August 22, 2007
Why Apple isn't shaking over the Wal-Mart MP3 announcement
Over at The Motley Fool, Rick Aristotle Munarriz notes that Wal-Mart is looking to bolster its online music offerings by offering DRM-free MP3s, and for $.94, where Apple's higher-quality MP3 files are $1.29. Munarriz thinks this may finally be the chink in Apple's iPod/iTunes armor that pundits have predicted pretty much since the iPod arrived in 2001.
Unfortunately, according to Kirk Biglione over at MediaLoper.com, the Wal-Mart Music Store is an even more bewildering mess of dark alleys than their brick-and-mortar locations. He spent two hours trying to download a single Elvis Costello MP3, having to upgrade his Windows Media DRM and the Wal-Mart software itself in the process, and being rejected when he tried to connect via a Macintosh or even through Firefox for Windows. Using IE under Windows, he eventually was able to buy a song file.
So, the Wal-Mart store isn't much for now, but Munarriz is absolutely right about one thing -- the days of a monolithic iTunes Music Store are probably coming to a close. The future of music retail looks a lot like its past: There will be dozens of different outlets for music. Where once you could buy 45-rpm singles at the drugstore (for 99¢!), department stores, and music retailers, in the future, you'll be able to buy singles through online retailers, the artist's home page, and through listening stations in brick-and-mortar retailers.
Where Munarriz misses the boat is in suggesting a diversification in music retail is a major hit for Apple:
iPod users have gone through 3 billion downloads on iTunes because iTunes is pretty much the only show in town for iPod-ready downloads. Most of the other digital-music merchants sell tunes in the WMA format, which works on more conventional MP3 players but cannot penetrate the protected iPod fortress.
An MP3 file is universal. It will work on any and all players, the same way a ripped physical CD would. And if a record label makes its tunes available as standalone MP3 files -- the way EMI has for Wal-Mart, Apple, and eventually Amazon.com (Nasdaq: AMZN) -- it doesn't matter where you get the track. As more studios begin to back the unshackled MP3 format and more Web retailers begin to sell them, the line will also blur as to who makes your digital-music player, if audio is your bag.
I see estimates of Apple's take per song sold as low as 10¢ and as high as 35¢ (that one ignores distribution costs). If you take the highest possible estimate, the one that ignores Apple's server, bandwidth, and marketing costs, the iTunes store has made Apple a little over $1 billion since it opened in April 2003, or around $250 million/year.
iPod hardware sales continue to grow at more than 20% year over year. Apple sold more than 9.8 million iPods last quarter (more than 10 million if you include iPhones), for sales revenue of $1.57 billion (excluding the iPhone). Last quarter alone. Meanwhile, woot.com is trying to unload overstocked Zunes for $149.99 while the positively archaic 5.5-generation iPod just keeps selling, with, I'll wager, major new iPods arriving before Christmas.
So who's going to be selling the hardware that plays all those unlocked MP3s? For the forseeable future, it's still going to be Apple. The only possible market or technological derail I could see for Apple would be if a transition to video players happens quickly and Apple blows it -- even the people I know with the video iPods don't think of them as great video players. Even so, I don't know anybody who has given up their less-than-ideal iPod in favor of a more capable video player.
Motley Fool-style disclaimer: My wife and I both own Apple stock.
August 21, 2007
links for 2007-08-21
Profile of aging researcher David Sinclair at Harvard, who is focused on resveratrol and genetic longevity activators.
ESPN on Michael Vick and some of the history of Atlanta race relations.
August 17, 2007
links for 2007-08-17
CodingHorror on the complexities behind Yahoo's deceptively simple seeming YSlow score.