iTunes iNtrouble?

The Register’s Andrew Orlowski reports here that iTunes “has experienced a collapse in sales revenues this year.” Forrester Research’s analysis of credit card transactions shows that since January 2006 iTunes’ average transaction size and monthly revenue have declined respectively by 17% and 65%. Orlowski also reports that revenue is flat across the entire digital download sector. Orlowski attributes much of the blame to low consumer interest in music encrypted with digital rights management when pirated music is freely available. As an alternative to DRM music he points to discussions in the UK about blanket licenses under which consumers might pay a flat fee, perhaps as part of a broadband subscription service. Under such a scheme consumers would obtain the right to download and share music free of restrictive digital rights management and copyright infringement liability, and the collected fees would be allocated among artists and the recording industry.

The issues raised go beyond iTunes’ fate. If the iTunes business model does not work then the recording, television, and motion picture industries must adopt another. I cannot imagine these industries embracing a model in the U.S. that does not include digital rights management as a security blanket. Fighting piracy by allowing users to download and share freely, even after paying to do so, would require a seismic transformation in industry attitudes. It would be similar to the transformation required to fight the drug trade by legalizing drugs and selling them through state-regulated-and-taxed channels. The question is, how badly broken must the business models become for these industries to make the U-turn from “sharing copyrighted material equals theft” to “pay the man and share as much as you like!”?

4 Replies to “iTunes iNtrouble?”

  1. ppham

    We live in a highly digital world where piracy has become an accepted culture and even almost a right to people, people being us college students. Though this is really unfortunate to the entertainment industry, it is now an inevitable force of nature that they will have to deal with. Bringing lawsuits against piracy crimes will not prevent the unstoppable millions of people downloading music and movies, and we’re pretty good at ignoring digital rights and the ethics of piracy. Similar to a drug addiction, kids are addicted to downloading free music and paying for music is like going through extreme withdrawal -more so financially than anything else. Once we start, it’s hard to go back. I cannot even begin to formulize a plan to make it fair to the music industries but also realistic to today. How costly would a “seismic transformation” be? And if it were that easy to transition, would it not have taken place already? It seems like this kind of change would need to be slow and generational considering the many different aspects needing to be considered such as the entertainment artists, the inherently expensive costs of production, etc. If we have to continue with the whole drug analogy, one coule possible note that like most addictions, coping with them is easier said than done.

  2. lkg

    This reminds me of an article I read by Professor Miron (Harvard) concerning the legalization of drugs. He believed that doing so would decrease arrests and the demand for guns (which is the largest contributor for homicides) and would aid the economies of Cuba and Afganistan by allowing them to grow poppies. Now if we can accomplish ALL of this by legalizing the drug trade, just think of what we can accomplish with free sharing!

  3. WSHustler

    None of this should come to us as any surprise. For years old media companies have been stubborn and refused to adapt their business models to the changing times. Whether is was newspaper companies trying to compete with Craigslist or music companies refusing to respond appropriately to digital music. The response has been to just ignore the problem or use lawsuits which ends up alienating the consumer. One of the few leaders to force his company to evolve is Rupert Murdoch. He has been willing to embrace, and sometimes even gamble on, the change. Unsurpringly Newscorp’s stock has performed accordingly (37% gain since beginning of 2004). Right now, old media strikingly resembles another industry that refused to institute a new strategic direction about 20 years ago…The US Auto Industry.

  4. m.alsunaid

    Very interesting article… I wonder what’s going to happen to itunes now that Microsoft is also entering the digital music sales industry.. Good luck itunes , and congratulations consumers, more competition normally yields lower prices 🙂

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