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Yesterday, I commented (in an extremely long post) on Steve Jobs essay about DRM systems in the music industry.  I was impressed with his post, and lauded it.  Having slept on my thoughts, I still feel that way, but one thing irks me – Jobs’ numbers were bad.

I noted yesterday that Mr. Jobs numbers were, in a few instances, exaggerated and simplistic but I didn’t say much more than that.  Today, partly in reply to an email I received, I am going to focus briefly on his numbers.

What Jobs Said:
Through 2006, 90 million iPods were sold along with 2 billion songs from iTunes.  That yields an average of 22 songs purchased from iTunes per store.

Reality:
That math may be factually accurate but it’s misleading.  The iPod has been around for many years and any given single owner has probably gone through more than one iPod in that time.  (I, for example, have had two break and am on my third. I also have a Shuffle that I received as a gift. That means, I account for 4 of those 90 million, not just 1).  Extrapolating song purchases based on total units is far less telling than doing it by unique buyers.

Better Math:
Recalculate those numbers based on the songs purchased per unique iPod owner rather than total units. Something like this example:
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One of the few loud and outstanding criticisms of the iPod player and iTunes service is the closed Fairplay Digital Rights Management system (DRM) employed for music bought through the iTunes store. 

On February 6th, Steve Jobs posted an essay on Apple’s website addressing those criticisms.  The posting, which can be read here is factually informative, articulate and worth reading.   Even so much as Jobs has Apple’s interest at heart, and has to be diplomatic given Apples relationships with the music industry, the content of the essay outweighs the bias. It is relevant to anyone watching (or seeking to understand) the changing music landscape. I might even reprint it instead of my own posting later this week.  (I think it’s that insightful.)

In his address, Jobs points out that the existence of the Fairplay system was not by choice but necessity.  The Big 4 of record companies (Universal, Sony BMG, Warner and EMI) control distribution on  over 70% of the world’s music.  Absent DRM tools, these distributors wouldn’t allow their libraries inclusion in download services. Absent Fairplay (or equivalent), the iTunes store, and arguably much of the landscape of legal downloadable music, would be barren.

The music industry has forced those handling electronic distribution to accept DRM tools.  Unfortunately, in doing so the music industry has also created a climate where the incentives are for closed proprietary systems rather than portable open ones.  Specifically, in Apple’s case, failure to respond to a breakdown of the DRM in a rapid amount of time would void Apple’s right to sell most of the music they offer.  Apple has to maintain the integrity DRM system above all else.  Considering the best security is to keep something as tightly controlled as possible – and DRM systems are always under attack – opening the code to more eyes by licensing it increases the likelihood of those attacks being successful.  Apple can’t afford to do that, nor can Microsoft, Sony or others in similar situations.  Each company’s best shot at maintaining the integrity of the DRM is to keep it proprietary.

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Disney  (NYSE: DIS), reported strong Q1 earnings with help of big DVD sales for Cars and Pirates of the Caribbean: Dead Man’s Chest.

For the first quarter, ended Dec. 30, net income was more the double, buoyed by gains from the sale of interests in E! Channel and Us Weekly for $1.1b.  Excluding that transaction revenue, Q1 revenue was up 10% to $9.7b and earnings per share were up $0.15 over the prior year to $0.50 a share.

The movie studio had operating income of $604m over $128m last year. 
Outlook for the coming year is strong with another Pirates sequel and other Pixar productions do for release.

Profits for the media divisions rose to $750m, up 24%.

More detailed press coverage on Disney’s finances can be found at:

Yahoo Finance
Google Finance
Marketwatch

DirecTV  (NYSE: DTV), reported Q4 earnings and met estimates of $0.29 share.

Net income almost tripled to $356m.  Subscriber growth was 38%, churn was down 1.57% do to stricter credit requirements for new customers.  Average monthly revenue for subscribers climbed to $80.70, an increase of almost $5.

More detailed press coverage on DirecTV’s finances can be found at:

Yahoo Finance
Google Finance
Marketwatch

It’s been a big week for Net Video convergence. A day after WalMart announced a wider entry into downloadable TV and Video, Amazon and Tivo are capturing headlines with a story which takes WalMart’s news and goes one better.

According to the articles, Amazon and Tivo are going live with a limited Beta test that will bring Amazon’s Unbox video download service directly to the TV through Tivo. Previously, Unbox downloaded videos, like similar services from Movielink and Cinema Now were set up for download and viewing on a PC.

During the Beta test, and presumably on broad release, users will sign up at Amazon and make purchases there. At the time of purchase they’ll be able to designate some combination of two computers/video devices or two Tivo units to watch the movie on. The content will then be downloaded to those devices. Downloads will take about one hour with average broadband connections. Backups can be burned to disc but they use the Windows Media copy protection DRM system and will not play in a home DVD player or on iPod’s. (Mac users will be able to download movies to Tivo’s but not their Macs). Click to Read More

In November 2006 WalMart offered a trial program for downloading Superman Returns. It’s been a while since that experiment but today Wal-Mart introduced a demo version of a more comprehensive video download service.  The service has the support of 6 major Hollywood studios and is set to include more than 3,000 TV and film titles at launch from properties held by Viacom’s studio properties, Disney, Warner Brothers, and 20th Century Fox.   Prices of downloads are expected to be similar to the prices of buying a DVD so as not to undercut that market.

The marketplace for downloadable content is crowded.  Among commercial content providers, Wal-Mart will compete against iTunes, Cinemanow, Amazon and others.   Wal-mart’s chances of success are uncertain, and they’ve failed before when experimenting with services outside their traditional core competencies. (A notable effort being their attempt to compete with Netflix which they gave up on.)

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I Can’t Buy Me Love but can I buy me a Beatles download? Are Beatles songs coming soon to iTunes?

After three decades of fighting, for a third time, Apple and the rights holders of the Beatles’ music catalog (Apple Corps, Ltd.) settled their trademark disputes. 

The History: The first trademark suit was filed in 1978 and settled in 1981 with Apple Computer paying Apple Ltd $80,000 and agreeing not to enter the music business.  In the late eighties, Apple Corps sued again claiming the inclusion of MIDI music software on Macintosh computers violated the terms of the earlier agreement.  Apple Computer (a.k.a. Apple Inc.) settled in 1991.  The deal included a cash payment and separation of uses: Apple Corps would have rights to the apple logo for selling and making music.  Apple Inc. would have the rights for selling  

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