Why Apple’s Dominance Of The Download Market Really Is A Big Deal

Following my post about EMI’s financial results' risk guidance for Apple’s dominance of the download market, there has been some questioning about whether this is actually a big deal or not. The likes of Warner Music and Google make similar risk warnings in their results, so no big deal then? Wrong. This is in fact further evidence of just why it is such a big deal.

The labels are still kicking themselves for having let MTV build a business around their promotional videos. Once they’d realized their error, it was too late: MTV was too powerful and was making too valuable a contribution towards their business for them to simply turn off the tap. Some label execs stated they weren’t going to let Apple "do an MTV."  Whether they like it or not, they did.

Apple’s dominance of the download market is a huge deal. I’d argue that EMI and WMG are actually downplaying the importance. It’s not in their interest to scare investors with the news that a company they often don’t get on with too well effectively controls the destiny of one of the only parts of their business which is still growing and which they expect to be their future.

Apple’s dominance is such that would-be new entrants have to think as a priority about what their "Apple strategy" should be. Should they be MP3 or build an iPhone app?  Should they integrate themselves into the iTunes ecosystem or co-exist? Anyone who intends to be a key player in the digital music space is inherently competing with Apple. (See my colleague Ian Fogg’s fantastic report ‘Competing With Apple’ for more on this topic.)

Don’t get me wrong. I am a big advocate of Apple’s role in the digital music space. Its track record is peerless. Without Apple, we’d probably still be stuck with PC-tethered downloads and with 50%+ piracy rates. Apple has shaped the digital music market and will hopefully take it another major step forward soon. But its dominance is so strong that the only realistic way to compete with Apple is to compete around it with offerings that complement the iTunes experience rather than attempt to unseat it, e.g.,  Shazam, SoundCloud, Last.FM, MXP4, Pandora, even Spotify. And more often than not, that actually means integrating into the iTunes ecosystem, thus further strengthening Apple’s role.

So, the role of Apple in the digital music space is much more important than some risk guidance note in financial results.

Comments

Degradation of iTunes

Has anyone actually used iTunes lately? The streaming/buffering of their samples is ridiculous. As a singer/songwriter I may just chose to bypass them for my next album and use my new LicenseQuote tool to sell directly from my website, and avoid apple's cut entirely. With tools like this, all musicians could do the same.

iTunes has undoubtedly

iTunes has undoubtedly bloated beyond recognition since inception and hasn't benefited from the same degree of attention Apple hardware has. If iTunes had gone through similar reinvention as the iPod product line has during its life span it would be a world beater now. Those long over due changes will come though.

Why?

The article started out interestingly, and its title led me to read it.

However, I feel you didn't really touch on the central question: "WHY Apple's Dominance..." is such a "Big Deal".

Why exactly do think it is? What's your (everyone's) reasoning for this? I'm asking sincerely, because that's an opinion I hoped to hear by reading this article but by the end didn't.

Only that for other companies to compete, they essentially need to add to the Apple ecosystem and thus strengthen it. But why is that necessarily a problem? What if the ecosystem is the best ecosystem that exists (really)?

If Apple continue to create excellent products that are intuitive, forward thinking and can't really be matched - for the most part - then what exactly is the concern? Dominance?

I think people too easily forget just how much iTunes has done for helping the music industry (particularly the recording industry) bridge into a new digital era. If it weren't for Apple, there might be no legal download market to dominate.

As you said: "Without Apple, we’d probably still be stuck with PC-tethered downloads and with 50%+ piracy rates." One should really appreciate the notion.

While file-sharing was more rampant than ever, the major labels were arguing bitterly with Apple saying they NEEDED variable pricing. And Apple took the leap and made things simple, all $0.99 against what the labels wanted. But it's what the consumer wanted. And it was indeed the labels that called for DRM long past the time Apple believed in it. (Again Apple sided with the consumers) And finally, when Apple did release variable pricing... ($0.69 $0.99 and $1.29) most labels release entire catalogs of their artists under the $.1.29 price point!

Yes, Apple are a business. So what. They do business brilliantly, and have the most loyal userbase because they have the consumers' best interest at heart.

So then it must all come down to this, we fear a single company's dominance.

But what better company to have doing so than Apple.

More on Apple's importance

Matt I think you may have misunderstood my intent. I agree whole heartedly with you that Apple have been a hugely important force in digital music. Indeed without Apple the digital music market would probably be a whole lot smaller than it is now.

Apple have mastered the ability to create high quality controlled environments in which consumers feel empowered and confident to purchase digital content.

Apple's importance lies in the fact that the US and European digital download markets are essentially an extension of the iPod / iPhone / iPad / iTunes ecosystem. Uber CRM if you like. Take the devices out of the equation and the content business disappears.

The simple fact is non-Apple customers don't buy digital music in meaningful numbers.

So if you're a digital music service or content provider you either learn how to build service that works for those customers or you take a long shot on the unproven rest...

"The simple fact is non-Apple

"The simple fact is non-Apple customers don't buy digital music in meaningful numbers. "

I think that's true, and it's very revealing. Does it not say more about the rest of the buesiness/people in the market than Apple?

Apple have it right, I think.

Sure, music to them was initially just a means to sell iPods. But hey, iPods sold music. They're mutually beneficial.

And as long as our content keeps selling their hardware, we'll be fine. As will they. And so I don't truly see the problem. And why their stronghold is such a "Big Deal"

But I do appreciate the question, especially because so many people ask it and feel the way your post suggests.

It's twofold: 1) Apple

It's twofold: 1) Apple customers tend to be more affluent and 2) Apple created a fantastic premium content ecosystem.

The risk factor for the music business is if music becomes less useful for selling devices. As Apple focuses more on large screen touch interfaces richer content such as movies, games and digital magazines become more useful for demonstrating the value proposition than a 2 dimensional audio file.

I see, and agree. I think

I see, and agree.

I think that's a very legitimate concern!