Why Apple is more expensive than Amazon
Let’s say you would like to listen to one of the most amazing performances ever made, Glenn Gould’s 1981 recording of Bach’s Goldberg Variations. And let’s say you have figured out the DRM is a really terrible idea, so you would like the hear it on high-quality MP3s.
The good news is that there are a number of places to legally purchase the right to download DRM-free MP3s. Lots of music from the major labels is available on Amazon, and it costs the same or less per track than Apple’s iTunes Music Store (“iTMS”), and you can find more DRM-free tracks on Amazon than on iTMS.
For example, Bach: Goldberg Variations, BWV 988 on 256-bit DRM-free MP3 is just $9.99 from Amazon. The same album is also $9.99 from Apple, but you get DRM. And there are tons of tracks on Amazon that are actually less expensive than on iTMS, so you get better music for less money without the DRM hassle. So is Apple screwing the customers?
In a word, no.
The reason you can find more music on Amazon at a lower price is that the Record Labels want it that way. Do you think they charge Apple and Amazon the same price for each track and Apple simply charges you more and pockets the difference as a higher markup? The labels would like you to think that, but they actually charge Amazon less for each track, and that’s how Amazon can charge you less.
Do you think Apple insists on the DRM but Amazon has the vision to see that the future of music is DRM-free? Do you think Jeff Bezos is a better negotiator and he was able to get a better price per track than Steve Jobs? Without putting up with DRM?
Really? How does that work, when iTMS is now the third-largest music retailer in the United States? How does the lower-volume store get better selection with fewer hassles and negotiate lower prices from its suppliers? When Steve Ballmer—not an easy man to intimidate—asked them for music to put in his Zune marketplace, these nice people extorted a $5 tax on each Zune sold from him. So how did Amazon get such a sweet deal?
Price fixing is how.
The major labels want nothing more than to break Apple’s dominance of the digital music business. They spin it as a good thing. More retailers means more competition, which is good for consumers. But let me ask you: if Amazon selling music for 89 cents a track is good for consumers, why isn’t iTMS also selling music for 89 cents a track good for consumers?
It would be good for consumers, but it wouldn’t be good for the music labels. The reason it wouldn’t be good for the music labels is that they really don’t want consumers paying 89 cents a track for DRM-free music. They want consumers to stop using iPods and start using devices with DRM that the labels can control.
They want consumers using devices in proprietary silos like old-fashioned cell phones, where you pay for the track, you pay for the bits transferred over the air, and then you pay all over again when you want to use a few seconds of the track as a ring tone.
As soon as they can break this pesky iPod-iTMS-iPhone nonsense, the labels want to get back to dictating what you pay and how often you pay. The labels want to do business with people like Microsoft. Microsoft gets it: all the people who bought music using MSN music? They can buy it all over again at the Zune store.
Do you think that the MP3 genie is out of the bottle and will never go back? You haven’t been paying attention to digital video media. The movie folks have succeeded in making DRM a standard for movies on DVD, and it is even worse on BlueRay. Have you seen the hoops a Microsoft PC has to go through to play video these days? Each piece of hardware has to promise to be a good boy and not let you actually do anything with the bits without permission.
The movies people have imposed harsher DRM on movies, and the music labels like the look of that.
The only—I repeat only—reason the labels allow competing stores to have DRM-free tracks is that it’s the only way to get music onto an iPod. Think about that for a moment: Apple’s dominance of the music player business is the actual reason you can buy a DRM-free track from Amazon. If anybody else had a substantial chunk of the player market, the labels would be busy trying to make the other player’s DRM the standard.
Imagine a world where every online store sells DRM-free music encoded in open licensable formats. In such a world, any player can play music purchased from any store, and any store can sell music which is playable on all players. This is clearly the best alternative for consumers, and Apple would embrace it in a heartbeat.
If the big four music companies would license Apple their music without the requirement that it be protected with a DRM, we would switch to selling only DRM-free music on our iTunes store. Every iPod ever made will play this DRM-free music.
I know, you’re going to bring up Apple’s DRM. Let me ask you a question: who do you think wanted DRM on iPods? Apple? Don’t make me laugh. Apple built a nice little business selling iMacs using the slogan “Rip. Mix. Burn.” They would love to keep building their nice little iPod business on the back of DRM-free music.
Think about this: If you buy a 32 GB Apple iPod touch from Amazon for $472.54, do you think Steve Jobs stays awake all night worrying about whether you will buy tracks from Apple or from Amazon?
If you answered yes, then you understand that Apple would be delighted to offer DRM-free music for the same price as Amazon. Or even less, since the profit selling you an iPod can subsidize their on-line store.
I personally answered “no,” because in my opinion, there are only three threats to Apple”s iPod business: Someone will actually out-design a music player and make that is actually better designed, cell phones will become the dominant music players, or someone else establishes a DRM standard that locks Apple out of playing downloaded music. I am not going to worry about anyone making nicer music players, I think we see what Apple is doing about the cell phone business, and now we understand what Apple is doing about the DRM business: If nobody can establish a DRM business, if nobody can lock you into one player, then nobody can take the music business away from Apple simply by getting into a back room and doing secret, monopolistic deals.
I’m looking at you, Sony and Microsoft. If the whole world has DRM-free music, you have to compete with iPod by building better music players. Sony, at least, has a chance. And if the whole world can sell DRM-free music, then Amazon and the like would have to compete with iTMS by building a better music store. Except, of course, they don’t have to compete with iTMS because the labels are colluding to place Apple at a disadvantage.
It’s delightful that for the moment, we have a choice of where to buy DRM-free music. It’s wonderful that today, we can legally purchase the right to listen to a lot of major label music on DRM-free MP3s. But let’s not kid ourselves. If the labels break Apple, this will not last. The genie will go right back into the bottle.
Buy what you like, where you like. But remember why things are the way they are. Apple is more expensive than Amazon because the labels want you listening to music on a Zune.
Update: Thanks for the links, John and Jeff. I spotted an interesting idea in the comments on Jeff’s post: the labels may not succeed in breaking iPod, but if they can break iTMS, they might be able to salvage the ability to set arbitrary prices.
One of the things they really hate about iTMS (alongside letting you burn your own CDs, transfer the music between computers, and share your music over a LAN) is that all music costs exactly the same. Breaking iTMS will restore the biggest weapons they have against artists. That has been discussed before, I recall Joel Spolsky’s Price as Signal.
It's like they're just begging me to pirate music. I can google the name of an album I want, find a link to it on Rapidshare or MegaUpload, and download the whole thing for free with no DRM of any kind. The stupidity of their business model is overwhelming. They're ensuring that the most attractive option for me to get new music is to steal it.
You should definitely check out Murray Perahia's recording of the Goldberg Variations. I'm not a big fan of Glenn Gould anyway but IMHO, Perahia redefines this opus in a way I'd never have deemed possible.
PS This is my very first comment on raganwald, and it's kinda Off-Topic. But I have to let you know that I enjoy your blog very much and have become an avid reader over the last few months.
Steve Jobs doesn't worry about someone else designing nicer music players. He worries about them becoming commoditized, such that if you buy a $39 8GB player made by Coby at Wal-Mart, it works just as well as an 8GB iPod Nano.
When iTunes (and all your music in it) only works with iPods, and iPods only work with music from iTunes, music players cannot be commoditized.
When the best TVs in the world were Trinitrons, and only Sony had Trinitrons, the people Sony cared about paid extra for Sonys, and they were happy to do it. When Sony provides no value add to their flat-screen LCD TVs but sells them at a higher markup anyway, fewer and fewer people care about buying a Sony.
Companies like Apple and Sony care about value-add. If Apple doesn't have value-add, they're just a brand for people who care about design instead of price, like Bang and Olufsen (which isn't exactly a market leader). But the consumer electronics industry is fundamentally a commodity business, not a value-add business. Value-add products are a market aberration in CE, not the norm.
Anything Apple can cling to to keep their products from being commoditized, you can bet they will do it. And the iTunes-iPod lockout that DRM helps perpetuate is one of those things.
My point isn't that music players are a commodity. My point is that music players aren't a commodity right now, but that virtually every other device in the consumer electronics industry is.
TVs, DVD players, boom boxes, digital cameras, camcorders, stereo receivers -- these are all basically commodity products. The only other consumer electronics devices I can think of that are not commodities are TiVos and game consoles. Game consoles have obvious software lock in, while TiVos have a better user experience and limited patent protection. (And TiVos have been losing share to commodity DVRs over time.)
I expect you will agree with me that it was not simply better product design that got Apple 70+% share. They got there because:
(1) They had great product design (2) They offered a really effective integrated experience with iTunes
I think it's clear that other companies can knock off key elements of Apple's iPod product design -- and they have!
What they can't easily knock off is the integrated end-to-end experience of iTunes. The closest anyone has come has been Zune, which isn't that great, and still isn't a commodity product, anyway.
Maybe Apple can keep an integrated experience vastly better than other players even if all music files play on all players and if a variety of competing software products can happily connect to all the different music players.
But surely iTunes lock-in aids their competitive edge, even if you don't think Apple likes having this particular advantage.
I do not agree that iTunes lock-in gives Apple an advantage. The reason I do not think so is that selling DRM music has costs as well as benefits for Apple.
The costs include sales they have lost because of their DRM, customers they have never acquired because said customers fear the DRM lock-in, support costs for customers who call up to complain that the music they bought on their iBook at home doesn't play on their PC at work, and so forth.
Right now, the biggest win for Apple is selling more iPods, not trying to prevent their existing customers from switching to another player. The iTMS helps that by making iTunes/iPod a better integrated experience. I think that Apple would prefer that experience be as hassle-free as possible—as you point out, that is their winning formula.
DRM obstructs their value add. Maybe one day Apple will start behaving like Microsoft and be more worried about enslaving their customers than delighting them. But right now, Apple is busy delighting customers and DRM-free delights customers.
You have an argument with two statements, but there is no line between them.
Companies do nothave hearts, so of course they do not have “my best interests at heart.” This does not mean that they cannot profit in the long run by doing something that I perceive to be in my best interests in some narrow way.
In this case, it is entirely possible that Apple can profit from free MP3s without having my best interests at heart.
In fact, I refer you back to the very fact that iPods play MP3s to begin with. This is absolutely in my interest, I can play my existing music on CDs without having to pay Apple a penny to buy the same music over again in iTMS.
So… I suggest you spend a little less time trying to insult my choice of hobbies and a little more time formulating a cogent argument.
Yes, Apple is not motivated by my best interests, however it does not follow that they cannot, from time to time, act in ways that I perceive are in my best interests.
If you wish, try again but this time show why selling music inexpensively w/o DRM is not in Apple's best interests, which is the actual argument I am making.
No barrier at all, however the labels are not happy with iTMS and every iPod sold is support for iTMS. What they really want is:
1. They dictate the restrictions on what a player can do.
When Apple built the iPod, they did not consult the labels before deciding when and how iTunes could share music, or how often it could burn a CD, and many other things that still piss the music people off.
If they can get everyone using players made by compliant manufacturers, nonsense like sharing your iTunes collection with everyone at work or burning lots of CDs will cease.
2. If they can break iPod, they break iTMS, which really pisses them off. They HATE one fixed price per song, it gives them zero leverage over artists.
As a further proof to the fact that Jobs doesn't want DRMs and only put them in iTMS to get access to the majors catalogue, there's this quote from an interview in Rolling Stone :
"When we first went to talk to these record companies -- you know, it was a while ago. It took us 18 months. And at first we said: None of this technology that you're talking about's gonna work. We have Ph.D.'s here, that know the stuff cold, and we don't believe it's possible to protect digital content."
One can also note that iTMS is almost trivial to circumvent : there are several cracks available (which Apple never did much against), and you can also burn a DRM'd file to an audio CD and re-rip it.
So indeed iTMS's DRM is more like a bone thrown at the majors so they'd get of his back.
glaurent - Actually, Apple's been surprisingly successful with DRM, but it's cost them. There aren't any methods of removing DRM from new tracks without re-encoding (which degrades quality or increases file size). A few have been developed, but Apple used legal pressure or changed iTunes to defeat them. In comparison, DVD DRM has failed utterly.
I'm hoping music will be a thing of the past and developed http://songseed.com in anticipation of a shift in that direction. But it has a bit of the "I build it but they're not coming" aspect to it (partly due to the fact the interface needs a lot of work and probably related to it not having any social networking side), and I'm unfortunately having far too much fun with the dayjob I took to fund its setup to spend any more time on it for the moment.
In the meantime, if there are any musicians reading this who are interested in exposure and don't want to limit their audience with recording charges, please check out my site and consider contributing something (even if it's only feedback).
Well I'm glad that at least one other person can see this for what it is : anti-competitive price fixing. Surely there should be regulation against the kind of market fixing that the record companies are performing.
I've noticed that when Amazon's MP3 downloads first started, pretty much all single songs were 89 cents. Now I'm seeing a lot of them for 99 cents. If the labels succeed in breaking the ITMS' hold on digital music sales, expect to see that price go up even more.
Excellent post. I wish more people would recognize what's actually going on, but I suppose most people don't pay any attention to the behind-the-scenes deals.
More proof can be found in a NY Times article that John Gruber linked to from Daring Fireball today. NBC, which pulled content out of the iTunes Store last year, has signed a deal with Microsoft for the Zune. The only catch? Microsoft has to develop a system for “filtering technology that allows for playback of legitimately purchased content versus non-legitimately purchased content.”
Here's the link: http://bits.blogs.nytimes.com/2008/05/07/microsoft-may-build-a-copyright-cop-into-every-zune/
I'd like to open by saying that this is by far the most openly biased piece I've ever read here. It's extremely disappointing to find out that you worship at the altar of a company, like Gruber.
I'd prefer that you ally with your fellow users rather than any particular company, but it's your choice to make -- and based on this post, you've made it.
> Companies do nothave hearts, so of course they do not have “my best interests at heart.” This does not mean that they cannot profit in the long run by doing something that I perceive to be in my best interests in some narrow way.
Like, say, selling DRM-free music?
I believe that to be in my best interests. Do you not?
> Apple is more expensive than Amazon because the labels want you listening to music on a Zune
Really? We can't listen to our DRM free tracks on an iPod or iPhone? News to me.
I'll certainly agree that the success of the iTunes monopoly is what led us to this competitive situation in the first place. But to argue that the competition is "unfair" smacks of the absolute worst kind of Apple advocacy. Unfair? Unfair to whom? The customers who are getting DRM-free music officially blessed by the major record labels?
Yeah, that's terrible.
> As soon as they can break this pesky iPod-iTMS-iPhone nonsense, the labels want to get back to dictating what you pay and how often you pay.
Do you have any actual evidence to support this statement? Is there historical record of *any* media becoming officially DRM free, then reverting officially back to DRM?
I am reminded of software developers who try to "revoke" the GPL after they've adopted it.
If the labels want to disrupt the power of the iTunes machine by doing the right thing for customers and irrevocably breaking the back of DRM on music, that is the beauty of pure competition working for us, the users.
Arguing against that makes you seem an awful lot like an Apple shill -- instead of an advocate for users.
You're dead on about the world being different place if it were another company (say Microsoft) that brought the player+store idea to market first. We would be hopelessly lost in DRM. I wrote an article called "Monopoly on Misunderstanding" a while ago that covers that very subject.
Come on, you can do better than this, Reg. Apple are far bigger assholes than Microsoft. They keep stuff locked up far tighter than anything MS has done, and they almost seem to actively hate developers. Check out the amazing flexibility of the iPhone application platform (or not). Check out the wonderful Java integration in the latest Apple OS (or not). Check out their wonderful way of suing general folks in the community who are trying to do interesting stuff with their stuff.
Every time I think I'm going to try more Apple products than my couple of nanos, Apple does another nasty thing in the tech / developer community, and dissuades me again. I've been a slow learner, but I've finally come around to understand. Apple wants to make consumer hardware with integrated Apple-made software. Third-party developers aren't really a big part of their plan.
The freedom to tinker-with/program-for/build-a-business-around is not the same as the freedom to exercise your Fair Use rights.
You are saying that since Apple does not treat their products as platforms with freedom for developers that you like, you do not wish to purchase said products.
Fair enough, I used to boycott companies that invested in Apartheid South Africa, do as you please.
However, this essay is not about the freedom to develop applications for iPods. It is about the freedom to listen to your music. The two issues are entirely orthogonal.
For another example, see Microsoft. They make a lot of noise about supporting third party developers on their Windows platform, but they have been hand in glove with the movie and music industries to impose very strict DRM.
I wonder: Do you boycott their operating systems and office products because of their attitudes towards music and movies?
Many of the commenters here seem to be forgetting history:
1. The iPod existed before iTMS. 2. Apple wanted to give people a way to easily and legally purchase music digitally for their iPods. The RECORD COMPANIES wouldn't let them do it WITHOUT DRM. The record companies FORCED DRM on to Apple and the consumers. 3. Apple/Steve Jobs called for an end to DRM and were, in fact, the first ones to start selling DRM FREE music from the one record label that would let them. 4. The record labels kept trying to get Apple to adopt variable pricing and charge more for popular artists. Apple refused. THIS IS A KEY POINT. 5. Apple wouldn't adopt variable pricing, so the record companies went to Amazon and let them sell DRM free music for less, while refusing to allow Apple to do the same until Apple lets them charge more for popular artists.
So, now we arrive at the situation where you can buy cheaper, DRM free music from Amazon, because the record labels are try to force Apple to charge more for popular artists. As long as Apple is the #1 music retailer, that's not going to happen. So yes, in fact, the labels are trying to break Apple so that they can get their way.
It's really that simple, people. This has nothing to do with "worshiping at the altar of Apple". These are simple facts. This is the actual history that led us up to the present situation. All you Apple haters out there need to take off your blinders and see that it's the record labels who are evil in this situation.
Weirdly, I have heard (Google isn't my friend right now; think about what search terms would be required) that there are actually some pre-iPod APIs for allowing developers of other MP3 players make drivers to sync with iTunes. I understand that there are freeware 3rd party drivers to make this work, even if Sony and Samdisk haven't been too interested in pursuing this option. Other players won't play ITMS tracks, because Fairplay has not been licensed, but it is possible to use iTunes as library software with non-iPod machines.
That this is an option suggests Apple is actually pretty serious about competing on a level playing field here, which the sale of cheap un-DRM'd tracks would allow. They seem pretty confident about their chances.
The 1955 recording of the Goldberg Varations is waay better, although I don't think there is any visual recording of it
I believe the video is actually a third performance, part of a documentary where Gould played and talked about Bach, playing th evariations, the Art of Fuge, and one other piece that escapes my recollection. It was released as a television mini-series, and although the DVD boasts it is the first time seen outside of TV, they have forgotten the laserdisc format. I recall spending hundreds of dollars to collect the whole thing, and if you hear something like this in analogue through an audiophile setup you will simply weep when you have to go back to CD or MP3.
Anyhow, here it is if you would like to get the whole thing, including his own views on the variations:
I have personally been involved in a sort of arms race with Apple over DRM.
When people started reverse engineering the store, enabling you to purchase songs without being tied to iTunes, Apple started locking it down. They used AES encryption to prevent this.
Keep in mind, this has nothing to do with the labels.. you are purchasing the exact same music with the exact same DRM, the only difference is that you aren't using Apple's software to do it.
When I published the private key used in the AES encryption, Apple pushed out a required iTunes update that changed it and buried it deeper into iTunes. The second time they did this, I gave up, Apple won.
Apple has no reason to lock the store down to iTunes other than the fact that they want you to use their software, and they will happily use DRM to keep it that way.
While it's entirely true that Apple doesn't want you using anything other than iTunes to access their iTunes Store (or manage your iPod, for that matter), this is not the DRM issue that's being discussed here.
Frankly, the one has nothing to do with the other... Applications that try to suck the artwork or descriptions from the iTunes Store are similarly restricted. It's no surprise that Apple doesn't want people accessing the iTunes Store with anything other than iTunes, and whether this is a good or a bad thing is a different debate entirely.
However, it has nothing to do with the DRM on the music files themselves. Apple's restrictions on using iTunes to access the iTunes Store are a client-server encryption, and would (and do) apply equally to "iTunes Plus" tracks. Apple can continue to sell music in whatever format they please while still enforcing the iTunes requirement and the secure channel between the iTunes application and iTunes Store.
So this point isn't really related to the article in question. The continued presence of DRM on iTunes Store content has nothing to do with Apple's own desire to tie their music application to their store.
Neither does the tie-in between iTunes and the iPod. Apple requires that you use iTunes to manage the iPod, and have taken some efforts to restrict third-party applications' abilities to do this (albeit pretty half-hearted efforts, suggesting that they're not trying to enforce these restrictions so much as they're not doing anything to avoid breaking third-party compatibility).
However, both of the above issues can be easily explained by Apple's desire to be control-freaks by nature, and ensure that you use their approved and supportable applications. This is typical Apple behaviour, and none of it is surprising, or even much worth debating.... Much like with the Mac, they try to ensure a consistent and supportable end-user experience by controlling all of the pieces.
However, there is no requirement for Apple to control the actual content using DRM. If they were that concerned, they would have never provided the ability to put standard-format MP3 files onto your iPod. They could have easily taken the same approach that Microsoft did with early Windows Media Player versions and restricted you to ripping in WMA format with DRM enabled by default (yes, MS did this on your own CDs unless you specifically turned it off).
DRM is not and never has been in Apple's best interests, and it certainly isn't today when they already have such a large market share. There are a large number, possibly even a majority, or iPod owners who have likely never bought a track from the iTunes Store. The tie-in has always been a straw-man argument, since most iPod owners come to the table with a reasonable collection of existing CDs before they even think of buying a single iTunes Store track.
For those who would debate the price-fixing issue, however, it can be boiled down to something more simply than the $0.99/$0.89 argument.... Let's say that Apple's contract with the labels is such that they are paying a higher price per track.... This still doesn't change the fact that Amazon has the ability to provide a DRM-free catalog, even were it at the same price, whereas Apple does not.
For those who would suggest that Apple is actually in love with DRM and doesn't want to provide more DRM-free tracks, this flies completely in the face of their existing "iTunes Plus" strategy that they introduced with EMI (who actually did let them sell DRM-free music), takes away the business advantage of being able to sell "upgraded" DRM-free tracks (a reasonable business proposition that came into play when iTunes Plus was introduced), and of course even if DRM-laden tracks were ever in Apple's advantage, they are certainly not a competitive advantage for Apple once Amazon is selling the same music, DRM-free, at a lower price.
So, to play devil's advocate, maybe Apple cannot or doesn't want to lower the price. However, that in and of itself doesn't mean that they shouldn't be able to at least sell DRM-free tracks. The fact that they're not selling DRM-free tracks from the remaining major labels implies that they have not been permitted to do so by the copyright holders, since there is absolutely no other credible reason for this disparity between the Apple and Amazon catalogues.