Apple Computer's iTunes Music Store was under discussion at New York's Digital Music Forum this week, even though the company did not officially attend the event.
RealNetworks vice President of music services Sean Ryan offered the keynote at the show. He said, "2004 will be a great year for digital music", and said that successful services need to supply a "mix of offerings, multiple services (a la carte and subscription), control of the media player, and the ability to efficiently acquire customers and to get music off the computer."
With the industry ready to reach critical mass, Ryan shared his belief that the industry is now closed to new start-ups. "The time is over for start-ups in this sector," he said.
Ryan observed that a roughly 50/50 split exists between subscription and a la carte services, and warned that format incompatibility "will be the bane" of the year, predicting this would ease in 2005.
The latter remarks look at the emerging digital music format war. Real offers its own formats, which also support Apple's basic format of choice, AAC. Real's offering does not support the extended proprietary version of AAC (which integrates an Apple-developed digital rights management system called FairPlay). In the other corner sits software giant Microsoft, which parades a concept of "consumer choice" to promote its Windows Media Audio standard that it would like to see emerge as the industry standard in the sector.
Apple's outgoing chief financial officer Fred Anderson touched on the format war on Monday, saying: "With the HP deal we are going to get tremendous momentum behind establishing our digital music standard AAC as the digital music standard."
Anderson also confirmed that Apple is "hard at work" on bringing iTunes Music Store to other geographies, and agreed the company expects that doing so will "impact more on iPod sales."
He added that iPods are "doing really well in Europe", adding: "I hear in the UK it has generated the same sort of cultural change as you see in New York."
The format war highlighted by Ryan may be a tough campaign. Apple will fight to keep its leading position in the new industry. Anderson said, "We are not going to let anyone else take our leadership position."
Steven Marks, senior vice president of legal and business affairs at the Recording Industry Association of America, discussed the music industry's strategy to create a legitimate online music business.
He believes that educating consumers doesn't work without the litigation the RIAA is currently employing against 2,500 file sharers. He agreed that peer-to-peer services could emerge as part of the digital music industry mix, but existing groups would need to "legitimise" their services. He also said that current laws regarding copyright are good enough. "We have no plans to overhaul copyright law," he added.
Peer-to-peer champions at the show observed that peer-to-peer services are seeing massive growth, and claimed independent labels and artists have seen sales increases through such services, as they gain access to consumers - this reflects the major labels dominance of existing ways to reach consumers, TV, radio and retail.
"Peer-to-peer provides an entry point for smaller players" they said. Approximately 12 billion tracks have been downloaded using such services, they said.
Jonathan Potter, who leads the Digital Music Association, warned that Apple may face unexpected resistance to its success.
He described the "antiquated" rights system that exists in the US that hindered development of legitimate services, and limits the number of tracks services can offer today.
He warned that some music industry dinosaurs regard Apple's success as an indication that usage restrictions are too lax, and "should be tightened." He admitted to a sea change in the industry's treatment of the new services, noting "labels care about our success."