Digital Audio Insider -- the economics of music and other digital content

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Digital Audio Insider is David Harrell's blog about the economics of music and other digital content. I write from the perspective of a musican who has self-released four albums with the indie rock band the Layaways.

My personal website has links to my LinkedIn and Google+ pages and you can send e-mail to david [at] thelayaways [dot] com.

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June 07, 2011

Some Quick Thoughts On iTunes Match
by David Harrell
iTunes Match image
My question from last week was answered -- by matching any song on a hard drive that's available in the iTunes store, iTunes Match is a game changer. Assuming that Google and Amazon don't add a similar feature, Apple's service will launch with a major advantage over its competitors. However, as Amazon was quick to Tweet yesterday, it appears that iTunes Match won't allow you to download tracks, only stream them. Update: I might be wrong about downloading vs. streaming. I've read several reports that indicate that the iTunes Match/iCloud service will only allow downloading of files to devices, as opposed to true streaming. (And I haven't used the beta version of iTunes in the Cloud yet.) If so, it seems somewhat illogical, as the big advantage of scanning and matching is that it eliminates the need to upload digital music files. To then turn around and require a download to listen to them makes little sense to me. The Apple site is vague, though "all the music iTunes matches plays back at 256-Kbps iTunes Plus quality" seems to imply streaming.

Will iTunes Match legitimize/monetize pirated digital music files? At the very least, it introduces a new revenue stream for labels that didn't exist before, allowing them to reap additional revenue for purchased digital tracks, as well as songs ripped from CDs, downloaded as free legal mp3s, or acquired via P2P sharing. How much revenue? The service will cost users $24.99 a year and Apple will share 70% of that amount, $17.50, with labels and publishers. As of late 2010, Apple claimed 160 million iTunes users worldwide. If 10% of those users signed up for iTunes Match, that'd translate into $280 million a year for labels and publishers. That's a lot of money, but it doesn't begin to offset the declines in recorded music sales over the past decade. (Maybe Apple will be able to convert more than 10% of its iTunes user base. Netflix, for example, has 20 million subscribers who are paying substantially more for that service.)

How will Apple divide that money and pay it out? It could be based on an individual user's streaming activity, where either a set amount is paid for each song stream or a variable per-stream amount, based on the total number of streams during the month. That is, if a user only streamed one song in a month, the label and publisher for that release would receive the full amount. But it seems like any user-based accounting system would be a bookkeeping nightmare for Apple. My guess is that the subscription fees will be divvied up based on total subscriber behavior, with label and publishers receiving a portion of the iTunes Match subscription fee proportionate to the total activity of each track.

One final thought: Steve Jobs has long pooh-poohed the idea of music subscriptions, but maybe Apple is taking some baby steps toward a full-blown subscription service. As described, iTunes Match is essentially a music streaming service that's limited to a maximum of 25,000 tracks stored your iTunes library. At some point, it'd seem logical to allow users to stream the full iTunes catalog (18 million songs) for an additional fee.

related: Apple's iCloud Will Scan, But How Much Will It Match?


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