iBlog

Apple’s Ace in the Hole

“It’s probably a bit much to say Jobs is saving the music industry, but he’s showing them the way into the digital age. They have been stumbling around drunk in the dark.”

—Barry Ritholtz, Maxim Group

As the digital music player landscape becomes increasingly commoditized, Apple knows that it can’t simply rest on it’s laurels. They’ve been down this road before, and watched a dominant market share turn into a niche. With Microsoft and WMA breathing down their throats, they have to be ready to compete on more than just being a first mover.

The same goes for the iTunes Music Store (iTMS). It’s currently riding atop a wave of popularity, winning three Webby awards (2 in people’s voice categories), and has the widest selection of any store at over 700,000 songs and counting.

Anyone who has been following the iTunes/iPod story recently knows that the two are joined at the, well, firewire cable. Jobs has made the point numerous times that even at the rate they are selling songs (2-3 million a day at last count), they are not making much profit on them. Like loss leaders at the grocery store, the iTMS is there to move iPods. And with 900% year over year growth in iPod sales, the tactic seems to be working.

Apple has to do two things to maintain its competitive advantage, particularly if it continues to keep the iTMS iPod only. First, it must continue to innovate with the iPod. Whether that means introducing more models, like the mini, or whole new advances like a videoPod, or both (and more), they can’t sit still. And I don’t believe they are. But of course, they are not talking.

Second, Apple needs to continue to expand the iTMS. The more exclusive tracks they can negotiate, even if only for a time, the better. And right now they are in a position to call those shots.

“What Jobs is saying is, ‘We’d be happy to take all this content that is rotting away in warehouses and turn it into a new revenue source for you.’”

—Barry Ritholtz, Maxim Group

It’s time for Apple to play this Ace. They have the largest market share of all online music stores, and they sell the most popular player in the market as well. They need to leverage that advantage.

“Everyone we’ve done deals with wants as much as they can get. All the services know that breadth of content is key.”

—Jeremy Welt, head of new media for Maverick Records

No one is in a better position to expand their catalog with exclusive deals than Apple. And they are already starting the process, adding out of print titles from Roy Orbison as well as 45 Motown singles and 45 classic albums to iTunes in honor of Motown’s 45th birthday.

“iTunes is currently the leader and it seemed like a good fit.”

—Harry Weinger, vice president of artist and repertoire at Universal Music Enterprises (Motown and Universal Music Enterprises are are both part of Universal Music Group)

The key here is that Apple is able to resurrect out of print titles, many of which have never been digitized, and put them in front of more people than any other online music store. With only 5% of Motown’s catalog currently available to the public, there is a lot of potential. And then there is the rest of Universal’s catalog, not to mention the other 4 major labels.

It’s Apple’s game to win.

Quotes from the Wired News article, Apple Wants to Open Song Vaults, by Katie Dean.