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Online Music Goes Free, Again

iTunes single-handedly created an entirely new market. The revolutionary vision of Apple to sell music cheaply online went head-to-head against rational economics. The bet was that people would pay for something that is widely available for free. Maybe it was real ingenuity, or maybe it was the fear of the public after the aggressive legal crackdown by the Recording Industry Association of America on illegal music swappers, but the point is that the iTunes won, and that made the critics look silly.

iTunes may be the first mover, but a market that only a few months ago was entirely its own is now an extremely crowded marketplace. The most troubling has been the most recent decision by Wal-Mart, the most reputable brand for low-priced goods, to start offering for-fee music download service as well after a successful pilot run. Needless to say, Wal-Mart plans to offer the files at the lowest price possible.

Revenue figures are guarded, but Apple gets only a small share from the tens of millions of songs that it has now sold. What makes iTunes an attractive venture for Apple is that through this music service, they can push through the high margin iPod music player. The recent introduction of the iPod Mini, has taken the market by storm. Apple is forced to delay worldwide shipment due to extremely high demand from its domestic market.

Of course, when the leader has the strategy, the followers copy. Napster, for example, is teamed up with Samsung to offer its players. Long time multimedia device manufacturers like RCA and Creative are also introducing iPod-like devices that are great entertainment machines by emphasising their integration with stores by iTunes rivals.

With a single track starting from as low as 66¢, it was only a matter of time for the price to become next to free. In fact, that is already happening. Pepsi, for example, is giving away free music download by embedding special iTunes promotional codes under the bottle caps of its soft drinks. McDonald’s has teamed up with Sony to offer free music download with meal purchase. Artist George Michael has decided that he has too much money and promised to make his next album completely royalty free to download from his website.

All this healthy competition is presenting consumers with great alternatives to the anonymous intellectual property theft in the old days. It also reminds old establishments like the RIAA that an embracing attitude toward technology is much more beneficial than a hostile one.

March 28, 2004