Apple's vertically integrated stack of iTunes music service and iPod portable
audio players has been opened up twice this week: once with and
once without the company's blessing. Apple
announced that it is working with Motorola, which will produce a series of
mobile phones that will be able to store and play music tracks purchased on
iTunes. RealNetworks
announced that it has begun beta testing technology called Harmony in a new
version of its paid music download service, which can produce tracks that are
playable on iPods as well as devices compatible with Windows Media and
RealNetworks's own Helix DRM technologies. RealNetworks demonstrated
Harmony on Tuesday at the Jupiter PlugIn conference in New York.
The RealNetworks development is the more interesting of these two
announcements because it follows Apple's
refusal, back
in April, to license its file format and FairPlay DRM technology to RealNetworks.
Although RealNetworks's press release is very short on details of the Harmony
technology, the company has presumably reproduced both the file format design
and enough details of FairPlay to enable it to create files that users can be
successfully transferred to, decrypted by, and played on an iPod. The
company insists that it has done this based solely on publicly available
information.
Apple has apparently had no knowledge of RealNetworks's impressive
engineering feat, and it has not commented on whether it considers the move to
be a breach of its intellectual property. The legality of what
RealNetworks has done is nonobvious. If FairPlay were a file format alone,
then there would likely be nothing wrong with reverse engineering it for the
purpose of creating files in that format: it would be analogous, for example, to
the thousands of financial applications that can save data in Microsoft Excel
spreadsheet format. (In fact, as far as the content format alone is
concerned, RealNetworks did not need to do any reverse engineering, because both
Apple's and RealNetworks's own audio formats are based on the MPEG-4 AAC
standard.)
However, iTunes and FairPlay comprise more than just a file format.
RealNetworks's RealPlayer Music Store would have to emulate FairPlay's content
packaging scheme, i.e., encrypt files and establish user and iPod identities in
the same way that FairPlay does, and that's not a trivial matter.
Furthermore, if Apple has patents on the way FairPlay packages content (which is
doubtful: Apple's sole recent DRM-related patent does not cover packaging), then
Apple could assert those patents if it does not like the idea of RealNetworks
taking potential transaction revenue away from iTunes; otherwise, if it did not
want RealPlayer Music Store to interoperate with iPods, it would have to change
its packaging scheme and require all of its users to download new software.
Yet we believe that Apple would not be acting in its own best interests if it
were to move against RealNetworks. Although Apple's financial terms for
music licensing are confidential, we suspect that iTunes, like all of the other
music download services, breaks roughly even per transaction, and that its
primary revenue driver is iPod sales. By that reasoning, Apple ought to
embrace RealNetworks's move.
For its part, RealNetworks is promoting RealPlayer Music Store as a service
that provides interoperability that other services do not. The player
software itself features the ability to play music in both Microsoft Windows
Media and iTunes formats (by simply calling the native players), meaning that it
can play music tracks downloaded from iTunes or any of the Windows Media-based
music services (e.g., Napster or MusicMatch). Now, the service will
feature the ability to deliver content that can be played on a variety of
portable devices -- including the most popular of all, the iPod, and presumably
in the future, portable devices compatible with the OMA Download standard, in
which RealNetworks is a key participant.
This move by RealNetworks is another step in the company's gradual process of
shifting its emphasis (in the music market, at any rate) from providing platform
technology to providing services. The online music market has matured to
the point at which we can say for sure that RealNetworks's own RealAudio format
is a loser, eclipsed by Apple and Microsoft. However, as we have said
numerous times, its Rhapsody service is a real winner (pun intended).
Once RealNetworks finally manages to integrate the cross-platform
capabilities of RealPlayer Music Store with the great design and music selection
of Rhapsody -- a nontrivial task, given that RealNetworks acquired Rhapsody from
Listen.com -- the company could emerge as a leader in online music. Just
as importantly, if RealNetworks can back its technology with good design and
marketing, its ability to offer interoperability to the market could seriously
derail the value of any DRM standardization efforts outside of the OMA world.
This would be a blow to Microsoft, which is planted firmly behind MPEG DRM
standards.
Speaking of OMA DRM standards, Apple's announcement with Motorola strikes us
as insignificant, especially if it takes too long for the devices to come to
market (Motorola expects this to occur by mid-2005). Dozens of devices
that are compatible with the OMA DRM 2.0 standard should hit the market in time
for the holiday buying season this year, and the rich content services that OMA
DRM 2.0 can support should follow soon thereafter. A proprietary
service-and-device stack in a field that looks to be dominated by an open
standard does not seem very interesting. The novelty value of iTunes will
not last forever.
Events
IE 7
Firefox 2.0
