long-defunct Parkville hotspot.

As with the KIX material, not all is perfect. Several of the previews of the songs on the live album are mislabeled. Clicking on “Little Misstique,” for example, plays the “Like Her So” instead.

Just for the heck of it I searched for a few other bands I recalled from my misspent youth. Most were absent, but I did find a few albums by Philadelphia’s Hooters, including the excellent “Nervous Night.”

As the iTunes Store has matured it’s great to see Apple digging into the troves of accomplished local bands from the 1970s and 1980s that didn’t quite make it over the hump to major stardom.

11/26 UPDATE: I just discovered that two of Ravyn Rob Fahey's solo albums, "Breaking and Entering" and last year's "Trust Me, I Do This All the Time" also are available on iTunes. And fellow Ravyn Kyf Brewer shows up on iTunes as a narrator of several audiobooks -- mostly Danielle Steel works. Brewer's solo stuff is not on iTunes but Company of Wolves, the hard rock band he formed after the Ravyns split up, is.

Posted by David Zeiler at 8:51 AM in iTunes/iTunes Store | Permalink | Comments (1)
                       

Despite all the attention the media has lavished on the iTunes Store, CDs still dominate music purchases by a huge margin, according to a study released Monday by the Pew Internet and American Life Project.

The survey, conducted by phone last August, focused on how the Internet influences consumer purchases of music, cell phones and houses.

The Pew report says 82 percent of music buyers still prefer the old-fashioned CD. An eyebrow-raising 62 percent said they purchased all their music on CD, with 20 percent more saying most of their purchases were CDs. Only 12 percent said all (5 percent) or most (7 percent) of their purchases were via digital download.

How can this be? Just last month research firm NPD declared Apple the Number One U.S. retailer in January with 19 percent of the market. (Wal-Mart was second with 15 percent and Best Buy third with 13 percent.) Furthermore, the NPD report said digital downloads made up nearly a third of music purchases in January.

We keep reading news stories about plummeting CD sales and rising downloads. It doesn’t seem to add up, but I think there’s an explanation.

First let me say I believe Pew’s data is solid. In fact, it almost perfectly mirrors the RIAA’s 2007 consumer profile statistics. That data shows CDs comprising 82.6 percent of sales, compared with 11.2 percent for digital downloads.

The RIAA also supplies annual data, which helps put the digital numbers in perspective. In 2006, digital downloads comprised just 6.7 percent of music sales. That means digital download sales jumped 67 percent in one year. As recently as 2004 digital downloads made up less than 1 percent of sales.

I suspect part of the reason the Pew survey seems at odds with recent trends is that it was conducted six months before the NPD report. Remember, it was only in June 2007 that Apple ascended to Number Three among music retailers (again, according to NPD data).

Back then Wal-Mart led with 15.8 percent of the market, followed by Best Buy with 13.8 percent. Apple had just 10 percent. That means from June to January Apple nearly doubled its market share.

I imagine the Pew researchers would likely get significantly different results were they to conduct a music-buying survey this month.

While CD sales may continue to outpace digital downloads for some time, the digital revolution cannot be denied. Eventually digital downloads will surpass CD sales, just as CD sales overtook vinyl LP sales in the 1980s.

Research organization In-Stat said last month that digital sales will account for 40 percent of all music sold worldwide by 2012, up from 10 percent in 2007.

Yet another NPD report issued in February estimated that 1 million consumers abandoned the CD in 2007. From the press release: “In fact, 48 percent of U.S. teens did not purchase a single CD in 2007, compared to 38 percent in 2006.”

Even the Pew survey hints at the digital future of music retailing. A chart that breaks down purchasing habits by age group shows younger consumers moving rapidly away from CDs in favor of digital downloads.

In the 18-to-36 age group, 27 percent said they bought digital downloads at least half the time. Only 13 percent of those in the 36-to-50 age group said the same; for the over 51 crowd, the number fell to 6 percent.

Since the iTunes Store holds about 70 percent of the worldwide legal download market, Apple stands to reap great rewards from the inexorable move of music consumers -- led by the youngest among us -- away from CDs to digital downloads.

Posted by David Zeiler at 5:41 AM in iTunes/iTunes Store | Permalink | Comments (5)
                       

For the second time this month, Apple has chosen strategy over principle.

After losing NBC Universal’s content from the iTunes Store in a much-publicized tussle over variable pricing last fall, Apple today announced a deal with HBO to offer many of its most popular shows at two price points.

Customers can buy some shows at the usual $1.99: “Sex and the City,” “Flight of the Conchords,” and “The Wire” (the brainchild of former Baltimore Sun reporter David Simon). But others cost $1 more: “The Sopranos,” “Deadwood,” and “Rome.”

This follows last week’s announcement that Apple will offer the iPhone through two wireless carriers in Italy, breaking with its policy of one carrier per country.

Apple did not explain why it made an exception for HBO on pricing. In the iPhone’s case, Apple COO Timothy Cook had forewarned back in January that Apple is “not married to any business model.”

I view the Italy iPhone deals and the HBO deal as signs that Apple – and specifically CEO and head guru Steve Jobs -- increasingly is willing to sacrifice its historically stubborn adherence to philosophical ideals in favor of pragmatic solutions.

Perhaps the most infamous example of this was Apple’s enduring commitment to the one-button mouse. After years of grumbling from large numbers of Mac users Apple finally relented in 2005 with the Mighty Mouse.

Not that Apple is wrong to stand on principle – Jobs’ legendary insistence on ease of use in all his products has paid off in the success of the iPod and the resurgence of the Mac – but when an ironclad policy becomes counterproductive, the company needs to change it.

After all these years, Apple finally is getting better at knowing when to dig in its heels and when to be flexible.

That said, the HBO deal raises other issues.

One major question is whether Apple will consider variable pricing for content from other networks, or for music supplied by the major labels. You can bet that each content provider will ask for some kind of flexibility when its contract renews. And Apple will have a tough time saying no now.

I think Apple should strongly consider allowing some variable pricing at the iTunes Store. Such a minor change would scarcely befuddle music and video customers well versed in the ways of retail.

And variable pricing doesn’t have to mean lots of higher-priced content. Frankly, I’d like to see lower prices on some of iTunes’ routine fare. How about 99 cents for episodes of “Bewitched”? Or even “Hannah Montana”? (as if parents haven’t got every word of dialogue memorized already from the incessant reruns on the Disney Channel) For that matter, what about cheap TV episode rentals?

Another question is whether Apple and NBC Universal will kiss and make up now that Apple has compromised on pricing with HBO. Eddy Cue, Apple’s vice president of iTunes, told the Associated Press that NBC is now the only major channel not offering shows through iTunes.

But NBC wanted more than variable pricing. It wanted Apple to build some sort of anti-pirating technology into its iPods to prevent them from playing illegal content. Not surprisingly Apple balked.

According to a technology blog on the New York Times Web site, Microsoft agreed to “explore” content filtering on the Zune while eating the variable pricing – it will charge $1.99 for each episode, as does iTunes.

While Apple might be open to a compromise with NBC Universal on pricing, it does not share NBC’s views on anti-pirating schemes. Jobs discovered first-hand how easily iTunes’ Digital Rights Management could be broken and has pushed the record labels to sell their music without DRM. Approximately 2 million of the more than 6 million songs on the iTunes Store are DRM-free.

Reconciliation, though both companies would benefit, appears unlikely in the near future.

Finally, I see the HBO deal as another piece of Apple’s overall video puzzle. As Apple adds more desirable video content to the iTunes Store, it quietly adds value to its portable video players (primarily the iPod Touch and iPhone) but also to the underestimated Apple TV.

Apple’s video hardware, coupled with its growing stable of movie rentals and the caliber of content HBO brings, has created the embryo of a video ecosystem that someday could grow as formidable as its music empire.

Posted by David Zeiler at 6:45 AM | Permalink | Comments (1)
                       

Although Steve Jobs announced in his keynote at the Macworld 2008 expo that 1,000 movies would be available for rental from the iTunes Store by the end of February, it didn’t happen.

In fact, the number of movies you can rent from iTunes is well below half that number. A check by Chris Breen of Macworld found less than 400. An Associated Press story yesterday said the number fell between 400 and 500.

Just minutes ago I checked the “all rentals” box on the iTunes Store and got just 287 items, although a power search with the “Search movies available for rental” box checked turned up 436 films.

Many in the blogosphere have hammered Apple for what some are calling a broken promise. Paul Thurrott, who has an ugly reputation in the Mac community for his frequent knocks on Apple, actually called the mid-January announcement a “lie,” as if Jobs knew then the company wouldn’t make the 1,000-movie goal.

Yesterday Jobs told those gathered at the annual Apple shareholders meeting that he is “not happy” about coming up short. According to the San Jose Mercury News, Jobs “blamed the delay on the time it has taken movie studios to get the necessary approvals from various rights holders of particular films to distribute the movies via iTunes.”

One would think Apple had a high degree of confidence in having 1,000 movies for rent on iTunes by the end of February or Jobs would not have said it. Apple had little to gain by lying about it, though it may have sold a few extra Apple TVs. Even that would hardly have been worth it, as the Apple TV has an uncharacteristically small (for Apple, anyway) profit margin.

If Apple thought it would have 500 rentals by March 1 and 1,000 by May 1, Jobs just as easily could have said that. I think most customers realize that a major new service such as this will build inventory slowly. Remember, the music version of the iTunes Store had only 200,000 songs at launch in 2003, compared with 6 million today.

With Jobs himself on the hot seat, you can be sure Apple will resolve whatever issues are holding up the addition of more movies to the rental store. A few years from now, when Apple dominates the online movie rental business with Apple TV and the iTunes Store, this red-faced moment will be long forgotten. (OK, I’m going out on a limb here, but I think it’s a likely scenario.)

I also have to question the timing of the problems the movie studios are having. They didn’t know how long it would take to get approval from the rights holders? Please.

It’s not like the iTunes Store is the first entity to rent movies online. Amazon’s Unbox service has been doing it for over a year and boasts 10,000 titles. NetFlix rolled out its streamed-over-the Internet service last year; “Watch Instantly” has 7,000 movies in its catalog. Just last fall a company called Vudu Inc. began offering movie rentals over an Internet-enabled set-top box and now offers 5,000 films. All three have deals with all, or nearly all, of the major studios.

I’m wondering if the major film studios, fearing Apple’s ability to replicate its success in the music download arena, purposely dragged their collective feet to embarrass Apple and slow its entry into the market.

In any case, the studios have -- intentionally or not -- seriously annoyed Steve Jobs. And that, my friends, is never a good idea.

Posted by David Zeiler at 4:14 AM in iTunes/iTunes Store | Permalink | Comments (1)
                       

Apple CEO Steve Jobs delivered no huge surprises in his keynote address this morning in San Francisco, but still hit home runs with the new Macbook Air laptop and the iTunes Movie Rental Service.

Both had been rumored in recent weeks, but one can never be sure what’s going to happen in a Macworld keynote.

Though he saved the MacBook Air for last, the iTunes Movie Rental Store announcement was probably more significant in terms of what it will mean to Apple in the long term. This move should position Apple to dominate the realm of video downloads.

Jobs said that all the major film studios were on board, a major coup for Apple. The rental service will offer new films 30 days after their release on DVD as well as a library of older films. New films will cost $3.99 to rent, older titles $2.99. The iTunes Store also will continue to sell movies and TV shows at their current prices.

Customers will be able to watch the movies instantly, and can view a film as often as they like within 24 hours of starting the stream. If a user wants to finish watching their movie on their iPod or iPhone, they can do that, too. Users have 30 days to launch the stream before the rental expires.

The iTunes Movie Rental Store service launches today, Jobs said, with 100 titles, but will have 1,000 by the end of February. At first the service will be available only in the United States, but Jobs said it will be available internationally “later this year.”

Just as significant as the announcement of the iTunes rental service is the vehicle with which many customers are likely to access it: a much-improved Apple TV.

No longer does the Apple TV need to be tethered to a computer for functionality. As I had hoped, the device can access the Internet directly through a wireless connection, allowing it to link to the iTunes Store directly. Customers can browse movies, TV shows and music on their TV screen right from the snazzy Apple TV interface. You can buy or rent.

After you’ve made your choice you can watch the content on your TV or your computer – or your iPod or iPhone. The Apple TV still syncs with your computer, but now it also syncs backwards. So stuff you obtain via Apple TV will be available on your computer, too.

Apple didn’t stop there. The new Apple TV can access photos from Flickr or a .Mac site as well as YouTube videos. Apple has vastly improved Apple TV by allowing a variety of ways to access digital content (though digital rights management was never mentioned … hmmm). And on top of all that, the company dropped the price of Apple TV from $299 to $229. The few who bought an Apple TV last year will get a free software upgrade to enable these features. I think Apple will sell a lot more Apple TVs in 2008 than it did in 2007.

The MacBook Air gave Jobs some sexy new Mac hardware to show off. The 3-pound notebook is wedge-shaped, just .76 inches thin at its thickest point and an astonishing .16 inch thin at its slimmest. It sports a 13.3-inch LED display and a full-sized backlit keyboard (the keys are black). The trackpad is oversized to allow the use of iPhone-like gestures, such as twisting your fingers to rotate an image in iPhoto.

The MacBook Air uses a tiny 80-gigabyte hard drive like the one found in the iPod Classic, and comes standard with a generous 2 GB of memory, the same as the MacBook Pro. The price: $1,799.

But the MacBook Pro’s most distinguishing feature is what it doesn’t have – an optical drive. One can buy an external SuperDrive that connects via USB for $99, but Jobs argued that people won’t bother. “We don’t think most users will miss the optical drive or need the optical drive,” Jobs said. As an alternative Jobs said the MacBook Air will be able to access the optical drives of other Macs or PCs over a wireless network.

The omission of an optical drive recalls Jobs’ introduction of the first iMac in 1997, which omitted a floppy disk drive (though external ones could be purchased as an option). Clearly Jobs foresees optical media – CDs and DVDs – suffering the same fate as floppies.

Jobs also introduced new software features for the iPhone and iPod Touch, as well as a new wireless hardware backup device, Time Capsule. Designed to work with Mac OS X 10.5 Leopard’s Time Machine automatic backup feature, Time Capsule uses the fast 802.11n wireless protocol and comes in two sizes: a 500 GB version for $299 and a 1 terabyte version for $499. I wish I had known about this before I bought a Buffalo LinkStation a few months ago. (sigh.)

I may have more thoughts on the keynote later.

Posted by David Zeiler at 2:40 PM in MacBook, Macworld & WWDC, iPhone, iTunes/iTunes Store | Permalink
                       

Last night I received an e-mail from Apple notifying me that all seasons of the great sci-fi series “Stargate SG-1” can now be purchased at the iTunes Store. Upon visiting the store, I noticed that all the episodes of its spin-off, “Stargate Atlantis” also appear to be available.

Although many Sci-Fi Network shows (like “Battlestar Galactica”) were pulled from the iTunes store in early December as a result of the Apple-NBC Universal squabble, the Stargate series is produced by MGM Television Entertainment, which is owned by Sony and thus outside of NBC Universal’s control.

I’d still prefer that Apple and Universal kiss and make up. I believe that eventually they will, despite the existence of Hulu and other alternatives. If Apple succeeds in becoming the premier provider of video downloads over the next year or so, the pressure will be on Universal to bring its content back to iTunes.

Stargate Atlantis Programming Note: Do you think Dr. Elizabeth Weir is now leading an evil collection of Super Replicators?

Posted by David Zeiler at 7:33 AM in iTunes/iTunes Store | Permalink | Comments (2)
                       

One week before Steve Jobs takes the stage in San Francisco for his annual Macworld keynote, the Mac universe is abuzz with the usual rumors and speculation.

Regulations governing Apple pundits require that I contribute to the collective cacophony or forfeit my license to blog on Apple. In that spirit, here’s my take on what might be coming – or not – on Jan. 15:

Mac Pro update – Apple completely shocked me by announcing new pro towers (and server models) this morning. I don't recall Apple ever making such a major product announcement just one week before a Stevenote. So these rumors panned out early. The twin quad core CPUs (giving this Mac 8 cores of processing power) are standard as expected, but there is no mention of Blu-ray DVD support. Steve will mention this, but not spend much time on it.

Retail stats – Steve will probably open the keynote with a rundown of assorted statistics demonstrating Apple’s prodigious business successes. We will hear about how many millions of people visited Apple’s retail stores, and that half of them were “new to the platform.” Steve will tell us how many new stores opened in 2007, and may announce new stores in such countries as China, Brazil and Mexico.

He should gloat about yesterday’s Bernstein Research report that showed Apple’s annual sales per square foot of retail space light years ahead of other retailers. At $4,491 per square foot, Apple not only clobbered Best Buy at $991/sq. ft. but also handily outshone other upscale retailers such as Saks ($388/sq. ft.), Coach ($1648/sq. ft.) and Tiffany and Co. ($2,746/sq. ft.).

Leopard stats – Steve will tell us how many copies of Mac OS X 10.5 have been sold since its launch at the end of October. Whatever the number, it will be the best operating system launch in Apple history. Leopard also will have had the fastest adoption rate of any Mac operating system version.

Office for the Mac 2008 – Craig Eisler, the new general manager of Microsoft’s Mac Business Unit, will join Steve onstage to introduce Office for Mac 2008. There will be a tedious demo.

Other software – Since iWork and iLife both were released in August, we won’t hear of them in the keynote. In fact, it’s hard to say what other software might get mentioned, since Apple got most of its upgrades out over the summer. He might spend a few moments on the prosumer video editing program Final Cut Express, which was updated in mid-November.

Video – The other week I predicted some major video-related announcements at the Stevenote. We will hear about the new iTunes movie rental service, heretofore unannounced by Apple but widely reported in the mainstream media. Various news reports over the past few weeks have said Apple is on the verge of making deals with almost all the major film studios, including 20th Century Fox, Walt Disney, Warner Bros., Paramount and Sony, MGM and Lionsgate. Availability is the major question here; if the deals aren’t final, the service may not launch for a few more months.

Apple TV – Going hand-in-hand with the iTunes Store movie rental news should be an announcement of a new, improved version of the Apple TV. This is not a shoo-in, but it would make a lot of sense for Apple to fix this product by adding the ability to record TV shows (like a TiVo) and access the Internet independently of a computer. The pièce de résistance will be integration with the iTunes Store, so that music, videos and movies could be ordered directly from the user’s sofa with the included remote control.

New iPods – You got ‘em in September. Let’s not be greedy.

iPhone updates – Some think Steve will announce a 3G iPhone next Tuesday; my gut feeling is that it’s too soon. Even if he does announce it, you won’t be able to buy one for several months. One thing we will get at some point during the keynote: stats on how many iPhones have been sold, and a recap of the product’s launch in the U.K., France and Germany. Steve might announce the next nation(s) set to get the iPhone (Spain? Italy? Japan?), but I haven’t read any rumors that further deals are near.

Steve will definitely mention the software development kit that will allow third-party developers to write programs to run on the iPhone. Although Steve has said the SDK would be available in February, he might wow the crowd by announcing its immediate availability.

One more thing ... One product the rumor sites have convinced themselves is coming at Macworld is some sort of Mac subnotebook, something smaller and lighter than a MacBook. This device could incorporate the same touch screen technology used in the iPod Touch. It could use flash memory in place of a hard drive, or at the very least will use flash memory to speed boot times. It will use a LED display (Apple has committed to using the more environmentally friendly LED technology in all its displays.) Despite the prevalence of rumors about this, no one is quite sure what such a beast will look like. But the odds are high we will see some incarnation of a MacBook Mini.

For anyone who’d like to follow the keynote live (it starts at 9 a.m. PST, or noon Baltimore time), several Web sites will be posting updates during the event. I prefer Engadget, but a full list of sites offering coverage will appear on MacSurfer the day of the event.

Posted by David Zeiler at 7:55 AM in Macworld & WWDC, Software by Apple, iMac, iPhone, iPod, iTunes/iTunes Store | Permalink | Comments (1)
                       

I have been ruminating for days over the antitrust lawsuit filed in California Dec. 31 charging Apple with monopolistic behavior in the digital music market. While the case looks weak, it also draws attention to some questionable Apple policies.

This suit came to light late Thursday when Information Week broke the story.

The suit accuses Apple of using its dominant position in the digital music market to stifle the competition in several ways. One way is the iPod’s lack of support for Microsoft’s Windows Media Audio format (and by extension its accompanying digital rights management), employed by almost all other digital music players and online download stores.

Another way Apple “locks out” rivals is its refusal to license the FairPlay DRM it uses in the AAC-formatted songs sold from the iTunes Store, so competitors don’t have the option of offering FairPlay-compatible devices or music.

After reading through the lawsuit myself, I must say I was astounded at the misinformation and exaggeration it contained. A few examples:

The suit on several occasions refers to how Apple’s behavior has restrained “what little competition remains in the digital music markets.” Although some digital music operations (both hardware makers and online stores) have scaled back or withdrawn, that sort of shaking out happens in every industry.

Furthermore, the struggles of a few have not discouraged new entrants on both sides of the market: Microsoft with its Zune player in 2006 and Amazon.com with its MP3 download store this past fall. If Apple had monopolistic control of the digital music market, new challengers would not dare enter it.

Apple in fact has plenty of competition. Consumers can easily avoid Apple’s products and services if they so choose. It’s been obvious for years that most choose Apple’s products because they like them better, not because they feel they have no choice.

The suit talks a lot about how iPod owners are “forced” to buy online music from iTunes, and that purchasing FairPlay AAC songs from iTunes “locks” that the buyer to the iPod, as the songs cannot be played on any other music player.

First of all, the aforementioned Amazon.com store sells MP3s with no DRM that can play on any player made by any vendor. For that matter, the iPod can play unprotected MP3s obtained from any source (including illegally).

Second, Steve Jobs said in his “Thoughts on Music” essay last year that only 3 percent of the music on the average iPod is purchased from the iTunes Store. Most iPods are filled with music ripped from the owner’s CD collection. Even the FairPlay stuff bought from iTunes can be burned to a CD and re-ripped back to a computer in a DRM-free format.

While the link between the iPod and the FairPlay music sold on iTunes does exert some pull in keeping customers inside the Apple ecosystem, it’s not as ironclad as the lawsuit claims. There’s a fence, but the gate is unlocked.

The suit further alleges that Apple’s monopoly control over the market allows it to “sell the iPod at prices far above those that would prevail in a competitive market.” If the iPod is so overpriced, it should be easy for rivals to undercut it by large margins on price in an effort to lure bargain-conscious buyers. But for the most part, Apple’s competitors sell their music players for about the same price as comparable iPods.

Yet as preposterous as this lawsuit is, it raises persistent troubling issues with the iTunes-iPod ecosystem. Apple may not be in violation of antitrust law, but its refusal to license FairPlay or make iPods compatible with Microsoft’s WMA format will continue to irk some consumers.

The most valid part of the lawsuit notes that many consumers, unaware of the competing DRM formats, could reasonably believe that all online music would be compatible with any digital music player, in much the same way they expect all CDs to play in any CD players.

Now I can’t blame Apple for not wanting to license WMA from Microsoft. Why would Apple want to pay its historic rival an annual licensing fee for a second DRM format (in addition to FairPlay)? There’s no benefit in it for Apple. Not to mention the irony of licensing a format for the iPod that no longer works in Mac OS X – that’s right, DRM-laden Windows Media files won’t play on a Mac. (The excellent Flip4Mac utility only works with unprotected WMA files.)

But why not license FairPlay? In his “Thoughts on Music” Jobs explained Apple did not want to license its FairPlay DRM because it feared that giving the code to other companies would increase the chances of it being leaked on the Internet and cracked by hackers.

That argument feels flimsy; Microsoft has licensed its WMA DRM for years. While it is breached from time to time, a patch has always followed fairly quickly. For that matter, Apple’s refusal to license FairPlay has not prevented it from being breached and requiring occasional patches.

I suspect Apple will keep its iPod-iTunes-FairPlay fence intact as long as it can. Its gaps give Apple a defense against these antitrust lawsuits, but its continued existence helps maintain the business model. Still, it smells just a bit unethical and not at all consumer-friendly – a trait Apple supposedly champions.

Of course, this entire issue will go away whenever DRM-encumbered music does. Business Week reported Friday that the last of the four major labels, Sony BMG, had agreed to start selling unprotected MP3s on Amazon’s online store. So far only EMI is selling DRM-free songs on iTunes, but now that Amazon has signed the others it could only be a matter of time before they all go DRM-free on iTunes. (Well, maybe not Universal…)

With no FairPlay and no WMA DRM music to worry about, accusations of “lock-in” will crumble. Apple almost certainly will continue to dominate the digital music industry, but its foes will need to find a new attack vector.

Posted by David Zeiler at 2:10 PM | Permalink | Comments (11)
                       

The reports that Apple has signed a deal with News Corp’s 20th Century Fox studio to allow people to rent its content from the iTunes Store could be a fundamental clue as to the company’s next major product focus.

Recall that Apple’s efforts in 2007 were dominated by the iPhone, right from Steve Jobs’ Macworld keynote in January. Yes, the company kept releasing new Macs and refreshed the iPod line for Christmas, but the iPhone was the center of attention all year long. It even drew resources away from Leopard, the latest version of Mac OS X, delaying its release for several months.

I’m guessing of course, but it would make sense for Apple to set video as its theme for 2008, starting with Jobs’ Macworld keynote on Jan. 15. Video currently is Apple’s weakest link, since its other businesses – the Mac, the iPod and the iPhone – are all going gangbusters.

But Jobs, like Alexander the Great, is always looking over the horizon toward his next conquest.

Much has been said this year about the failure of Apple TV to make an impact. Jobs has described it coyly as a “hobby.” Video sales at the iTunes Store have been decent but not great. Of the major film studios, only Walt Disney has made new releases available for purchase (it could be Jobs’ membership on Disney’s board helps a tad).

The television component of the iTunes Store took a giant step backward when Apple’s running spat with NBC Universal resulted in the removal of shows from NBC, the Sci-Fi channel, the USA Network and other Universal properties.

The technical hurdles of selling video over the Internet haven’t helped, either. The large files – a typical movie on iTunes is about 1 gigabyte, or about 200 times the size of a typical pop song. Even for users with broadband Internet connections, gratification is not exactly instant.

It’s the sort of glum confluence of circumstances that can cause even large and otherwise successful companies to throw in the towel. Wal-Mart, for example, announced yesterday that it has canceled its movie download service -- less than a year after it launched.

But one thing Apple has proven in recent years is that it often can succeed where others have foundered, such as with the iPod or its chain of retail stores. Solving video over the Internet is exactly the sort of challenge Apple relishes.

Apple now can put its experience as a video vendor to use as it crafts the most user-friendly option for consuming video over the Internet.

The move to rentals makes complete sense, and probably was inevitable. In the years Apple has dabbled in offering video downloads, it has learned that fewer people want to own video than do music. If people didn’t want to rent videos there would be no Blockbuster or Netflix, not to mention the various “video-on-demand” services provided by cable companies.

The deal with Fox shows Apple is serious about getting video right. The content, according to the Financial Times of London, will be new. It will be encoded with Apple’s FairPlay digital rights management software, but it should play on Macs, iPods, iPhones and on a TV via Apple TV. In other words, users will be able to watch the rented video pretty much on a variety of devices, unlike other services that restrict the user to a single device.

Apple is even licensing FairPlay to Fox for use on its DVDs. This will allow the video to be ripped legally to a computer for transfer to a video-capable iPod or iPhone.

The millions of handheld video-capable devices Apple has sold over the past few years surely supplied a major piece of leverage in securing this deal. In the case of the iPhone and iPod Touch, one could download the content directly to the device through iTunes. What studio wouldn’t want a piece of this action?

The Financial Times article said Apple “is understood to have been in talks with Sony Pictures Entertainment, Paramount and Warner Brothers about making their new releases available on iTunes to buy or rent.”

Expect video to be the centerpiece of Jobs’ Jan. 15 keynote. He almost certainly will announce the Fox deal then and possibly deals with other studios (I can’t imagine that Disney isn’t already signed up to add rentals to its iTunes catalog).

The long-neglected Apple TV figures to get a significant upgrade and be integrated into Apple’s video strategy as one of the ways to access the rentals. If Apple TV 2.0 can connect directly to the iTunes Store and includes some TiVo-like features, it could go from flop to hit overnight.

Apple isn’t far from having a killer video strategy. It has most of the pieces in place already. It just needs to bridge the gaps and then integrate those pieces as only Apple knows how.

Then watch how fast Apple’s “hobby” disrupts the entire movie rental industry.

Posted by David Zeiler at 1:38 PM in Macworld & WWDC, iTunes/iTunes Store | Permalink | Comments (8)
                       

I was hoping it wouldn’t come to this.

Over the weekend Apple removed most of the remaining NBC Universal video content from the iTunes Store. No longer can fans download episodes of The Office, Heroes or Battlestar Galactica.

The falling out between the two companies has been public since August when NBC Universal announced it would not renew its contract to sell content on the iTunes Store. Apple retaliated the very next day with a biting press release announcing that iTunes would not carry new episodes of NBC programs premiering in the fall season.

Many observers (yours truly included) thought the bluster was mostly public posturing and that the two companies would resolve their differences before the December deadline.

But when NBC CEO Jeff Zucker launched another verbal tirade against Apple and iTunes a month ago, any prospects for a deal evaporated. “Apple sold millions of dollars worth of hardware off the back of our content, and made a lot of money,” Zucker said. “They did not want to share in what they were making off the hardware or allow us to adjust pricing.”

That statement made it clear Zucker had declared Apple the enemy and had no interest in further negotiations. Apple has claimed NBC wanted to raise prices too high and objected to variable pricing, which contradicts the general iTunes Store policy of uniform pricing.

Now that this game of corporate chicken has ended in a head-on collision, pundits have tried to sort out who has suffered the most damage.

According to Forrester analyst James McQuivey, it’s Apple. In a report released Monday, he wrote: “Don’t let the Macgeeks posting angry blogs against NBC fool you [DZ: should I be insulted?]. The loser here is Apple, which relies on NBC Universal to deliver 30 (percent) of video download sales. Any supposed backlash against NBC will not materialize because NBC has made its content available, for free, on NBC.com and six other major portal sites.”

Maybe so. But without iTunes, viewers have no option for downloading shows to watch them on an iPod or other video device. I won’t go so far as to predict a “backlash,” but if you don’t give the customer what they want, they’ll seek it elsewhere. And when I say elsewhere, I’m talking pirate sites. And it’s unlikely the pirate sites will be sending NBC Universal millions of dollars – as did Apple -- when its users download NBC shows.

I’m not saying losing NBC’s content won’t hurt the video arm of the iTunes Store. It obviously will. But it won’t have that much impact on Apple’s bottom line, either. Video is Apple’s least successful venture so far (see: Apple TV). As long as the Mac, iPod/iTunes music combo and iPhone businesses are thriving, video is not critical.

The situation as it stands leaves both companies worse off. NBC Universal, for all its trash talk, will lose money while angering viewers. Apple will lose money in addition to some of its stature as a provider of video content.

But by far the biggest losers are the fans of the TV shows who would rather legally download their favorite programs from iTunes as opposed to the inferior options NBC is giving us.

That’s you and me, dear reader. And sadly, there’s not much we can do about it.

Posted by David Zeiler at 8:22 AM in iTunes/iTunes Store | Permalink | Comments (13)
                       

You never can tell where an obsession with Apple will lead.

Last week I saw the new iPod Touch ad on television numerous times. It’s clever ad that shows off the multi-touch technology while a very catchy song plays in the background. A very catchy song.

In fact, I couldn’t get the song out of my head. I went to Apple’s Web site to watch the ad. At the bottom of the Web page I noticed Apple had thoughtfully noted the song’s name, “Music is My Hot, Hot Sex;” the band that made it, CSS; and that it was available on iTunes.

So off to the iTunes Store I went, where I found CSS’s Cansei De Ser Sexy album in its entirety. Reading the bio blurb I learned the band hails from Sao Paolo, Brazil, where it began to craft its quirky sound in dance clubs. Intrigued by the album’s song samples, I downloaded it.

As an aging rock aficionado who spent most of the 1980s listening to endless oddball alternative acts, I can say CSS is the best new group I’ve heard in years. I can hear the club music influences along with a lot of echoes from such eclectic bands as Sonic Youth, Duran Duran, B-52s, and Orchestral Manoeuvres in the Dark. Most notably, however, CSS is a band having fun, something all too rare in alt/rock today.

Anyway, hats off to Nick Haley, the 18-year-old U.K. student who created the original iPod Touch ad, as well as Apple for noticing it on YouTube and enlisting TBWA/Chiat/Day to polish it into a professional commercial.

I thank you, and my iPod thanks you.

Posted by David Zeiler at 6:29 AM in iTunes/iTunes Store | Permalink | Comments (6)
                       

In the corporate world, it’s usually bad strategy for a CEO to pick fights with other large companies. It makes that CEO look petty and desperate. Worse, it makes any issues between the companies harder to resolve, leaving everyone a loser.

Which is why I’m still scratching my head over NBC Universal CEO Jeff Zucker’s incendiary remarks about Apple and the iTunes Store he uttered on Monday.

First Zucker said that NBC wanted to “experiment” by charging $2.99 for a hit show rather than Apple’s standard $1.99. “We made that offer for months and they [Apple] said no,” Zucker told the New Yorker’s Ken Auletta at a benefit for Syracuse University’s Newhouse School.

OK, fine, we already knew NBC U resented Apple’s ironclad rules on pricing. But then Zucker dropped his bomb: “Apple sold millions of dollars worth of hardware off the back of our content, and made a lot of money. They did not want to share in what they were making off the hardware or allow us to adjust pricing.”

Zucker actually asked Apple for a cut of iPod sales, which explains Apple’s unusually harsh public response when negotiations broke down in August. (Apple announced it would not sell new NBC shows the day after NBC U said it would not renew their contract in December.) NBC U apparently was inspired by last year’s Zune deal: Microsoft shares $1 with Universal for each Zune sold.

Zucker had to know how much such a request would infuriate Steve Jobs. It’s clear now that he wanted a public war with Apple. But what did Zucker hope to achieve?

He had to know that Apple would not bow to the pressure and suddenly cave to his demands. Judging from NBC U’s maneuvers over the past six months or so, it appears Zucker’s goal is to rally all the other content providers – both of music and video – to abandon the iTunes Store.

Universal has led the way in promoting alternatives to iTunes. Over the summer Universal announced that it would start selling DRM-free music at just about every other music retail download site except iTunes.

This week it launched the beta phase of Hulu.com, a Web site that will offer ad-embedded NBC shows for free. While Hulu will appeal to some users, the content will be tied to the user’s PC. You won’t be able to watch it on your TV or download it to your iPod. Anyone who prefers the iTunes way of paying for the download to watch it where they want it is out of luck.

You’d think NBC U would want as many types of distribution as possible. Cutting off iTunes to spite Apple will have the undesired side effect of angering a lot of fans of NBC U programs. It’s bad business.

The situation reminds me a bit of the struggle between Pixar Animation Studios and Disney a few years ago, which was more a war of wills between then-Pixar CEO Steve Jobs and then-Disney CEO Michael Eisner. Pixar needed Disney’s distribution system and Disney needed Pixar’s box office successes. That conflict was only resolved because Eisner resigned, and was replaced by Robert Iger. Jobs got along so well with the new Disney chief that he elected to sell Pixar to Disney outright.

Apple won’t be buying NBC Universal or vice versa, but the principal is similar: feuding with a partner with whom you have a mutually beneficial relationship is costly and stupid. The longer the battle goes on, the more both companies stand to lose, financially and in terms of public opinion. Customers care less about who’s right than having a system that serves their needs.

Jeff Zucker thinks he’s working in the interest of NBC U and for that matter, the entire entertainment industry by fighting Apple. Somehow he’s forgotten that the iTunes Store was the pioneer in offering legal paid music downloads, providing a legal alternative to the rampant peer-to-peer file sharing that was undermining their business model. The contribution of the iTunes Store to the video world has not been as dramatic, but even NBC credited the support of fans using iTunes with saving “The Office” from early cancellation.

True, Steve Jobs isn’t the easiest CEO to deal with, but others have shown it can be done. If Zucker wants to show us leadership worthy of a CEO, he’ll try treating Apple as an ally rather than an enemy.

Posted by David Zeiler at 4:00 PM in iTunes/iTunes Store | Permalink | Comments (8)
                       

Led Zeppelin is coming to the iTunes Store, and it’s coming in a big way.

Apple today announced it will make the entire Led Zeppelin catalog available on iTunes as of Nov. 13. Though representatives of the legendary rock group announced this several weeks ago, they did not tell us about “The Complete Led Zeppelin,” a digital box set of all the band’s albums that includes 165 songs for $99. The iTunes Store will offer this item exclusively.

As of today Zep fans can pre-order the box set as well as “Mothership,” the previously announced 24-track compilation album consisting of songs selected by the three surviving band members.

Anyone who pre-orders either of the new releases will automatically be entered in a contest to win tickets to see the band’s reunion show Nov. 26 in London, along with round-trip airfare and hotel accommodations.

Since Apple’s press release fails to mention whether the tracks will be available DRM-free via iTunes Plus, we’ll have to assume it won’t. That’s too bad.

And I’m also wondering whether the digital box set is a good deal. True, you get 165 songs for $99, making it 60 cents per song rather than the usual 99 cents. But as far as I know Led Zeppelin produced less than 100 original songs, which means there will be a lot of duplication in this collection. Even if you consider live versions as distinct songs, you’re going to end up with more than one copy of quite a few songs.

Meanwhile, the Beatles-on-iTunes vigil goes on…

Posted by David Zeiler at 6:18 PM in iTunes/iTunes Store | Permalink | Comments (1)
                       

I didn’t get the chance to write about several key developments in Apple’s always busy world last week, so I’m catching up today:

Poisons in the iPhone: On Monday Greenpeace released a report criticizing Apple’s iPhone for containing environmentally hazardous chemicals. “Steve Jobs has missed the call on making the iPhone his first step toward greening Apple’s products. It seems Apple is far from leading the way for a green electronics industry as competitors like Nokia already sell phones free of PVC,” said Zeina Alhajj, identified on Greenpeace’s Web site as the organization’s “toxics campaigner.”

To compound matters, the Greenpeace report inspired the Center for Environmental Health to initiate legal action against Apple under California’s Proposition 65 law, which says products containing toxins must carry a warning label.

Apple issued a statement back on May 2 outlining its policy for phasing out various toxic chemicals from its products. On the PVC chemicals cited by Greenpeace, the policy states: “Apple plans to completely eliminate the use of PVC and BFRs [brominated flame retardants] in its products by the end of 2008. As I glance at the calendar, I see we’re still in 2007. The iPhone that went on sale in June was actually completed before January, when Jobs revealed it to the public. You’d think Greenpeace would have given Apple until next year before excoriating the iPhone.

And while today’s iPhone does contain some traces of hazardous chemicals, even the Greenpeace report concedes that the product complies with the European Union’s tough RoHS (Restriction of Hazardous Substances) Directive.

So why pick on Apple?

Reporting for the U.K.’s Register news site, Tony Smith submits: “We'd guess it's because Apple is an easy target, and Greenpeace knows iPhone related commentary gains press coverage.” Dozens of comments posted on Web sites that reported the news agreed, overwhelmingly blasting Greenpeace. But if generating publicity by going after Apple was Greenpeace’s primary aim, it succeeded. Unfortunately it gave Apple a black eye it didn’t deserve.

iPhone in France: A month after the announcement of iPhone deals for the U.K. and Germany, Apple on Tuesday announced its delayed agreement with Orange of France. The iPhone will debut Nov. 29, just in time for the holiday shopping season, and will cost €399 ($560). This much was expected.

But the interesting bit, reported in the International Herald Tribune, is that an unlocked version of the iPhone will be available for a higher, though undisclosed price. Apple was hog-tied by a French law that prohibits “bundling the sale of a mobile phone and a mobile operator,” according to the Tribune report.

The existence of legitimately unlocked iPhones in France raises the likelihood that entrepreneurs will buy them up there to export to customers in other countries who will pay a premium to have them. Apple already might have built in a way to prevent this, but any such mechanism couldn’t be as hard to crack as the original iPhone lock. In any case, the existence of an unlocked version of the iPhone will give those incensed over this issue fresh ammunition.

DRM-free songs get cheaper: Apple said it’s dropping the price of songs without copy protection from $1.29 to the same 99¢ as songs with DRM. All “iTunes Plus” tracks will still be available in the higher 256 kbps bitrate (double the 128 kbps of regular iTunes songs). Two million songs now are available in the DRM-free format, compared with more than six million copy-protected songs.

Apple appears to be responding to the challenge of the Amazon MP3 store. With Amazon selling DRM-free MP3s for 89¢, Apple’s $1.29 per song looked awfully expensive. Though the iTunes Store still has several big advantages over its rivals – a huge catalog, a superior user experience and a better encoding format in AAC over MP3 –price is the one area competitors like Amazon and Wal-Mart can beat it on.

Apple’s advantages will allow it to keep its prices a little higher than the others, but not 40 to 50 percent higher. Apple wisely made the price cut quickly rather than wait for large numbers of price-conscious customers to abandon iTunes. Such timely reaction to the changing market will continue to be crucial in light of Universal’s aggressive strategy to partner with every possible iTunes alternative in its quest to weaken iTunes’ dominant position.

One more thing: Prepare to be impressed when Apple reports earnings after the market close Monday.

Posted by David Zeiler at 5:04 PM in iPhone, iTunes/iTunes Store | Permalink | Comments (1)
                       

Still no actual Beatles albums, but as of today the solo works of all four Beatles can be purchased from the iTunes Store. Nine George Harrison albums have joined the music of Paul McCartney (added in May), John Lennon (added in mid-August) and Ringo Starr (added at the end of August).

This raises hope that the Beatles catalog (or at least a significant chunk of it) will soon follow, perhaps in time for Christmas.

If Apple really wants to make a splash when it does get around to adding the Beatles to iTunes, it could offer a special “Classic” iPod pre-loaded with the full catalog of Beatles songs as it did with the U2 iPod back in 2004.

Posted by David Zeiler at 6:30 PM in iTunes/iTunes Store | Permalink | Comments (1)
                       

Finally, the iTunes Store has a worthy opponent. When the Amazon MP3 store opened its digital doors yesterday, music consumers found a lot to like, including things superior to what iTunes offers. Amazon falls short of iTunes in other ways, so this news does not necessarily mean the iTunes Store rapidly will forfeit its dominant position in the music download market. But it is a wake-up call.

First, let’s look at where Amazon beats iTunes. By far Amazon MP3’s biggest draw is that all the songs it sells are unprotected (free of digital rights management coding) MP3s, which means they will play on any portable digital music player. This could well be the biggest nail yet in DRM’s coffin.

The iTunes Store does sell songs from EMI in an unprotected format, but they cost $1.29. Which brings us to Amazon’s next advantage: variable pricing, with many songs priced at 89 cents. Not only is that 40 cents lower than iTunes’ DRM-free offerings, it’s 10 cents less than iTunes’ regular price. And Amazon’s songs are in a higher-quality 256 kbps bitrate. DRM-encoded songs on iTunes use the lower 128 bitrate, although the DRM-free songs are 256 kbps.

Amazon also gets points for being Mac-friendly (although it requires Mac OS X 10.4 Tiger). Most music download services other than iTunes force customers to use Windows. Amazon offers a helper application that resides on your Mac and activates when you click to download music from the Amazon MP3 site. (See screenshot below).

Although I still prefer iTunes’ site design, finding and downloading music on Amazon MP3 is straightforward and easy. If you already have an Amazon account and are logged in, the download automatically is charged to the credit card registered to your account. The songs download to an “Amazon MP3” folder that the helper app creates inside your user’s Music folder, but automatically get copied into your iTunes library as well, album cover art and all. (Although I’m not sure I want two copies of every song on my hard drive.)

I’ve been reading a lot of articles in the past day that cite the above advantages and essentially declare the iTunes Store dead meat. Why wouldn’t everyone drop the iTunes Store and buy their music exclusively from Amazon from now on?

The biggest reason right now is that Amazon has a much smaller selection than iTunes – 2.3 million songs versus iTunes’ 6 million-plus. Only two of the Big Four music companies are signed up with Amazon right now, EMI and Universal. That leaves out all the artists on the Sony and Warner labels. You can’t buy a song from Amazon if they don’t offer it, no matter how many other advantages the service has.

Another reason Amazon won’t obliterate iTunes any time soon is that the service for now is available only in the United States.

It stands to reason that the Amazon service will continue to improve, and that Sony and Warner will hop on board when they see the juicy sales figures for EMI and Universal. But one would expect Apple to recognize the need to respond to bona fide competition. Customers – even Mac users – will flock to whoever offers the best service with the best prices.

That means Steve Jobs will need to reconsider his position on variable pricing. He will at some point have to upgrade the bitrate of all of iTunes’ offerings to 256 kbps. And the DRM will have to go, too.

Apple’s problem is that the record companies want the competition to succeed to break iTunes dominance – a 75 percent market share. So they may not be willing to give Apple the same terms as they have Amazon or other competitors. Jobs will need to call upon all of is formidable negotiating skills to keep iTunes in the game.

Most of what Apple needs to do should not be that big of a deal. Remember, Apple only put the DRM on its music in the first place because the record companies refused to allow Apple to sell any music without it. And iTunes already offers the DRM songs in higher bitrates.

But this much is clear: if Apple ignores the challenge posed by Amazon MP3, the iTunes Store will suffer. It figures to lose some market share to Amazon anyway, but how much is up to Apple.

All that said, music consumers will win no matter how the battle between Apple and Amazon plays out. We’ll keep getting higher quality downloads for less money and with no DRM restrictions. Hallelujah.

Posted by David Zeiler at 3:32 PM in iTunes/iTunes Store | Permalink | Comments (10)
                       

SpiralFrog.com, an ad-supported Web site that allows registered users to download music and videos for free, officially opened for business this morning. The ads pay for the music; SpiralFrog cuts the record companies in for a piece of the action. “We believe it will be a very powerful alternative to the pirate sites,” SpiralFrog chairman and co-founder Joe Mohen told the Associated Press.

Sorry Joe, but I disagree. This would-be iTunes Store killer will die a slow and lonely death. It’s bound and gagged by so many restrictions -- no doubt added at the request of paranoid music company executives – that no one will want to use it, free or not. (Side note: most of SpiralFrog’s content at launch is from Vivendi’s Universal Music Group, which recently tussled with Apple over pricing at the iTunes Store. Hmmm.)

In order to get permission from the record companies to offer free downloads, SpiralFrog had to agree to use Digital Rights Management, and they chose Microsoft’s Windows Media format (WMA). As Apple loyalists well know, WMA files with DRM can’t be played on Macs – or on iPods. They could afford to ignore Mac users, but iPod users comprise over 70 percent of the portable music player market. Geez, SpiralFrog’s songs won't even play on Microsoft’s pathetic Zune.

Beyond the DRM issues, SpiralFrog has chained up its content in other ways. Users not only must register to download any digital content, but also need to re-register every month or the files lock up and won’t play.

Think you can work around these problems by burning the songs to a CD? Think again. CD burning of SpiralFrog content is not allowed, either.

Very few music consumers are likely to kiss this frog. Odds are SpiralFrog will be tucked away in a jar of formaldehyde by this time next year.

Posted by David Zeiler at 2:40 PM in iTunes/iTunes Store | Permalink | Comments (20)
                       

Today Apple posted the terms for qualifying and obtaining the $100 Apple Store credit promised to early buyers of the iPhone miffed over the unexpectedly quick $200 price drop. For the most part, it’s just what you’d expect: instructions on how to confirm your eligibility and get the $100 credited to your Apple Store account.

Not everyone is eligible for the credit. For example, anyone who bought after Aug. 22 falls in the 14-day window covered by product price reductions and thus qualifies for a full $200 rebate. Also excluded are iPhones provided to Apple employees, logical since every one of Apple’s nearly18,000 employees received their iPhone free.

The curious part comes in the last paragraph of the “terms and conditions” section. In addition to such expected rules as forbidding redemption of the credit for cash, you can’t redeem the credit at any iTunes Store. Nor can you use it to purchase iTunes Store gift certificates. Nor can you use it to give iTunes Store content as gifts. Just to cover all their bases, Apple also forbids using the credit to purchase Apple Gift Cards, which you might think of using at the iTunes Store.

Let’s see. Why would Apple prevent aggrieved iPhone owners from spending their $100 credit on music from the iTunes Store? Since the iPhone is part iPod, you’d assume that many iPhone owners would want to use at least some of their credit on music or video purchases.

The only answer that makes sense is that Apple’s margins on digital content purchased from the iTunes Store are miniscule compared to almost everything else it sells. True, the company is trying to buy back customer goodwill, but each $100 credit claimed by a customer is $100 in lost profits. Allowing customers to use the credit at the iTunes Store would result in a near-total loss of that $100. Forcing them to use it on other products in the Apple Store, which carry an average profit margin of more than 30 percent, will allow Apple to retain much more of each $100 claimed and used by a disgruntled iPhone early adopter.

While this may be smart business, it’s lousy public relations. Steve Jobs apologizes and promises to “do right” by his customers and then pulls a cheesy, transparent maneuver like this? That’s not the Apple that has won the hearts and minds of millions of loyal customers.

Apple has almost $14 billion in cash and $0 in debt. It could have afforded to give its early iPhone customers a true credit they could have spent on any Apple product. I wouldn’t be surprised if this touches off another wave of discontent among iPhone owners. We’ll see what happens in the forums over the next few days, but it would be a shame if Apple has bungled what should have been a commendable gesture to some of its best customers.

UPDATE: A story appeared onBloomberg News this evening that contradicts the document on Apple's Web site. Apple spokeswoman Natalie Kerris told Bloomberg the information on the site is wrong and that the iPhone credit will indeed be applicable to iTunes Store purchases. That's one heckuva typo. As of 1:30 a.m. EDT Saturday, the original document remains unchanged on Apple's Web site. What's going on in Cupertino, anyway?

Posted by David Zeiler at 6:38 PM in iPhone, iTunes/iTunes Store | Permalink | Comments (1)
                       

In his Media Biz blog, Paul LaMonica of CNNMoney.com today cites the announcement of a Led Zeppelin reunion show in London in November as cause to speculate on the addition of the Zep catalog to iTunes.

Yes, the Beatles aren’t the only holdouts. The iTunes Store is completely bereft of Led Zeppelin music. But LaMonica must have been tuned out in late July when the band announced that Mothership, a new compilation album scheduled for release in November, will be available from iTunes. According to reports, Mothership consists of tracks selected by the band members and includes such classics as “Stairway to Heaven,” “Whole Lotta Love,” and “Dazed and Confused.”

The willingness to test the waters with Mothership nurtures hope that Robert Plant, Jimmy Page and John Paul Jones are considering putting the entire Led Zeppelin catalog on iTunes. It sounds like a prime opportunity for another one of those publicity-generating Apple Events, doesn’t it, Mr. Jobs?

Posted by David Zeiler at 1:11 PM in iTunes/iTunes Store | Permalink | Comments (2)
                       

People visiting the iTunes Store customer feedback page have reported seeing references to a “RentalMovie:” category, according to an item today on Forbes.com. This could well mean we’ll see rental movies at the iTunes Store very soon. Usually slip-ups like this foreshadow a formal announcement from Apple within days.

As far back as June FT.com had reported that Apple was in talks with several major Hollywood studios about offering 30-day movie rentals for $2.99. The iTunes Store currently sells movies for $14.99.

The rental movies presumably could be viewed on a computer, video-enabled iPod (now that we have more to choose from) or iPhone and naturally would include DRM to prevent illegal copying. If you want to own a movie, you’ll still have to pay the full price.

This could be yet another way for Apple to leverage an existing asset – the iTunes Store – to generate a little extra profit. It also sounds like something that should be integrated into Apple TV, one of the few Apple products that could use a little more love from the Mother Ship.

Posted by David Zeiler at 3:54 PM in iTunes/iTunes Store | Permalink
                       

Boom.

Apple aimed its PR howitzer directly at NBC Universal this morning when it announced that it would not be selling NBC shows for the fall season on the iTunes Store. Just hours earlier Friday’s New York Times had revealed NBC’s intent not to renew its iTunes Store contract when it expires in December. That Apple would respond so swiftly and so publicly – something it rarely does -- can only mean that Steve Jobs is really, really annoyed with NBC.

In explaining its actions, Apple made sure to portray NBC in the worst possible light: “The move follows NBC’s decision to not renew its agreement with iTunes after Apple declined to pay more than double the wholesale price for each NBC TV episode, which would have resulted in the retail price to consumers increasing to $4.99 per episode from the current $1.99.”

This dispute is more evidence of the discontent among iTunes’ music and video content suppliers with the ironclad pricing terms that Apple has imposed upon them. We saw it just a few weeks ago when Universal Music Group said it planned to sell songs without copyright protection on just about every music service except iTunes. The music and video companies are determined to break Apple’s dominance of the digital entertainment market so they can re-mold the terms to their liking.

Apple refuses to compromise on its philosophy that a consumer-friendly iTunes encourages people to buy more. Raising prices, charging more for popular items and forcing people to buy bundles of TV shows rather than a la carte (which NBC had wanted, according to the Times article) will deter sales and ultimately result in lower profits, Apple believes.

Universal Music and NBC have made it very clear they strongly disagree and will move away from the iTunes model with or without Apple’s cooperation. Meanwhile, Apple stands to lose a provider responsible for three of its top 10 best selling TV shows last season and 30 percent of its TV show sales (those stats are straight from Apple’s press release). NBC will lose iTunes considerable market clout and exposure to younger viewers, a demographic the TV networks have been struggling to attract and hold. The network has plans to start offering its shows on a service to be launched in October called Hulu.com, but it’s unlikely sales on that site will come close to matching sales on iTunes.

The biggest losers are you and me, people who enjoy the ability to download single episodes of “The Office,” “Heroes,” or “Battlestar Galactica” for $1.99 to watch at our convenience. Yes, “Battlestar Galactica” is affected because NBC owns the Sci-Fi Network. It also owns the USA Network, which shows the marvelous “Monk.” I personally am royally ticked off about this because I have downloaded episodes of both “Monk” and “Battlestar Galactica” when I’ve missed the initial broadcast.

NBC’s Hulu experiment worries me, too. Will they adopt the DRM-crippled Windows Media format, locking out Mac users? And if they’re going to charge $4.99 per episode, I wouldn’t use the service anyway. That’s a 250 percent increase, for Pete’s sake. Even CEO salaries don’t go up that fast. Think about it: you can buy the 16 episodes of Season 5 of “Monk” for $29.95 from the iTunes Store. You can buy the “Monk” Season 5 DVD from Amazon.com for $36.99. If you bought those episodes at NBC’s rates, you’d pay $79.84. Even at $2.99 per episode you’d pay $47.84. What are they thinking?

Rather than be fleeced, consumers will do one of two things. Either they’ll stop watching or they’ll find another, cheaper alternative. Maybe they’ll buy Tivos. Maybe they’ll steal it over the Internet, as people have done with music. Until now video piracy hasn’t been as widespread as music piracy. But start charging $4.99 per show and watch how fast it grows. With broadband connections commonplace and video compression codecs improving, the TV networks should be wary of angering their customers. The music industry still hasn’t recovered from piracy that their numerous errors in dealing with it.

If the rebellious trend among content providers continues, the iTunes Store could be in for a rough ride. True, it doesn’t comprise a huge part of Apple’s profits, but it is an integral part of the Apple ecosystem that marries hardware, software and retailing. Harm to the iTunes Store could affect the iPod business as well as any video ventures the company almost certainly has in development.

NBC’s efforts to circumvent the iTunes Store could well backfire. For Apple’s sake – and ours – I hope it does.

Posted by David Zeiler at 6:17 PM in iTunes/iTunes Store | Permalink | Comments (3)
                       

Today Apple issued a press release announcing the immediate availability of John Lennon’s solo works on the iTunes Store. Because his music is part of EMI’s catalog, Lennon’s music is available in iTunes Plus, the higher-quality, DRM-free section of iTunes, for the corresponding higher price of $1.29 per song. A search of the iTunes Store showed that the freshly added Lennon material is not available in the regular DRM section of the store. Considering the full albums only cost $9.99, the same as they would in the regular iTunes Store, it’s a good deal. I would expect most Lennon fans will want the full albums anyway. Several videos at $1.99 also are available, including ones for “Imagine,” “Mind Games” and “Merry Xmas (War is Over).”

An oddity I noticed: although the press release says 16 works are available, I counted only 8 albums on the new John Lennon page. Even if you throw in the six videos, that’s only 12 things. Perhaps more is coming shortly. Or someone in Apple’s PR office can’t add.

The important thing is that Lennon’s solo material has now joined Paul McCartney’s solo material, added in May, on the iTunes Store. Lennon... McCartney.... Why does that sound familiar? Oh, yeah. The Beatles. Perhaps you’ve heard of them. Kinda popular in their day. Still not on iTunes. Could this be one of Apple’s crazy marketing strategies? You know, give us solo McCartney in May, solo Lennon in August, the bulk of the Beatles catalog, say, in November – just in time for Christmas?

Steve, please please me!

UPDATE: As of Tuesday evening the John Lennon page on iTunes has the promised 16 albums. I wonder why the collection was incomplete earlier in the day?

Posted by David Zeiler at 12:19 PM in iTunes/iTunes Store | Permalink | Comments (1)
                       

Yesterday Universal Music Group announced that it will sell some of its digital music without copy protection (a.k.a Digital Rights Management) for a trial period from selected online outlets such as Amazon.com, Google, Wal-Mart, Best Buy and Rhapsody. While those of us who abhor DRM applaud this move, the glaring omission of the No. 1 vendor of digital music, the iTunes Store, raises immediate questions.

Universal spokesman Peter LoFrumento told the Associated Press the label excluded the iTunes store so it could use it as a control group in its experiment in selling DRM-free music. Nice spin, guys. Could it be that Universal is just annoyed with Apple’s dominance of the digital download market and is doing everything it can to weaken it?

Let’s rewind one month. Then Universal was wrangling with Apple over the terms of the deal that allows the iTunes Store to sell music by Universal artists. As you may recall, Universal refused to renew its annual contract with Apple. Ultimately, the companies settled on a month-to-month agreement, which is what Universal wanted. At the time Universal said it wanted more flexibility in its dealings with Apple, and that it had month-to-month contracts with other vendors. Most observers, however, saw Universal chafing at Apple’s control of pricing at the iTunes Store (99 cents per song), among other issues. Though Universal “won” the battle, the result had little impact on its larger goal of loosening Apple’s control of digital music sales. For that to happen, the iTunes Store – which at last count still holds about 70 percent of the music download market -- needs stiffer competition.

Realizing this, the brains at Universal came up with a plan to offer DRM-free songs through virtually every vendor but Apple. While I’m sure Universal is curious about how well DRM-free music will sell, it’s at least as curious about how many customers the strategy can lure away from the iTunes Store. If the plan works – that is, if significant numbers of people start buying Universal music from other online vendors -- the trial period could be extended indefinitely. Universal could use the withholding of DRM-free music as a weapon in order to squeeze more concessions, such as variable pricing, from Apple. More ominously, one or more of the other Big Four music labels could follow suit.

At least one of the four, EMI, almost certainly will not adopt such hardball tactics. EMI elected in May to sell DRM-free tracks on iTunes (though at the higher price of $1.29), leaving DRM foes wondering if the other three big labels – Sony BMG, Warner and of course Universal – would hop on board. We now have Universal’s answer. If Sony and Warner follow EMI’s lead and work out agreements with Apple to sell DRM-free songs, iTunes’ will retain its dominance for the foreseeable future. But if they choose Universal’s option of selling DRM-free music everywhere but iTunes, that could result in lost sales (at least for music – video sales would be unaffected). Many would shun copy protected music from Apple if they could buy DRM-free songs elsewhere at similar prices.

Even in such a worst-case scenario, though, Apple has little cause for concern. The iTunes Store makes very little profit, having been created to promote iPod sales. The DRM-free MP3 tracks that everyone else would be selling will play on all iPods. I have never subscribed to the argument that the DRM on iTunes songs “locked” customers into the iPod because the majority fill their iPods mostly with DRM-free MP3s ripped from CDs anyway. From a business standpoint it makes little difference to Apple where people obtain their music as long as they keep buying iPods. The profit margin on an iPod is vastly greater than the measly few percent Apple gets from selling music on iTunes. No matter what becomes of the iTunes Store, the iPod, with its 70 percent share of the MP3 player market, should remain an engine of profit for Apple Inc. for years to come. And if all this results in driving a stake through the dark heart of DRM music, then so be it.

Posted by David Zeiler at 4:32 PM in iTunes/iTunes Store | Permalink | Comments (1)
                       

Within the past week Apple has been slapped with two lawsuits. The first lawsuit, filed last week by a man in Cook County, Ill., accuses Apple of failing to disclose until after the iPhone went on sale that its battery is soldered inside the case and thus not user-replaceable. The second suit, filed Monday by rapper Eminem’s publisher, claims Apple has been illegally selling his music from the iTunes Store. When you’re as successful as Apple has been lately, I suppose it paints a huge target on your back.

First, let’s look at the battery lawsuit. Most Apple fans on the Web have spent the past week excoriating the fellow who filed the class action suit, Jose Trujillo. His beef centers not only on Apple’s silence beforehand on the iPhone battery’s inaccessibility, but on Apple’s policy on the issue. The only way to replace the battery is to send it to Apple, which will replace it for $79 plus $6.95 shipping. Trujillo is further incensed over Apple’s fee of $29 to rent a temporary replacement iPhone. And he’s none too happy that the replacement process erases all the data from the iPhone (although syncing your data with iTunes allows an easy backup).

Then the lawsuit gets a little crazy. Trujillo alleges that the iPhone battery will die after 300 recharge cycles. Because the purchase of an iPhone requires a two-year contract with AT&T, the suit concludes that the typical iPhone owner will need his or her battery replaced at least once during the lifetime of the contract. Essentially the lawsuit claims Apple deceived people about the battery issue so it could profit from the replacement program.

The first problem is that the iPhone battery is much hardier than the lawsuit says, at least according to Apple. The company states on its Web site that a “properly maintained iPhone battery is designed to retain up to 80 percent of its original capacity at 400 full charge and discharge cycles.”

Next, one has to wonder how a person so concerned about having a user-replaceable battery he’s willing to file a lawsuit over it could have somehow missed all the discussion over that issue in the six months following the iPhone’s announcement in January. Yes, Apple did not specifically say users could not replace the battery themselves, but just about everyone else did. Trujillo wanted an iPhone so badly he bought one the first weekend. What did he base his purchase decision on? If he read much at all about the iPhone, he would have encountered some discussion about the battery, as many criticized Apple for it.

I’m also wondering why Trujillo would simply assume the iPhone had a user-replaceable battery. While most cell phones typically have such batteries, the iPhone clearly is not just another cell phone. More to the point, it’s made by Apple, a company known for making products easy to use but hard to service yourself. Let’s take this one step further: which Apple product does the iPhone most resemble? That’s right, the iPod. And how many iPod models have had user-replaceable batteries? The answer is ... none. In fact, Apple’s policy on iPod battery replacement is almost identical to (if a bit cheaper than) its iPhone policy: “If it is out of warranty, Apple offers a battery replacement for $59, plus $6.95 shipping, subject to local tax.”

Finally there’s the question of why, if this issue was so crucial, did Trujillo not just ask someone at the Apple Store: “Hey dude, how do I replace the battery on this thing?”

Okay, maybe I’m being tough on the guy. But it seems that if he’d been paying just the slightest bit of attention, he’d have been aware of the battery issue long before the iPhone went on sale. Sure, Apple could and should put a user-replaceable battery in the iPhone. But they didn’t. If that’s unacceptable to you, don’t buy it. How hard is that?

Next up, we have Eminem’s complaint against Apple. His lawsuit alleges that Apple’s sale of his music violates his copyrights. At first glance this lawsuit is a real head-scratcher. Doesn’t Apple already have a deal with Universal Music, Eminem’s label?

As is often the case in the music industry, nothing is as clear as it should be. The labels don’t own all the rights to the artist’s music; the publisher owns the rights to the sheet music and lyrics while the label owns the rights to the recordings. The labels traditionally have shared a portion of the sale of the recordings with the publishers. This system has worked for CDs and vinyl records before it, but the Eminem suit says that digital downloads are different – they’re not covered in the artist’s arrangement with Universal. Apple, the suit says, needs to get permission from Eminem’s music publisher, Eight Mile High, to offer them on the iTunes Store.

Of course, the suit is asking for laughable damages -- $75,000 as compensation for copyright infringement and $150,000 for each time a song was downloaded (that sure beats the 70 cents per download Universal has been getting!)

But I’m still scratching my head. Apple has a legitimate deal to distribute music digitally with Universal, as it does with all the major labels. I don’t see how it can be held responsible for the terms of agreements each of these labels has with each of their artists. If the labels don’t have the right to distribute an artist’s music digitally, does that mean Apple needs to deal with the publishers? Or worse, does Apple (and by extension, any other digital music reseller) need to make separate deals with both the publisher and the label for each artist? What a nightmare!

An article on Newsfactor.com quotes a litigation expert, Ilan Barzilay of Wolf Greenfield in Boston, who indicates the lawsuit is less an attack on Apple’s iTunes Store than it is an attention-grabber for musicians who crave a bigger piece of the online music pie: “Eminem probably doesn’t want to sue his label, and Apple is a big name,” said Barzilay. “Eminem can get a lot of attention by suing iTunes.”

In other words, expect this suit to get settled out of court and for Eminem to quietly renegotiate his contract with Universal. Unless Eminem really wants his music removed from iTunes, and I seriously doubt that.

Posted by David Zeiler at 4:54 AM in iPhone, iTunes/iTunes Store | Permalink | Comments (8)
                       

Apple announced today that it has sold 3 billion songs from the iTunes Store, another impressive milestone for an arm of the company the primary purpose of which is to encourage sales of the far more profitable Pod. I could have purchased the 3 billionth song myself; I discovered to my absolute delight the other day that the iTunes Store carries a significant chunk of the material by a band legendary in the Baltimore area -- Crack the Sky. The band never caught on nationally (a great injustice) but WIYY 98 Rock played enough Crack to make the group very popular in the Land of Pleasant Living.

Albums available on iTunes include all the great early stuff, including the debut album (which Rolling Stone declared Album of the Year in 1975), Animal Notes and White Music. You can get the debut album and White Music as a combo download for a mere $9.99, a terrific deal.

Posted by David Zeiler at 12:39 PM in iTunes/iTunes Store | Permalink
                       

Vivendi’s Universal Music Group has refused to renew its contract with Apple Inc. to sell its music catalog on the iTunes Store, according to anonymous inside sources. Apple spokesman Tom Neumayr disputed the reports that Universal had rebuffed the iTunes Store in any way. “We’re still negotiating with Universal,” Neumayr told Bloomberg.com. Hmmmm, what to make of that?

For that past couple of years, the Big Four music companies – Universal, EMI, Sony BMG and Warner – have watched uneasily as Apple became an increasingly powerful player in the world of digital music. The iTunes Store has about 75 percent of the market for online music downloads. It recently passed Amazon.com in a survey by NPD Group to become the third largest retailer of music in the United States, online or otherwise, with 10 percent of the total music market (Wal-Mart was first with 15.8 percent and Best Buy second with 13.8 percent. Fourth-place Amazon had 6.7 percent.)

Until now, Apple’s strength has allowed it to dictate terms to the Big Four. But they haven’t been happy partners. They wanted more control over pricing, particularly the ability to charge more for popular songs (iTunes charges 99 cents for each track). They wanted to be able to offer songs on other services without having to offer them on iTunes as well. They urged Apple to make its FairPlay Digital Rights Management available to makers of competing music players so iTunes songs would play on more devices (the DRM, an anti-piracy measure, prevents the songs from being played on unauthorized devices). They, along with other critics, claimed Apple had “locked in” iPod owners by selling them songs that would not play on other portable music players.

Though few consumers would shed a tear over the music companies’ woes, one can see why they would want a more favorable deal. Big businesses like to be in control of how their products are marketed. And any musician signed to a major label will tell you that it’s the record companies who prefer to do the dictating. While Apple’s market dominance has been a formidable shield, it was unlikely that Steve Jobs could hold off the Big Four forever.

In a story on Business Week’s Web site this morning, “sources close to Universal” said the new deal with Apple would be an “at-will” arrangement in which Universal would at least have the flexibility to make exclusive deals with other services, and possibly would even get the right to charge a limited-time premium for hot new hits. If this happens, no doubt the other three music companies eventually will want similar terms. Warner’s deal with iTunes comes up for renewal in a few months (more fireworks?), but Sony has already agreed to a one-year deal, so they’d have to wait.

EMI, of course, went in an entirely different direction in May when they agreed to make their full catalog available DRM-free (and at a higher quality) for $1.29. That move negated the argument over “lock-in,” since iTunes’ AAC-encoded songs without DRM can in fact be played on rival devices, as long as AAC support is included on those devices. Current players that support the AAC format include the SanDisk Sansa, the Sony Walkman S Series and, if you can believe it, Microsoft’s Zune. The AAC format, by the way, is not owned or controlled by Apple. Any manufacturer can include support for it on its player; any digital music vendor, such as Microsoft’s Zune Marketplace and Amazon’s download service expected to launch later this year can offer music in AAC format.

In any case, you won’t see Universal’s artists vanish from the iTunes Store any time soon, despite all the bluster. Universal, as the biggest of the Big Four, releases about a third of the music in the United States, but Apple has two-thirds of the digital music player market in addition to 75 percent of the digital download market. They clearly need each other. Anyway, if Universal did get the concessions mentioned in the Business Week piece, this battle’s already over.

What does that mean for Apple and its place in the digital music business? It may not be all that bad. The realm of digital media is a rapidly changing one, and Apple will need to respond to these challenges as they come along. The deal with EMI to sell DRM-free songs was a win for Apple, and should pay dividends in future negotiations with the other three music companies when EMI’s profits from iTunes increase. At the same time, the current flap with Universal will loosen Apple’s grip on digital music. That will give a slight boost to Apple’s competitors, both the digital music vendors and the makers of rival music players.

But Apple has nothing to fear as long as it keeps doing what got it into such a dominant position: making the best music players and operating the best music download service, anticipating and responding to customer desires. Increased competition isn’t a problem as long as you’re still better than they are.

Posted by David Zeiler at 3:06 PM in iTunes/iTunes Store | Permalink | Comments (2)
                       

The Mac universe never fails to pounce on a controversy, or, as often happens, a perceived controversy. Last Thursday two sites, The Unofficial Apple Weblog and Ars Technica, published reports revealing – gasp! – that Apple embeds personal information in the new DRM-free songs the iTunes Store Plus started offering on Wednesday. Expressions of alarm and outrage followed on those sites and many others. Comments along the lines of, “Why is Apple tracking me?” and “My privacy rights are being violated” proliferated in forums and comment logs on the sites where the stories appeared.

One line of thinking suggested the purpose of the information – which apparently includes only the buyer’s name and iTunes e-mail account – was to track pirates who would put the new restriction-free songs on file-sharing networks. That idea wavered on the realization that such information could easily be faked, and would prove an unreliable means of pursuing music thieves.

The more ethical participants in these discussions also pointed out that even if tracking illegal file sharing were Apple’s intent, law-biding citizens had nothing to fear and no cause for concern. The more paranoid participants worried the pirates would insert other people’s names on songs they intended to share, leading to the prosecution of innocents.

Then a few astute folks realized that Apple did not just start embedding this information into DRM-free tracks this week. Apple has done this since the original iTunes launched in 2003. Anyone can use the “Get Info” command on any song purchased from the iTunes Store at any time and sure enough, the metadata listed under the “Summary” tab shows your name an e-mail account. I looked at the tracks from the first album I bought from iTunes, “Fever to Tell” by the Yeah Yeah Yeahs on May 25, 2003 and voila – my personal data.

Far from easing worries, this discovery fueled more speculation on just what sort of nefarious plans did Apple have for this embedded data (sigh).

People should know by now that most retailers collect personal information on its customers, even if they do find it distasteful. Think about it. Have you ever bought anything in Radio Shack? By the time they finish asking for your address, phone number, shoe size and blood type, you’re ready to drop that S-Video cable on the counter and walk out.

At first Apple stonewalled inquiries from the media about this issue, as is its habit, but it did drop one clue to the folks at Wired. Talk to Mike Gartenberg, an Apple spokesperson advised via e-mail. Gartenberg, an analyst with Jupiter Research who follows Apple, offered an entirely reasonable explanation for Apple’s actions. As stated in the Wired piece:

The information could be used as a proof of purchase, or to facilitate upgrades (songs previously bought through iTunes can be upgraded to higher fidelity versions for an extra 30 cents). The identifier could help identify songs missing from albums (iTunes offers a "complete album" feature), as well as to thwart piracy.

The Wired article goes on to say (and I agree) that if embedding such data is indeed primarily for Apple’s own use in serving its iTunes customers, perhaps Apple should bury and encrypt it. That way unfortunates who have their iPods stolen won’t have their e-mail addresses exposed to thieves and attempts to fake the data to allow illegal file sharing will be much more challenging, if not impossible.

With all that said I hope we can put this brouhaha behind us and get back to pondering far more important issues, such as when the iTunes Store will make the Beatles back catalog available.

Posted by David Zeiler at 12:58 PM in iTunes/iTunes Store | Permalink | Comments (5)
                       

Today Apple officially started selling DRM-free tracks on its iTunes Music Store. Called “iTunes Plus,” it’s a separate section of the store with songs that cost more than regular iTunes tracks -- $1.29 versus 99¢ -- but have no built-in restrictions on where you can play them or how many copies you can make. Better still these songs are encoded at twice the “bit rate” of regular iTunes fare (256 kbps versus 128 kbps), which means less compression of the files, which translate to higher quality.

The availability of music without the much-maligned and detested DRM (digital rights management) is Apple CEO Steve Jobs following through on his “Thoughts on Music” statement he issued in February calling for the elimination of DRM from music sold online. Though some scoffed at the time, Jobs soon convinced EMI to make its catalog available on iTunes without DRM. As of now the iTunes Plus store includes only EMI artists, though there are plenty of heavyweights among them such as Frank Sinatra, the Rolling Stones, John Coltrane, Pink Floyd, Coldplay and Paul McCartney.

The arrival of DRM-free music at iTunes signals doom for DRM. The technically savvy folk most likely to buy music online have savaged the concept of DRM for years on Web forms and will welcome the opportunity to purchase music without it. When DRM-free music proves popular, it will put pressure on the other major labels to follow suit. Online retailer Amazon.com added to the anti-DRM momentum in May when it announced that it was planning a totally DRM-free online music store for later this year. While EMI again was the only major label on board, Amazon said it had over 12,000 independent labels signed up.

When all the labels eventually cave in and all online retailers are selling music without DRM, those same observers who dismissed Jobs’ “Thoughts on Music” in February will be heaping praise on the visionary Jobs for inspiring DRM’s demise (at least for music –video is a whole ‘nother story).

Posted by David Zeiler at 2:35 PM in iTunes/iTunes Store | Permalink