Thursday, November 20, 2003

COOLIO: Time magazine has declared iTunes Music Store to be the 'Invention of the Year' (although, to be honest, we're not sure what the inventy-bit is - persuading the labels to hand over their tracks was a leap forward, but it wasn't inventive as such. Charging a flat rate could be described as inspired, but not to the point of being a Truly Great Invention. Which leaves you with selling downloads over the internet, which they do well, but isn't new, either.

More concern for all sides in this quote from Apple's Steve Jobs: Jobs has one more reason not to be concerned about the competition. "The dirty little secret of all this is there's no way to make money on these stores," he says. For every 99¢ Apple gets from your credit card, 65¢ goes straight to the music label. Another quarter or so gets eaten up by distribution costs. At most, Jobs is left with a dime per track, so even $500 million in annual sales would add up to a paltry $50 million profit. Why even bother? "Because we're selling iPods," Jobs says, grinning.

Which is fine, and dandy, but there will come a point when everybody who is likely to purchase an iPod has bought one. Sure, there will still be upgrades and replacement purchases, but - like those awfully nice Sony people found with the Walkman - there comes a moment when everyone has the must have gadget and sales slump. Either Apple have something even better lined up (maybe the iPod will morph into something more PC-like?), or else the hardware will stop being so lucrative that iTunes will be allowed to continue returning so little to turnover. (Although having said that, a company with Apple's wobbly bottom line is unlikely to be quite so sniffy about an extra fifty mill every year.) What will happen then? Will Apple renegotiate the royalty rate downwards from a position of strength as market leader of downloads? Will the price edge upwards as consumers find they're locked into the iTunes format and have to swallow USD1.49, 2.99 a track? Or will Apple start to up its profits by dealing direct with artists? We're in for another interesting and queasy eighteen months...


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