Arthur recently emailed me asking why I chided Lin for the In The Heights soundtrack having iTunes-only exclusive tracks, and it got me thinking (hopefully) blog-worthy thoughts:

The short answer is, I wanted to see the exclusives on AmazonMP3, since that’s where I buy music these days, but that’s not really the point. I’m more generally worried about Apple entrenching their market power with exclusives, because that’s can be a vicious cycle of increasing monopolization. If you’ll permit me to be a little lazy, here’s an relevant excerpt from a paper I wrote:

There is anecdotal evidence that the iTunes Store enjoys market power. Lily Allen, a popular British singer, has complained that she felt compelled to offer Apple exclusive content in order to secure promotional placement in the iTunes Store. While monetary payment for promotional placement has been customary across the music industry for some time, Apple has been able to force the payment into a potentially more valuable form, i.e. a strong competitive differentiator from the other download stores. Without market power, it is unlikely that they would be able to extract such exclusive deals.

Apple also benefits from what we may call the “catalog” barrier to entry, similar to the “applications” barrier to entry recognized in Microsoft. As the biggest download store, the iTunes Store is the only truly necessary distribution point in this market, and as a result, Apple has accumulated the largest catalog of licensed downloads, which then leads users to make it their primary destination when searching for music to download. While there is not as much work involved in re-encoding songs for rival services as there was to re-code for rival platforms in Microsoft, there is still some burden, and the more dominant Apple’s market share becomes, the less artists and labels will see benefits in distributing elsewhere. It is also likely that music consumers place more value on comprehensiveness than operating system consumers, because the future needs of the former are much less predictable than the latter. This would lead to warier consumers who would view Apple as an even more compelling download store than Windows is an operating system.

So Apple gets two hits of market power from exclusives: the direct hit from those who want to buy that particular exclusive, and the halo hit of being the store that has all the exclusives. I realize this doesn’t actually explain what’s wrong with Apple getting that market power, but that’s not usually hard to see with entrenched monopolies. They don’t have much pressure to innovate, so they often don’t. Even Apple, with as hardcore a rep for innovation as you could imagine, has done all of just about nothing with the iPod or iTunes since they became dominant; the only changes have come as a tangential result of innovation in markets where Apple has no power, specifically set-top boxes (AppleTV) and cell phones (iPhone). Those new products brought us some remote capabilities for iTunes and the iPod Touch, but the core capabilities for acquiring, managing and playing your music collection have not changed at all. That may be because it’s good enough for most of the customers, but so is Windows, and that’s never stopped Apple from pushing ahead with OS X…

There’s definitely much more to say on this, and after the bar exam I hope to say some of it, but for now I’ll just ask you to call your local musician and tell them to vote No on iTunes Exclusives (if their label is so charitable as to give them any say in the matter).

evan :: Jul.22.2008 :: Notions :: 1 Comment »