back buttonBack to Tech Blog homepage

Three reasons why Apple is unlikely to shutter iTunes

October 2nd, 2008 1:47am

Tech bloggers are buzzing over Apple’s threat to shutter iTunes if three US judges side with music publishers and vote to raise royalty fees on digital downloads on Thursday.

You can read all about what the pending Copyright Royalty Board decision means for the online music industry here. In the meantime, here are three reasons that Apple’s threat - levelled in public testimony before the CRB last year - is likely nothing more than bluster:

1. Apple’s market power means it still has an advantage in pricing talks. In the world of digital music, Apple is king. With 85 per cent market share of paid digital downloads in the US, Apple may be able to force the music industry to absorb most, if not all, of any royalty increase. By driving a hard bargain, Apple should be able to minimise any impact to iTunes profits in the event that royalties go up.

2. Apple could appeal to a higher power to have an unfavourable CRB decision overruled. That’s what happened with internet radio after the CRB decided to raise royalties for webcasting last year. The decision was condemned by internet companies like Yahoo and AOL, who said the royalty hikes would damage the business model for internet radio. On Wednesday, Bloomberg reported that the US Congress had passed legislation that would let internet groups and music labels negotiate a lower rate - an interesting example of a royalty increase not sticking in the long run.

3. Apple has already begun to embrace variable pricing on the iTunes store. In recent months, Apple has moved to embrace variable pricing for television shows and other video content on iTunes - first with Time Warner’s shows from HBO, and now with NBC Universal. Steve Jobs would clearly prefer for iTunes to hold onto its 99 cents per song price model, but if all else fails, a move to variable pricing would not be without precedent. 

As an aside, astute readers will notice that whoever redacted the public copy of Eddy Cue’s testimony before the CRB last year didn’t do a very good job of blacking some of the secret bits out. Did you know that, at the time of Mr Cue’s testimony in early 2007,  iTunes had been growing at a rate of more than 1m users every other month since 2005?Or that about 40 per cent of the tracks sold on iTunes in early 2007 were sold as part of albums (implying that 60 per cent were sold one at a time - a low-margin proposition, given credit card fees, as Apple explains in its testimony)? Well, you do now!

October 2nd, 2008 1:47am in Digital media, Internet | Permalink | Comment

Scrabble vs Scrabulous

July 7th, 2008 9:51pm

It took a long time, but Hasbro, the owner of the rights to Scrabble in the US, has teamed up with Electronic Arts to finally launch an online version of the popular crossword game. The game is available at Pogo.com today, and is scheduled to make its debut on Facebook later this month. So what does this mean for Scrabulous, Scrabble’s ersatz competitior, which took Facebook world by storm when it launched last year?

The prognosis isn’t good.  Scrabulous has been under a cloud since January when Hasbro and Mattel, which owns the international rights to the game, sent letters to Facebook asking it to remove the game, citing copyright infringement.

Meanwhile, an online version of Scrabble created by Mattel and Real Networks has been struggling to gain traction since it launched in April for audiences outside the US and Canada. To date, the game has managed to attract fewer than 6,000 daily users on Facebook - less than two per cent of Scrabulous’s daily audience of 450,000.

Hasbro and EA may do better with the launch of Scrabble in the US and Canada. But even if the North American version attracts five times the interest of its international counterpart, it will barely make a dent in Scrabulous’s audience numbers.

In January, Scrabulous’s creators claimed to be making more than $25,000 a week in advertising revenues. With the launch of a US version of online Scrabble imminent, the door is now open for Scrabble’s owners to go after their fair share of that revenue by pursuing legal action.

Forcing Scrabulous to shut down would no doubt alienate tens of thousands of loyal Scrabulous fans. But with thousands of new users joining Facebook daily, it might make sense for Scrabble’s owners to risk some user backlash now in hopes of a bigger payoff later. Besides, if the game is addictive enough, even the most disgruntled former Scrabulous users may not be able to stay away for too long.

July 7th, 2008 9:51pm in Digital media, Games, Internet | Permalink | Comment

back buttonBack to Tech Blog homepage