Unwinding iTunes/iPod, pt. 2

This Reuters story touches on issues I addressed last month (“Should Apple open its music format”), albeit from the perspective of content owners, rather than from Apple’s.

Essentially, record labels are chafing under the lock-in between iTunes and iPod, which prevents owners of the dominant music player from playing songs downloaded from services other than iTunes.

Reuters says that Apple commands 80% of the MP3 player market and 75% of online music sales. Industry analysts doubt that iTunes can sustain that kind of dominance and label execs worry that the music service cannot, by itself, carry digital music sales to the desired 25% of overall music sales by 2009. Piper Jaffray estimates that only nine tracks are bought per month per iPod user.

So the labels want Apple to un-bundle iTunes and iPod, to level the playing field for other music services. In a sense, iPod’s dominance gives iTunes a near-monopolistic advantage over its competitors. Apple, it seems, isn’t budging.

“It's a monologue with them,” Reuters quotes one unnamed label executive. “They pretty much say, ‘This is what we want to do,’ and if you disagree with them you’re an idiot. It’s like dealing with a cult.”

Reading between the lines, it’s easy to sympathize with both sides. If you’re a label, you want enough diversity among your retailers so that none has the leverage over you that Apple currently has over the labels.

Conversely, asking Apple to unwind iPod and iTunes is like asking Gillette to make razors that work with blades made by Schick or asking Hewlett-Packard to make printers that accept ink cartridges made by Dell.

Pending the re-launch of Connect, Sony will be one of very few companies with a hardware/service combo to compete with Apple’s. But as long as Sony’s music files rely on Microsoft’s Windows Media (.wma) file format, Sony won’t have the barrier to entry (in the form of a proprietary file format) that Apple enjoys with AAC++. Instead, Sony’s files can be supported on non-Sony devices and its device will support non-Connect files.

Absent some sort of incentives from content holders to induce Apple to unwind iTunes/iPod, there’s always hardball. Already bothered about perceived inflexibility on track pricing and promotions, labels could withhold content from Apple or give better terms to Apple competitors such as Sony, which, conveniently, is also a content owner.

Technology journalist Sandy Murray has posted an interesting piece on Corante.com that offers several strong rebuttals to the labels’ demands.

“If iPods supported secure Windows Media files, it would doom the AAC file format and place Microsoft in the driver’s seat,” Murray writes. “Do label executives really think they would be better off if Microsoft was the dominant player in music downloads?”

Murray is also bearish about Sony’s chances:

“Sony can’t control the market as long as the Connect store relies on Microsoft's Windows Media file format,” he says.