iTunes

1) Electronic snacking?
It corresponds to a new lifestyle (quicker and quicker, best deal, opportunist, à la carte)

2) How does the iTunes business model work?
iTunes offer a combination of an easy-to-use interface which as well as giving you access to music, lets you organise it, burn CDs (with a copy protection called DRM) and copy songs to a portable player especially to the famous and trendy iPod.

Not only is iTunes itself free, but it offers a catalog of albums, user reviews, album art, Internet radio, and podcast listings for free as well. Consumers can benefit from iTunes' content and services without ever making an online digital purchase. Apple even gives away new content every week, so users can expand their music collection without any commitment to buy anything. (kind of freemium model)

Music tracks are downloaded and paid “à la carte” rather than on a subscription basis or rent or full album buying.

Customers want the opportunity to pay for content they enjoy. Few companies are targeting this demand. Apple is positioned well to offer a diverse market for paid TV content from iTunes, and its performance over the last year indicates the iTunes model is working well.

By offering free services and making desirable content available for sale on the side, Apple is able sell to people interested in the convenience of digital downloads without demanding the regular rent payments that turn off casual buyers.


Of the 99 cents of a download, Apple keeps a portion and the rest goes back to the label, which is then responsible for distributing back to the artists, songwriters, publishers, and so on according to the existing terms between the labels and their bands. This makes it really simple for Apple to acquire content because they don't have to deal with stuff like licensing agreements or paying publishers -- all that stuff is the labels' responsibility. There's no cost for labels to join the store and, conversely, Apple isn't paying any upfront advances for content (a method that has been used in the past by other digital download sites to attract certain labels to make exclusive deals with them).
The arrangement between Apple and labels is considered a "reseller agreement". It's a simple, user-friendly and egalitarian one. That means they're not licensing content from any labels but instead buying songs "wholesale" and reselling them to consumers -- a lot like a terrestrial retail store that purchases CDs wholesale and sells them retail.

If Apple can stick to its mantra that "it's just about the music" they may have designed a business model that will truly provide a legitimate and accessible platform for all musicians to distribute their music.

Unlike traditional retail sales with the iTunes Store there is:
- No overstock
- No breakage
- No returns
- No packaging costs

Apple is using the right marketing strategy, and praises Apple's strategy of achieving as high a profile as possible, through advertising and setting up alliances with AOL and Pepsi that would not be reached simply by promoting the product through its website.

Apple’s strength is in the integration (ex everything from iPod support to the store is part of one logically organised application owned and mastered by Apple).
Apple insisted that "it's all about the music" and that they're not interested in accepting advertising, banners, or any types of payment for placement on the website. Once again, Apple has a unique position in this. As a technology company with lots of assets they don't NEED to accept advertising money to make this work, and they've never done anything like this in the past (like selling space for icons on their computer desktops)

Apple is pioneering ad free, paid content on the web while others are trying to subsidize the expense of hosting free content by using ads.

ITunes Store: Benefits for Labels and Musicians
- Music is available through Apple's iTunes store as either a single track or as an album download. - Singles are all 99 cents and albums are usually $9.99 (with some exceptions made for double albums or EP's).
- The Store's interface makes it very easy for folks to browse, search and buy music.
- No limited shelf space like in a terrestrial store, and no restocking required. Once it's encoded and sent to Apple, it's up there forever and available 24/7.
- This is not an exclusive deal, so labels are free to make arrangements with other digital distribution systems or retailers.
- Easy to direct possible purchasers from your labels' website to the Apple iTunes store with the click of a button.
- Great sound quality with use of AAC compression format, and strong but invisible digital rights management.
- Labels get the strength of Apple's brand name, promotional efforts, and leadership in this field. They're running print and TV ad campaigns to support the launch of iTunes.

3) How is it different from traditional models for the music industry?

Apple is different from the traditional models in that:
- it does not use subscription (Real Networks' Rhapsody and by MusicNet),
- it uses à la carte method (track or albums),
- it does never used the peer to peer method like Napster / KaZaA, Gnutella but instead an online music store,
- it is proposing software (iTunes for free) offering easy to use services like music player, CD ripping & burning, an interface to iPod, free internet radio stations for Windows and Mac users,
- it selling hardware (iPod portable player) and selling music à la carte
- it has an agreement with the 5 major labels but not only and it does not do publicity to give the impression of caring for music only,
- it uses a digital protection DRM allowing limited copy to PCs but unlimited copy to portable players.
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4) Another interesting model (Magnatune)
Except now there's a daring young Web site called Magnatune that's asking some interesting questions about ways to finally create harmony between the Internet, music artists and consumers.

Magnatune was launched in May by John Buckman, who is otherwise CEO of e-mail software company Lyris. At its core, Magnatune is an effort to create the first real Internet-era record label.

Magnatune doesn't have all the answers. But its model reveals how the Internet, CD burners and inexpensive digital recording technology are undermining the music industry's economics to a greater degree than most people realize.

The questions about current models start with pricing. Why, in this era of eBay, is all music priced the same? A new track from White Stripes can't be worth the same 99 cents online as an old Bread recording of Baby I'm-A Want You. (No quips from the peanut gallery about which is worth more.)

The Internet makes dynamic pricing possible — prices that change depending on demand. EBay's auctions are one way to do it. Magnatune is trying something a little different, and it includes playing on a buyer's conscience.

When you go to Magnatune, you find a list of a few dozen artists the company has signed. They are not famous. (About one in 300 artists that send music to Magnatune get signed — the idea is to maintain a level of quality.)

Click on an artist such as Falik — who plays electro-Indian music and may or may not intend his name to be a homonym — and you can listen to his album for free by streaming it over the Internet. It works like an on-demand radio station: You're not downloading the music onto your computer's hard drive, and you don't own it.

To download an album so you can play the songs any time or burn them to a CD, you have to buy it. When you click to buy, you see a "suggested" price of maybe $8, but you can choose to pay as little as $5, or as much as you want. Here's what's fascinating: "Everyone assumes we're just getting $5," Buckman says. "The average is $8.93."

Buckman is convinced his customers are willing to pay for — not steal — his artists' music, and even pay more than is necessary, because Magnatune pays artists half its revenue from selling music.

Which brings into play another layer of the Magnatune model. In decades past, it cost a lot to get recorded music to the public. Studios and equipment were expensive, so recording an album took a lot of upfront money. Then, manufacturing thousands of LPs or CDs and shipping them around the country cost a ton.

It all meant artists had to sign with a record label that would advance the money to launch an act. The price to artists has often been restrictive contracts that pay little royalties.
But every part of that model is changing. PCs, digital gizmos and software can be assembled into a high-quality basement studio for a few thousand dollars. Former Byrds legend Roger McGuinn is recording his next album on his laptop while on the road. And with high-speed Internet, CD burners in most every PC, and blank CDs that cost 30 cents, it makes little sense to manufacture and ship pieces of plastic. It's like, in the 1940s, when the first refrigerator/freezers made home ice delivery irrelevant.

Bottom line for Magnatune: It can sign artists who have already recorded their albums, advance them nothing, then split all purchases 50-50. If you pay $8, the artist gets $4.
The 50-50 deal is spelled out on the Magnatune site. Consumers, Buckman says, want to support artists.

But they don't want to support the Recording Industry Association of America (RIAA) and the music industry, which they see as the enemy. People are willing to steal music from music companies but not from artists, Buckman says. Considering the outrage in 2003 over the RIAA suing a 12-year-old girl for downloading music, he's probably right.

Magnatune is taking advantage of this zeitgeist with a certain glee. Its slogan: "We are not evil."
Buckman is even embracing some of the more radical aspects of Internet culture. One is open source. Because music now is digital code, why not allow people to take it apart, improve on it, use it to make something new? Magnatune's contracts with artists allow for certain kinds of sharing. "We want to be the Linux of the music world," Buckman says.

Now, nobody suggests Magnatune is going to overtake iTunes or the major record labels. "It probably won't get past a certain point because the music is obscure," says Mark Coleman, author of Playback: From the Victrola to MP3, 100 Years of Music, Machines and Money. But the model should make the music industry take notice.

Yes, compared with the lame attempts to sell music online before, iTunes is a breakthrough, and it is popular.

Still, it sells music from major labels that operate much the way they have since Elvis recorded Blue Suede Shoes. Jobs admits iTunes loses money. Consumers still steal: BigChampagne, a service that the music industry itself uses to monitor file swappers, reports a 35% increase in illegal traffic in 2003. And the RIAA threatens another round of lawsuits against consumers.


4) What other products or industries could adopt the iTunes business model to become successful in the Net/snacking marketplace?

The video / film industries on the internet
The TV stations (pay TV)


Efforts by traditional media distribution companies to make more of their shows available for free on the internet - including the Hollywood-backed film service MovieLink (www.movielink.com)
and Amazon.com's Unbox service are also working against paid services.
Led by ABC.com, US TV networks including News Corporation (publisher of AustralianIT) 's Fox are offering some hit shows online for free.
News and NBC Universal also launched a joint venture to distribute a combined archive of shows over the internet.
Cable TV service executives and set top box makers are also seeking to make online videos easier to watch on big TV screens - a major topic of discussion at last week's cable industry trade show in Las Vegas.
Earlier this year, AOL struck a deal to make its videos available directly on Sony flat-panel televisions.