The Lefsetz Letter

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iPod Update
By Bob Lefsetz

My alma mater is one of the RIAA's bright spots. Middlebury made a deal with Napster. A victory for legal music, a defeat for file-trading.

At least that's what I thought until I got the alumni magazine.

There's one big problem with Napster. It's not MAC-COMPATIBLE!!! The writer of the Napster report saw this as a CRITICAL failure.

Turning the pages of the magazine I was confronted with photo after photo of Macs. Yup, in the library you could see the trademark apple on the backs of their screens. In the film studio, there was a Cinema Display. I only saw one PC in the entire MAGAZINE!

But, you say, Macs only have 2 percent of the worldwide audience for personal computers! The Mac is irrelevant!

Like all statistics, without any analysis, taken at face value, they can lead you to false conclusions.

A medical office orders a bunch of PCs. A trading company orders a couple of hundred. But those medical offices don't buy CDs. And neither do brokerage houses. PEOPLE buy CDs. And a MUCH greater percentage of people use Macs than 2%.

The news reports are fascinating. At many college campuses 60 PERCENT OF computer purchases are Macs. Students are buying them because they're virus-free, they're easy to use, they're COOL!

But now it's not only students. Thirteen percent of people who buy iPods are planning to switch to Macs. At least that's what they told that researcher at Piper Jaffrey. Who said that Apple Computer was undervalued. As a result of which, the stock went STRATOSPHERIC! To the midsixties seemingly OVERNIGHT!

And now today the L.A. "Times" has a huge story on the iPod. And the "New York Times" has one too.

But the people writing these articles know nothing about the little machines. Because they don't live and breathe it. They don't understand cool, they just REPORT on cool.

This iPod thing is a mania.

But what's strange is this mania is based on quality. The iPod does what it says it does. Easily. People buy one of the seemingly expensive machines and not only LIKE IT, they can't stop TESTIFYING about it. 4 million were sold last quarter. Christmas sales will be so high as to be almost incomprehensible.

FANTASTIC for the music business, right?

Well, yes, if you know what's really going on. But the major labels don't know what's really going on. THEY think they control the future. Whereas they lost control YEARS ago.

All that hype about authorized, 99 cent per DRM-protected track file-trading services. All that hype about Janus. It's suddenly irrelevant. Because while they're working out the kinks there, everybody's going to end up owning an iPod.

Janus is now a non-starter. People are not going to purchase a whole new device to RENT their music when they've ALREADY got an iPod, and are used to OWNING their music.

People are not going to pay ninety nine cents to acquire content when they've become inured to ripping CDs, whether their own or those borrowed from friends, and downloading from free P2P sites. After all, the more iPods are sold, the fewer tracks are bought per capita/extant machine at the iTunes Music Store. Oh, people want the PLAYER, they just don't want to pay an exorbitant fee for copy protected tracks.

iPods are incompatible with EVERY OTHER STORE except maybe Real's. The spin is wrong. Apple isn't on the verge of extinction, NAPSTER AND SONY CONNECT ARE! This is a format war, and Apple has won, as a result of saturation of the marketplace. Just like with VHS and Beta. And don't expect Apple to license AAC to its competitors so fast, because, as stated earlier, the profits are not in the music store, but the iPod ITSELF! It doesn't behoove them to open up their format. It would ONLY loosen their monopoly on the hardware, where all the money is.

What we have here is the hardware overtaking the software (the iPod is the hardware and the music is the software). Steve Jobs has engineered a trojan horse move. Under the guise of being the labels' friend, HE has taken over the business. HE has become more powerful than they are. HE controls the future.

Yes, Steve Jobs controls the iPod. Not only does he upgrade the machine periodically, he upgrades the SOFTWARE, dictating the machine's abilities.

So the rest of the war is irrelevant. You can stop reading about Napster. You can even stop reading about Windows Media.

Go to the file-trading sites. Almost every file is an MP3. But that which is not is an AAC, an Apple-ripped file (you can rip in unprotected AAC or MP3 in iTunes). Only an EXTREME, almost INFINITESIMAL minority are in WMA. So, despite the Microsoft hype, despite the bluster, despite the past, when it comes to music, Microsoft is like Sony. A has-been. Get your flat panel from Samsung, not Sony. Buy your hand-held music player from Apple, not Sony. Get your MUSIC in an APPLE-owned/controlled/approved format, not a Microsoft one. Because Apple controls the HARDWARE, and Microsoft is not in the hardware business. And its hardware partners can't seem to come up with a hand-held player that works as well and looks as cool as the iPod. For EONS Microsoft has produced lame products and ended up with a monopoly because of pure market share. But those days are done. Apple made a device that is seeming perfection, more than the consumer could CONCEIVE OF, a product from the future, here today, and made it PC-COMPATIBLE!

It's an iPod world. The major labels just live in it.

The game in the future will be how to get on someone's iPod.

Right now, the majority of iPod purchasers are rippers. Which is why CD sales haven't died overnight. But with such gargantuan storage at their fingertips, they're going to want more product, and THEY'RE NOT going to pay CD prices for it. And, as stated above, statistically we already know they're not going to pay iTunes Music Store prices for it.

No, the future is selling VAST QUANTITIES of music in DIGITAL FORMAT at a LOW COST to iPod users.

That's the paradigm. While you were dreaming of an alternative future, the real future was happening right in front of your very eyes.

Oh, the days of the present iPod will die. We'll have direct streaming at some point. Maybe Apple will control that market, maybe it won't.

But for the foreseeable future, for YEARS, Apple will control playback, in a way that Edison could only DREAM of.

 


Bob Lefsetz, Santa Monica-based industry legend, is the author of the e-mail newsletter, "The Lefsetz Letter". Famous for being beholden to no one, and speaking the truth, Lefsetz addresses the issues that are at the core of the music business: downloading, copy protection, pricing and the music itself.

His intense brilliance captivates readers from Steven Tyler to Rick Nielsen to Bryan Adams to Quincy Jones to music business honchos like Michael Rapino, Randy Phillips, Don Ienner, Cliff Burnstein, Irving Azoff and Tom Freston.

Never boring, always entertaining, Mr. Lefsetz's insights are fueled by his stint as an entertainment business attorney, majordomo of Sanctuary Music's American division and consultancies to major labels.

Bob has been a weekly contributor to CelebrityAccess and Encore since 2001, and we plan many more years of partnership with him. While we here at CelebrityAccess and Encore do not necessarily agree with all of Bob's opinions, we are proud to help share them with you.

 






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