Wednesday, August 22, 2007

Rivals' New Digital Music Moves May Actually Help Apple Most

Yesterday I wrote about significant developments in the digital music world -- in particular, MTV and Real joining forces to try to beat back the market dominance of iTunes (Real would have a 51% stake in this venture as compared to MTV's 49% stake). Wal-Mart also announced that it has begun selling songs online in the unrestricted MP3 format (i.e., without anti-piracy locks) for 94 cents, including songs from the world's largest music label, Universal Music (Apple's iTunes, on the other hand, does not have such a deal to sell non-DRM tracks from Universal Music).

With all these developments -- and with iTunes squarely in the sites of behemoths like Wal-Mart and MTV -- Apple should be shaking and shuddering, right? Wrong!

Many pundits believe that these moves by iTunes' rivals will only further strengthen Apple, because they should lead to greater digital music sales which, in turn, should lead to greater demand for digital music players on which to hear them. And, this brings us back, full circle, to the world's favorite digital music player -- the iPod.

While Apple makes little profit from its iTunes store, Apple makes a hefty profit from each iPod sale. In effect, the iTunes store is a loss leader or trojan horse for its iPod. I urge you to read a very interesting discussion about this story by Joseph Menn and Michelle Quinn from today's Los Angeles Times.