[Reader-list] NYT: Apple Finds the Future for Online Music Sales

[Rana Dasgupta]

notice the absurd role that "friends and family" are playing in some of
these arguments.  and all the different kinds of "disappointment" described
in this article.

R


Apple Finds the Future for Online Music Sales
By NEIL STRAUSS


Apple Computer seems to have the future of online music in its hands for the
moment. Its new service, iTunes Music Store, has been the first real success
story in the long effort to sell music over the Internet. In just its first
month of operation the service, by the company's estimate, has sold three
million songs online, at 99 cents each. This is an impressive figure
considering the limited access that music fans now have to the service. Less
than 1 percent of the country's home computers are Macintoshes that are
compatible with the iTunes Music Store, and only a fraction of those have a
broadband connection to the Internet.

But it would not be an online success story without a complicating twist.
That complication came this week when the specter of the music industry,
which has been publicly supportive of iTunes, began to loom over Apple. The
success of iTunes, after all, depends on cooperation from the music
business, which controls the songs that iTunes wants in its collection.
Apparently trying to stay in the record industry's good graces, iTunes
removed a service it had previously offered customers. Called Rendezvous,
the service enabled listeners and their friends to access one another's
music and listen to it — but not download it — from any computers. Hackers,
however, had figured out how to download the music as well, creating
programs with names like iLeach and iSlurp. So on Tuesday Apple sent out an
update for its iTunes software, disabling Rendezvous and limiting music
access to a user's local network at home or at work.

In a statement released yesterday, Apple said Rendezvous had been "used by
some in ways that have surprised and disappointed us."

"We designed it to allow friends and family to easily stream (not copy)
their music between computers at home or in a small group setting, and it
does this well," the statement said. "But some people are taking advantage
of it to stream music over the Internet to people they do not even know.
This was never the intent." A spokesman for Apple, Chris Bell, said the
company made the decision by itself.

The restriction makes sense: hackers are exploiting a loophole, so get rid
of the loophole. But in offering music online, there will always be a
loophole. Nate Mook, who runs the online news site Betanews, said hackers
were already finding a way around this new restriction, writing software
that would trick iTunes into thinking that an outside user's computer was on
a customer's local network. If Apple responds by limiting the functionality
of the music it is selling every time that hackers find a way to trade
files, it could end up with a system as unsuccessful as the record
industry's own attempts, like Pressplay and Musicnet.

Most of the uses for Rendezvous were not about illicit downloading. For
example, Richard Yaker, co-founded — with a friend, Christian Bevcqua, who
is in the band Ditch Croaker — a Web site called shareitunes.com. His
intention was to enable iTunes users to see one another's song collections
and then listen to the music (but not download it). Next to every song, Mr.
Yaker put links to the iTunes Music Store and to online mail-order retailers
like Amazon and CDBaby, so that users had options to buy the music. As far
as he knew, his application was neither illegal nor even sneaky.

"The industry has never explored the idea of how people sharing and
listening to one another's music helps sales," he said. "We're all about
selling the music once people find it and like it."

"But," he continued, referring to Apple, "they just closed everything down.
I was totally disappointed. We were hoping that traffic would continue to
grow and we could quit our day jobs."

No one has ever doubted that there is an audience that wants to buy music
online. And that audience hasn't asked for much: just the permission to do
whatever it wants with the songs once they're purchased. Apple Computer gave
it just that. The music store is a simple concept: after giving Apple a
credit card number, a Macintosh user with an up-to-date computer and
operating system can click on a button and buy any song or album in the
store. Buyers can then do what they want with the music, except trade it
online.

What is notable about the success of iTunes is that it has been achieved not
by a music company but by a computer company. And this makes sense, because
it was a computer solution that was needed, not a music one. Even more
impressive is that Apple's coup has been accomplished relatively simply and
cheaply. It owns nearly everything it is using: the Web browser software
(Safari), the computer media player (iTunes), the portable digital music
player (iPod), the streaming technology to play music videos (Quicktime),
the software that creates the service (WebObjects), the computer itself
(Macintosh) and the operating system (MacOS).

"Apple is the new MTV," said Numair Faraz, 18, who has started several
online service companies. "It is the new funnel for music. When things moved
from radio to video, MTV was the sole source of music. Now Apple is going to
control the distribution and the promotion of music. The entire ecosystem
they are using is theirs." Mr. Faraz said he bought roughly $115 worth of
music at the iTunes store last month. In comparison, he said, he spent no
money on CD's in the last year.

On a recent visit to the studio owned by the pop production team Matrix —
which has produced music for Avril Lavigne, Ricky Martin and Britney
Spears — Andrew Nast, the recording engineer, was working on his Macintosh.
"I'm buying Paul Simon's `Graceland' right now," he said.

He was asked why he is buying it rather than downloading it free of charge
from a file-sharing service like Limewire. "Because it's a pain," he
answered. "It takes forever to find the track. Then once you find it, maybe
you can download it. And then if you download it, maybe it sounds cool. And
if it sounds cool, maybe the whole track is there."

The iTunes Music Store is not without flaws. Its song collection is not only
relatively small, but also limited to music from major labels; independent
labels are shut out. Another flaw is that it does not allow consumers to get
more involved, as they did with Napster, by promoting their favorite songs
through instant messaging and other features of the open architecture of the
Internet. In fact, iTunes, doesn't even have an affiliate program, similar
to Amazon's, so that other Web sites can refer customers to the iTunes Music
Store and earn a small portion of money from the sales. And of course the
iTunes store is available only through a Macintosh.

Mr. Bell of Apple said the company planned to add content beyond the major
labels, was open to other innovations and would have a Windows version by
the end of the year.