Analysis of IT news

Saturday, December 29, 2007

More alliances in the online music and video world

News item: Wal-Mart closes its online video store, Apple has struck an agreement with 20th Century Fox allowing it to rent Fox movies on its iTunes store, and Warner has joined EMI and Universal and will sell unprotected MP3 music on website.

Analysis: the first two news are good news for Apple. One less competitor in the online video market and one more movie studio behind iTunes. Warner's agreement with Amazon, although not surprising, is obviously not good news for Steve Job's company. Nonetheless, those three pieces of news show a general trend: Apple is well positioned in the online movie market but on its way out in the online music market.

Now, what's the difference between those two markets, and why would Apple succeed in one and fail in another? Let's first have a look at these markets. They can be divided in three tiers: content, digital distribution and the consumer device playing the content. By device I mean a CONVENIENT device. The computer and the iPod do NOT fall in this category for video. Maybe one day a company will provide an EASY solution to purchase and host songs on the Internet where one can listen to them at will as long as one is behind a computer, but this is not the topic of this column.

True to its core, Apple has come up with a solution as vertically integrated as possible, trying to provide as many tiers as possible. The upside is an easy solution for consumers which is a key factor for broad adoption.

In the online music market, Apple enjoys dominance on the device tier with its iPod. It also has a presence in the distribution tier with iTunes. It however has no presence whatsoever in the content tier. Worse, Steve Jobs has alienated most music majors. Enters consumer's perception. If consumers are naturally inclined to rent movies online (provided the solution is easy), they are reluctant to "rent" music online. They want to own the songs they purchase. In technical terms, this means that DRM is out and MP3 is in. With Warner jumping on the bandwagon, three out of the four big music majors have embraced unprotected MP3 and chances are the last one (Sony BMG) will follow suit. MP3 indeed allows music majors to sell songs to iPod owners without having to deal with Apple, and Amazon has provided an easy alternative solution to iTunes. The iPod has a dominance on the MP3 player market but Steve Jobs cannot use it as a leverage anymore. All because of MP3. And Steve' "colorful" personality.

In the online video market, consumers' expectations are different. They might still be reluctant to purchase a movie in pure digital form, but who cares when you rent it? As long as they don't have to jump through hoops to watch movies. In this market Apple's presence is different from its online music's. Still iTunes in the distribution tier. In the content tier, not only Steve Jobs hasn't apparently annoyed most movie studios (yet?), he brings some content thanks to his ties to the Walt Disney Company. As a result, iTunes can count on Disney's catalog (Disney, Pixar, the ABC TV network and several other movie studios) and now 20th Century Fox's. On the device tier, Apple has a presence with the Apple TV. Although the device has been struggling, it could easily be beefed up to have a real chance. Consider this: the Apple TV contains a connection to your TV, a hard disk, a lightweight version of MacOS X and is Wi-fi enabled. Grant it features that some iPods have such as the possibility to access the Internet on its own instead of having to go through a computer, a Web browser and iTunes. The result would be a device allowing you to easily rent a movie online. Icing on the cake, it would also allow you to surf the Internet. This would give Apple an edge. There might be other online rental services such as Amazon or Movielink (acquired since by Blockbuster), those solutions require to watch movies on your computers. The real winner will be the one providing a powerful alternative to cable TV's "movies on demand" feature. This means an affordable, convenient way to rent a vast selection of movies and watch them on your TV.


  • Encore une très bonne analyse !
    Je trouve que tes chroniques sont de mieux en mieux, du niveau de Cringely presque !

    By Blogger Lefebvre, at 11:38 AM  

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