DRM-free music seen spurring iPod demand

Posted:
in iPod + iTunes + AppleTV edited January 2014
The arrival of DRM-free music on Apple's iTunes Store will only serve to broaden the use of digital media players amongst consumers, likely boosting overall demand for the company's iPod line, one Wall Street analyst says.



Reacting to Apple's announcement Monday that it will soon begin selling music tracks from EMI without copy protection, PiperJaffray analyst Gene Munster advised investors to look out for an increase in iTunes music sales, explaining that the removal of DRM abolishes one more barrier to entry into the iTunes+iPod ecosystem.



"This effect could also result in more iPod sales as consumers have positive experiences with iTunes+iPod and the overall move to the digital music world gets easier," he wrote.



The analyst, who estimate that less than 5 percent of the music in the average iPod user's library includes music purchased from iTunes, said he believes the success of the iPod is dependent upon the total experience of the device and the music store, not the fact that iTunes music only plays on iPods.



"We believe DRM free music will have a positive impact on iPod demand given DRM free music should result in more usage of digital devices," he wrote. "The impact of increased iTunes downloads will outweigh the impact of some customers using non-iPod players with iTunes downloads."



Munster noted that there may be some short-term perception that the move could form a negative impact on iPod sales, as consumers will gain the ability play EMI's iTunes downloads on any digital music player. However, he said it's important to note that non-iPod MP3 players will not sync with iTunes the same way iPods do.



"Our belief is the success of the iPod is not because consumers are locked on the iTunes platform, but its success has been because of the total device and iTunes experience," he reiterated.



The PiperJaffray analyst maintains an Outperform rating and $124 price target on shares of Apple.
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Comments

  • Reply 1 of 38
    nagrommenagromme Posts: 2,834member
    Non-iPod players may not have all the integrattion and features of the iPod, but they DO synch with iTunes. In fact, iTunes knows about other brand players' capabilities, and supports them intelligently when they are connected. (Since after all, iTunes was synching to other players before there ever was an iPod.)
  • Reply 2 of 38
    sthiedesthiede Posts: 307member
    there will never be a totally DRM free iTunes, end of story.
  • Reply 3 of 38
    wallywally Posts: 211member
    Quote:
    Originally Posted by AppleInsider View Post


    "Our belief is the success of the iPod is not because consumers are locked on the iTunes platform, but its success has been because of the total device and iTunes experience"



    Yeah.... tell that to Norway\
  • Reply 4 of 38
    tbagginstbaggins Posts: 2,306member
    This is GENIUS for Apple on so many levels:



    1- DRM-free music and higher-quality downloads increase the popularity of online downloads. iTMS, as the dominant online music store, stands to benefit the most, and Apple gets more distribution marketshare/power/say over what goes on in the music industry.



    2- Higher-quality tracks for sale at $1.29 increase iTMS revenues in tandem with the above, magnifying the iTMS' marketshare increase.



    3- The greater space required to store high-quality 256 kbps tracks helps push consumers upmarket to higher-capacity iPods, and will push them to upgrade sooner.



    4- This move helps get European regulators off Apple's back and Apple out of court, since DRM free music plays on any device, and any device can use the non-DRM portion of the iTMS.



    5- Offering the major labels a way to sell on iTMS at higher pricepoints (something the labels have been desperately wanting for a long time) improves Apple's relations with the major labels and undercuts efforts for the labels to find alternate online distribution, even though its clear that the way in which Apple is 'compromising' with the labels helps Apple most of all.



    6- Given the lack of credible alternatives to the iPod/iTunes juggernaut, opening things up likely results in Apple INCREASING marketshare in both players and online downloads, not losing share. Expect to see SanDisk Sansas downloading tunes off of iTMS, while iTMS acts as an advertisement for how good things are on the Apple side of the fence.



    It's just GENIUS all the way around. Hats off to Steve Jobs. I'd hate to have go up against him in business.







    .
  • Reply 5 of 38
    It doesn't take a certified analyst to figure this out...



    ...in fact, it doesn't even require more than about 17 brain cells.



    -Clive
  • Reply 6 of 38
    porchlandporchland Posts: 478member
    Quote:
    Originally Posted by TBaggins View Post


    This is GENIUS for Apple on so many levels:



    1- DRM-free music and higher-quality downloads increase the popularity of online downloads. iTMS, as the dominant online music store, stands to benefit the most, and Apple gets more distribution marketshare/power/say over what goes on in the music industry.



    2- Higher-quality tracks for sale at $1.29 increase iTMS revenues in tandem with the above, magnifying the iTMS' marketshare increase.



    3- The greater space required to store high-quality 256 kbps tracks helps push consumers upmarket to higher-capacity iPods, and will push them to upgrade sooner.



    4- This move helps get European regulators off Apple's back and Apple out of court, since DRM free music plays on any device, and any device can use the non-DRM portion of the iTMS.



    5- Offering the major labels a way to sell on iTMS at higher pricepoints (something the labels have been desperately wanting for a long time) improves Apple's relations with the major labels and undercuts efforts for the labels to find alternate online distribution, even though its clear that the way in which Apple is 'compromising' with the labels helps Apple most of all.



    6- Given the lack of credible alternatives to the iPod/iTunes juggernaut, opening things up likely results in Apple INCREASING marketshare in both players and online downloads, not losing share. Expect to see SanDisk Sansas downloading tunes off of iTMS, while iTMS acts as an advertisement for how good things are on the Apple side of the fence.



    It's just GENIUS all the way around. Hats off to Steve Jobs. I'd hate to have go up against him in business.



    I'm with you for the most part, but I don't see how offering non-DRM content will actually increase Apple's market share for either iTS or iPod. Apple's share of both markets is so high that it will be difficult to maintain even when things are going well.
  • Reply 7 of 38
    porchlandporchland Posts: 478member
    Quote:
    Originally Posted by Clive At Five View Post


    It doesn't take a certified analyst to figure this out...



    ...in fact, it doesn't even require more than about 17 brain cells.



    -Clive



    But if it weren't for analysts' reports, AI would have nothing to report.
  • Reply 8 of 38
    unotherunother Posts: 40member
    I think what's getting lost in all of this "No FairPlay" hyper is that the only download format remains AAC!



    AAC is not completely open however (it requires a patent license for codecs), and thus support is not universal.



    Hence the analyst is stating that some persons might be more inclined to shop on iTMS and but iPods for the purchases, cos AAC support is spotty in most other MP3 players (and for the matter jukebox software/audio software).



    For the record, I own a 1G shuffle and a 60GB iPod Photo. I've also bought a 1G shuffle for my bro's GF and a 1GB nano for my wife. However, aside from the 30 or so AAC tracks I've bought from iTMS over the last three years, all my music is AIFF or MP3. I'm not into lock-in; but I do like Apple's products.
  • Reply 9 of 38
    tbagginstbaggins Posts: 2,306member
    Quote:
    Originally Posted by unother View Post


    Hence the analyst is stating that some persons might be more inclined to shop on iTMS and buy iPods for the purchases, cos AAC support is spotty in most other MP3 players (and for the matter jukebox software/audio software).



    I would think this move would increase the likelihood that other music players would support AAC going forward. iTMS accessibility becomes a big selling point once most of iTMS is available as non-DRM tracks... for depth of catalog and ease of use, there really isn't anything that matches iTMS. Also, its by far the most used and well-known online music store.



    You can picture the bullet-point talking points on the music player boxes already: "Supports iTunes Music Store!!!".



    After all, with Microsoft having just stabbed the lot of them in the back with the Zune, why should the non-Apple portable player makers continue to carry Microsoft's "WMA yes, AAC no" water on this one?



    I think the medium-term effect is iTunes' share of the d-load market going up, as non-iPod players increasingly use the iTMS, and the long-term effect may be one of the iPod's marketshare going up, as the iTMS offers a continual advertisement to non-iPod users as to how smooth and easy to use things are on the 'Apple user experience' side of the fence. Should be interesting.



    .
  • Reply 10 of 38
    Quote:
    Originally Posted by Porchland View Post


    I'm with you for the most part, but I don't see how offering non-DRM content will actually increase Apple's market share for either iTS or iPod. Apple's share of both markets is so high that it will be difficult to maintain even when things are going well.



    Tell that to Microsoft. They've maintained their 90%+ marketshare for 15 years now without much trouble.
  • Reply 11 of 38
    SpamSandwichSpamSandwich Posts: 33,407member
    Quote:
    Originally Posted by TBaggins View Post


    This is GENIUS for Apple on so many levels:



    It's just GENIUS all the way around. Hats off to Steve Jobs. I'd hate to have go up against him in business.



    This is why Jobs as head of Apple can outmaneuver anyone in that space. Given enough time, I have little doubt Steve could eventually displace Microsoft... it might take him the rest of his days to do it, but I think he could.
  • Reply 12 of 38
    Quote:
    Originally Posted by SpamSandwich View Post


    This is why Jobs as head of Apple can outmaneuver anyone in that space. Given enough time, I have little doubt Steve could eventually displace Microsoft... it might take him the rest of his days to do it, but I think he could.



    Wishful thinking. It would take him 500 years to supplant Microsoft. Apple will always be a niche player going forward. Granted they may grow their niche a bit, but they won't supplant Windows in many situations and frankly I'm ok with that. Being niche means OSX ends up being better in most areas that matter to everyday users and can change faster with the market compared to monolithic MS.
  • Reply 13 of 38
    aisiaisi Posts: 134member
    Quote:
    Originally Posted by unother View Post


    AAC is not completely open however (it requires a patent license for codecs), and thus support is not universal.



    MP3 is not open either, dozens companies pay a licensing fee to create MP3-supporting products, including Apple, Microsoft, Sony and Creative. And the patents are enforced.
  • Reply 14 of 38
    the cool gutthe cool gut Posts: 1,714member
    Quote:
    Originally Posted by athletics68 View Post


    Tell that to Microsoft. They've maintained their 90%+ marketshare for 15 years now without much trouble.



    I think it's a little easier switching music players than it is computing platforms.
  • Reply 15 of 38
    solipsismsolipsism Posts: 25,726member
    Quote:
    Originally Posted by Porchland View Post


    I'm with you for the most part, but I don't see how offering non-DRM content will actually increase Apple's market share for either iTS or iPod. Apple's share of both markets is so high that it will be difficult to maintain even when things are going well.



    I think you are half right and half wrong.



    This will increase the iTS marketshare. But as a bonus, it will weaken the marketshare of the 3 big distributors: Walmart, Best Buy and Target. I foresee the iTS being the 3rd largest distributor by the WWDC 07 and the 2nd largest by MW 2008.



    Many people are fine with 128kbps. P2P sites shows that 128kbps MP3 is by far the most common bitrate and the 2.5B songs also agrees with this. But was it a replacement for a CD? Of course not, bit they liked the ease of use and the ability to purchase individual songs was the big draw.



    Now, the quality is comparable and if you are listening thorough your computer's speakers, HDTV's speakers or your iPod's speakers you certainly won't be able to tell the difference regardless of your aural senstivity. Of course there will be a small segment that will say 256kbps isn't good enough and maybe a few of them actually have the equipment and the hearing to tell the difference; but so what?



    The announcement last week to purchase the whole album later with a credit to pre-purchased songs will also add to Apple's marketshare and the dwindling of the brick & mortar mega-centers.



    And to top, it all off it will also be DRM free. Yet another reason that the iTS will draw even more customers while pulling customers from the sole sucking megacenters.



    One more thing.... Now you'll have iTS customers buying audio for their non-iPod players, which may in fact hurt some iPod sales, but I'm guessing that the affect ill be negligible. Will there be some disgruntled iPod owners who now try a Sandisk, or dare I say, a Zune now. Sure, but we both know the chances of them sticking with it are probably pretty slim once they figure out that the iPod+iTunes integration is what really made the iPod so successful in the first place.



    And as a bonus, Jobs announcement essentially killed the Zune Marketplace before it could ever take off.
  • Reply 16 of 38
    krankerzkrankerz Posts: 50member
    It's not the iTMS anymore. It's the iTS. Get it straight (for those who haven't, yet.)
  • Reply 17 of 38
    Quote:
    Originally Posted by athletics68 View Post


    Wishful thinking. ... Apple will always be a niche player going forward. ...



    A perfectly reasonable statement and perhaps even true. However, I work at a mid-sized company which develops corporate software, and Intel-based Macs are spreading like wildfire at my office. And, because it is Java-based, the software we develop is OS/X compatible, and even tested, though not supported, for customers. In fact, few people outside the company are even aware of this at this point.



    I also know this is happening in many other Java and Open Source shops. Who do you think is buying all the Mac Pros and MacBook Pros?



    One more thing: nobody is using Vista except for the testers, who have to. For everybody else it's a non-issue.



    Thank the Intel move (this was impossible with PowerPC), and virtual machines. It's not visible yet, but I think there is a real sea-change brewing. Apple may not topple MS, but it is certainly busting out of the niche category.
  • Reply 18 of 38
    Quote:
    Originally Posted by athletics68 View Post


    Tell that to Microsoft. They've maintained their 90%+ marketshare for 15 years now without much trouble.



    They are going to lose the top end of that 90% sooner than you think, because for the last five of those 15 years their execution has been quite poor. Apple will keep its high share so long as it makes good moves like this one and the best-designed players.



    I own an iPod and have never bought (nor pirated) a song. I use it only to listen to podcasts and to listen to songs ripped from my CD collection, coincidentally to 256K AAC format.



    I'm a sound fanatic and I don't like DRM. Only now has it actually become tempting for me to buy from iTMS.



    That said, the move has no effect on my purchase of an iPod or something else. That's an industrial design issue and always has been for me.



    I'd really like an iPod with recording capability, however. I can't understand why Apple does not offer this; it's forcing my wife, who is a journalist, to buy a regular MP3 player.
  • Reply 19 of 38
    MacProMacPro Posts: 19,718member
    Quote:
    Originally Posted by Alonso Perez View Post


    I'd really like an iPod with recording capability, however. I can't understand why Apple does not offer this; it's forcing my wife, who is a journalist, to buy a regular MP3 player.



    The iPod has a great recording ability, it is just a matter of adding a tiny white add-on from Griffin. The recordings are immediately available iPod for play back or ripping to CD or whatever. Better an iPod with an add-on than some piece of junk with a mic built in.
  • Reply 20 of 38
    sjksjk Posts: 603member
    Quote:
    Originally Posted by krankerz View Post


    It's not the iTMS anymore. It's the iTS. Get it straight (for those who haven't, yet.)



    At least iTMS was accurate? unlike Itunes, i-tunes, i-pod, etc.
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