Letters What Apple enthusiasts lack in market share, they certainly make up for in optimism. Apple vs. the RIAA is a foregone conclusion. For some of our readers, the David and Goliath mantles have been reversed, and beggar your logic: Apple's new online music store, which doesn't own any record labels or music publishing properties, and which has begged but been refused the rights to sell low bitrate copies of The Beatles' back catalog, will soon make the copyright cartel beg for mercy. How? We'll see.
Our story, we suspect, introduced many people to the movement behind what's called 'compulsory licensing'. It's a model that's successfully provided low cost drugs to developing countries, by breaking drug companies' IP strangleholds. Now it's being backed by record industry executives who see the explosion of peer to peer PC file swapping as a terminal threat. It's a bit of a blur, admittedly, because it involves some form of flat rate tax and the use of new technology to determine more accurately where the royalties should flow. But it's found a foothold in the industry already. For proponents, it's the least-bad option, and they're willing to dismantle the RIAA and give it a chance.
Only, Steve Jobs would rather you didn't know this was brewing. Apple is presenting a simple duality of piracy vs the RIAA, in which he has stepped in, personally, to soldier a 'decent compromise'. Which is jolly good of him.
So we invited you to shoot down a modest proposition. Some form of a compulsory license model, and it can be finessed as an invisible tax (let's say, we only tax currency transactions, or some other swinish speculators) will soon be discussed and become very, very attractive to ordinary people who suddenly have the freedom to share music without the guilt factor. Because the artists gets recompensed. Meanwhile, what happens to these early online hucksters, then?
At The Register, we like to keep an open mind. We don't like to rule out anything unless it's been proven really impossible, in at least N-universes, so let's entertain this scenario. Oblivious to the licensing schemes that the labels are currently discussing, several readers insist on Apple's right to maintain the RIAA copyright cartel:
"iTunes' business model could well be the death of the cartel," writes Matt Cooney.
Matt actually has a good point:
"If and when online sales make a reasonable percentage of all sales, we'll see artists wondering at contract negotiation time why they can't just sell their music direct to the stores, or though a specialist, low-margin agent such as CD Baby. They don't need the RIAA. The first major artist to do this could well kick off the trend."
This is an excellent point that highlights the potential power of Apple as a distribution channel.
Reader "E" puts its this case even more concisely:
"Apple may look to replace the RIAA pigs by doing deals directly with musicians. The songs could be cheaper - like $.50 - and still there would be more for both Apple and the musicians."
And even more succinctly, reckons reader Steve Carlson:
"Doesn't it make sense for Steve to play the slave while the market is emerging, since he's got the deeper pockets to take the loss from, and simply bleed his competition to death?"
Ah, yes. The deep-pocketed Apple enters the world of Sony, EMI and BMG. If that isn't bad odds, consider this. Apple isn't making any money now from its music store. But it hopes sheer volume could the redress balance. Let's hear more:
"As the Windows Base spools up, the negligible profit they stand to make (costs / marginal losses today will scale better when they sell 100 million songs compared to 10 million..., now that’s where the internet model kicks in)", writes Adrian Scott.
Of course. When you're making no money on 10 million sales, and getting a garland press, naturally you're incentivized to make no money on 100 million sales. Why not hit the ceiling? That's the perilous future Apple faces, with ten times the hosting costs, ten times the MP3 royalty fee it pays for licensing the code and sticking it in a free iTunes player, hoping that it can sell enough iPods to make the difference? We don't even think Apple believes it can make this balance, but don't spoil the fun by leaping to the last paragraph just yet.
Because so far, we're prepared to suspend disbelieve. In a wonderful RIAA-less, daze we must proceed, albeit now in a slightly giddy fashion:
"Jobs will not fall for working with RIAA," predicts a triumphant James Hillhouse. "He will thrive and the RIAA will eventually be the one starving as Apple takes command of the online music market."
Begging for mercy, no doubt.
Here we must interject an important point: with piracy rife in Asia, Africa and much of the Middle East - where people love and share music - the copyright lobby is wounded and withdrawing to the North America and EMEA to make what deals it can.
And let's have no illusions about what's at stake. Computer companies such as Apple which own no product face huge vertically integrated media companies such as Sony, which not only own movie studios and record labels, but also have a nifty line in playback devices. You might own one yourself. The political consequences are pretty straightforward:
"The basic difference between iTunes and Napster is that Napster IS the music industry (or at least part of it)," notes Felix Stadler.
"This means Napster gets to keep that part of the 99 cents which Apple has to hand over to the record companies. A more likely scenario is that Apple pioneers a service and once the record companies have caught up, they will squeeze Apple out of the business. Sounds familar for Apple, doesn't it?"
Everyone is online, like us, all at once
And here we must digress for a moment and recall the WiFi bubble that inflated and popped earlier this year. Public WiFi hotspots were supposed to be the revenue driver that re-ignited the sunken tech economy - and the key to overthrowing the telecoms companies. Surely, you remember March? The scene was hyped by a group that had little in common except they were uniformly white, wealthy and never more than two feet away from a piece of expensive WiFi-capable computer. As it happened, there simply weren't enough of this blog-happy demographic on hand to make the exercise worthwhile. And as thousands of WiFi hotspots lay unused - the coffee shops patronized by hicks who, damn them, simply wanted a cup of coffee - we learned that public WiFi was never supposed to make money.
Well, much as we'd love see little old Apple, the powerless distributor with no record labels, go from about here, to become the music industry's Wal-Mart, we have to do the sums. And you can see how similar delusions that misinformed the WiFi bubble guide the online music business too. Almost all music is bought through bricks and mortar stores, using CDs (that the copyright holders wish were copy-protected) rather than low-quality, limited-use bit transfers. And the royalty rates are set by the incumbents.
This stacks the game against any online store that isn't an incumbent. Right now, Apple Computer isn't an incumbent, has no leverage to set the royalty rates (or even, begging as it does, to plead for very much in the way of actual music) and, with Sony waiting in the wings, has much to fear from a competitor that owns both music and is a credible consumer manufacturer. Like you, we wish it weren't so: but this is how this particular market has worked out.
The best way, we humbly suggest, to overturn this very unlevel playing field is to force the copyright holders into the spotlight, into a public examination of what they're really worth. In Internet economies, is the RIAA copyright justified? Although its blessed as a royalty collection monopoly by the United States' Library of Congress, can not new markets emerge to set more efficient rates? Can new technology not help here?
Along with a beleagured and dwindling band of music industry executives, Steve Jobs seems to think not. But the promise offered by what's called 'compulsory licenses' isn't going away, because for most people, the model really does offer something for (next to) nothing.
Waspish regular A.Lizard deserves the last word, for summing up Jobs' bad timing:
"Jobs waiting until Universal's price drops before buying it due to its participation in *AA stupidity is reasonable. Jobs propping up Universal's book value is abysmally stupid.
"When Universal hit the market, didn't anyone tell Jobs that getting reasonable license terms out of an RIAA label is easy IF one owns it?"
As we write, Apple owns nothing, except a simulacra of an online music store Wal-Mart. You have to close your eyes, and suspend disbelief, to think that the copyright cartel is worried about this.
But it gets even more interesting. In this case, there's a backstory. There's a much more prosaic, but in its way much more intriguing reason for why Steve Jobs jumped into the RIAA's pocket. And we'll start to tell it later today. ®