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Backstage: On RealNetworks and the iPod

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By Jeremy Horwitz

Editor-in-Chief, iLounge
Published: Tuesday, July 27, 2004
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picOver the last few days, I’ve been enjoying the diversity of press reaction to RealNetworks’ announcement of Harmony, the wittily-named new application that enables companies other than Apple to create digitally protected music for the iPod. A few articles have made positive comments. Most reports have taken a wait and see approach. And then we have something as remarkably strange as BusinessWeek opining that “it’s in Apple’s best interest” to “loudly inform iPod owners that Apple will no longer honor their warranty if they buy songs from Real or other rival online music stores.” (When I was a kid, business magazines used to espouse a little something called laissez faire economics, didn’t they?)

The impetus for all of this clamor is RealNetworks, which despite (or perhaps because of) a very public one finger salute from Apple some months ago, still managed to roll out an iPod-compatible online music store with 500,000 songs. But that’s not the real story. The 99 cent songs are encoded at a higher bitrate than Apple’s versions - 192K - and apparently in AAC format, at least for iPod use. Early reports suggest that each core downloaded and copy-protected music file is subsequently converted into formats compatible with different players, which would be an impressive feat if it’s legally accomplished. One song could play on any device.

For consumers, especially iPod users, alternative sources and increased quality would be good news. RealNetworks’ offering would mark the first legally downloadable competition on a quality basis (rather than just price) for Apple’s 128Kbps-encoded AAC tracks from the iTunes Music Store, and would add to the variety of legal music downloading choices already available. It might even compel Apple to stop using low bitrate compression for its own files. But as of now, the Harmony download pages appear to be down, indicating that the beta software either had fatal bugs, or that a certain company received a cease-and-desist letter written in blood and smelling vaguely of rotting fruit. Something tells me that we’ll hear more on that subject later today…

(Update: Looks like the download page re-routes Mac users, but lets PC users get the Harmony-enabled version 10.5 of RealPlayer.)

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Comments

1

I don’t understand why this wouldn’t be beneficial to Apple. I mean they claim that ITMS makes a loss and is just there to sell iPods, so if someone else takes some of that hit for them, they should be happy.

Of course they could be lying about making a loss…

Posted by Dave on July 28, 2004 at 12:16 AM (PDT)

2

I read somewhere that they took a loss during the first 2 years, and now they make a small profit.

The smartest thing for apple to do would be to offer higher bitrates, 192 or 256 kpbs even. Then allow the end user adjust the bitrate through itunes, before uploading to the ipod.

Posted by nothinglower on July 28, 2004 at 4:41 AM (PDT)

3

Correct.  Apple does generate a small profit on the iTMS.

The reason that Apple wouldn’t want this to impact iTMS sales isn’t lost “small” profits, though… It’s lost status, online sales market share, and power.  These three things are not items that Apple has had prior to the iTMS, and it’s done wonders for their public image.

Posted by Jerrod H. in TX on July 28, 2004 at 5:15 AM (PDT)

4

Way to take Business Week’s “quote” out of context.  In fact, it’s not even their opinion.  They did not say “it’s in Apple’s best interest” to “loudly inform iPod owners that Apple will no longer honor their warranty if they buy songs from Real or other rival online music stores.”

Business week _actually_ stated:

“If Jobs’s lawyers tell him it’s legally justified, the CEO might even consider an even more radical way of making his point: loudly inform iPod owners that Apple will no longer honor their warranty if they buy songs from Real or other rival online music stores.”

I would have expected a much better post from you Jeremy. 

(This isn’t an attack at you, as I highly respect you.  I just can’t believe that you are trying to make business week the “bad guy” when they never said what you claim they said.)

Posted by JBF on July 28, 2004 at 6:12 AM (PDT)

5

I’d like to add one more thing…

Granted, Business week does say that it is Apple’s right to defend this act by Real Networks (Which I actually think was a good move by Real to release Harmony), but they did not say, “it’s in Apple’s best interest” to “loudly inform iPod owners that Apple will no longer honor their warranty if they buy songs from Real or other rival online music stores.”

I just feel that you mis-represented Business Week.  That’s all.

I do have to agree that what Real is doing is a great thing.  It can only mean good things for apple (if they don’t press charges) as it allows consumers to get a wider variety of music, and also help stop another horrible “betamax” incident with the iPod, etc.  (And none of us want that to happen again)

Posted by JBF on July 28, 2004 at 6:16 AM (PDT)

6

Hmmm…perhaps not a good thing afterall. What do we know about iPod/iTunes music so far?

1) Recorded not from CDs but original material - higher-quality from the get-go…

2) Audio quality on tests proved that 128K-bit was quite sufficient under Apple’s AAC-based codec. Higher-bitrates were generally unnecessary…

3) iPods are designed to work best with 128-bit AAC files - higher bitrates degrade the battery life even faster (and they’re larger also, so buffering might become a problem). This happens with all players, but I distinctly remember reading this on Apple’s site…

So - the quality may not be as good, the files are larger and take up more space, degrade the battery life - and for the most part, needlessly.

iTunes now not just looks better, but smarter too.

Posted by JimInHolland_30gbG3 on July 28, 2004 at 6:23 AM (PDT)

7

JBF: There was nothing even slightly misrepresentative of BusinessWeek’s quotes in my original post. Here, taken from the original article, are the following original quotes (not shortened for brevity’s sake):

Subtitle: “RealNetworks’ attempt to make its music downloads work on iPods does Jobs & Co. and consumers a disservice—and should be thwarted”

Mid-story: “If Jobs’s lawyers tell him it’s legally justified, the CEO might even consider an even more radical way of making his point: loudly inform iPod owners that Apple will no longer honor their warranty if they buy songs from Real or other rival online music stores. BIG-TIME PARTNERS.  Such a move might temporarily cast Jobs as the Darth Vader of interoperability to industry watchers. But in the long run, it’s in Apple’s best interest.”

There was nothing inaccurate or misleading about the way it was quoted from the original story. The subsequent references to “such a move” and “it’s” are clearly referring to the “more radical way” proposed a sentence or two earlier. On the next page of the article, the writer specificially suggests that “the market for legal digital music may be an exception” to the concept of free and open markets, and explains why.

The points in my original posting were to state that it was bizarre to see a business magazine arguing against free markets, and that it was especially odd for a magazine to propose such a consumer-unfriendly tactic. Both of which they did. The whole purpose of abbreviated quoting is to distill the essence of large paragraphs into fewer words, which the summary quotes above accomplished.

Posted by Jeremy Horwitz on July 28, 2004 at 7:13 AM (PDT)

8

Ah, ok.  Thanks for pointing that out.  Sorry about that.  smile

Posted by JBF on July 28, 2004 at 7:32 AM (PDT)

9

Basically I missed first sentence of the “BIG TIME PARTNERS” section.  So that’s what threw me off.

Posted by JBF on July 28, 2004 at 7:34 AM (PDT)

10

I can’t remember where on the forums/this site I read this, but someone reported that it was a pain in the @(*&$ to get the songs on your iPod:  you have to disable autosync, and have to conitnually update the Real songs every time you sync. 

Usability issues alone may kill this for Real.

Posted by Cameron on July 28, 2004 at 7:42 AM (PDT)

11

Let us not forget the fact that “Harmony” and Real’s music store are not available for Macintosh users at all. Kind of interesting considering Real’s attitude towards Apple complaining about the inaccessibility of other services (ie: Real networks) to work with I-tunes. After all, Apple had the lions share of legal music downloads before i-tunes was even available for Windows. So for Real to exclude Mac users from their service is akin to them shooting themselves in the foot!

Posted by not real on July 28, 2004 at 7:48 AM (PDT)

12

Harmony from a user’s perspective:
1. We can acquire 192k encoded songs for 99 cents.
2. We can access additional songs (does anyone know how many songs on Real that are not on iTMS?)
3. We have an alternative to iTMS, the threat of which will keep Apple in-line (pricing, songs, quality, etc) and innovative.
4. We can use same DRM-protected songs on Helix or WMA players.

Posted by Kevin on July 28, 2004 at 12:08 PM (PDT)

13

Harmony from Apple’s perspective:

1. Apple’s iTMS sales reduced.
Probably not by much, as Real is not available for Macs, and both iTunes/iTMS generally have a better interface than Real’s jukebox/music store software. Apple will likely add other iPod-iTunes/iTMS linkages and other iTunes/iTMS features to keep iTunes/iTMS at forefront.

2. Apple’s leverage/power vs. music labels is diminished/ (balanced?).
View depends on who you believe to be more aligned with the user – Apple or the labels. If iTMS sales decline, labels will feel freer to impose more restrictions or raise prices.

3. Apple’s ability to alter its Fairplay DRM (for better or worse) is hampered.
Apple will likely state they do not guarantee that Real songs will always work on the iPod. Depending on how identical Real songs are to Apple Fairplay songs, changing iPod firmware or iTunes software could cause PR issues for Apple.

4. Apple’s iPod support becomes more complicated (for Helix-Fairplay; Real/Harmony-iPod issues).
Again, Apple will likely state that they do not provide support to ensure Real songs play on the iPod. Again, PR issues.

5. Apple’s iPod sales reduced if people buy WMA- or Helix- player as additional or replacement player.
Probably not by much, if Apple continues to innovate and lower the price of the iPod, due to “cool factor” and usability reviews. Also, a few people may buy the iPod knowing that other than MP3s and CDs, they are not locked into the iTMS.

Question: If all these things happen to Apple, as an iPod user, are you better off or worse off?

Besides licensing Fairplay to other music stores (with guarantees that songs will work on iPod), and/or suing Real, Apple can also do the following to blunt Harmony:
1. Have iTunes convert iTMS songs to protected WMA for WMA players (completely ignore Helix and ATRAC).
2. Have iTMS sell lossless encoded FairPlay songs for $1.49?/song or average $14.99?/album using a different Fairplay algorithm.

However, each of these has further market consequences.

Posted by Kevin on July 28, 2004 at 12:19 PM (PDT)

14

The protected WMA idea is a great one. And I would rather not pay $1.49 for a song.

Posted by Jeremy Horwitz on July 29, 2004 at 8:06 AM (PDT)

15

I think it’s important, in fact, absolutely vital for Apple to find new and innovative ways to limit customer choice.

In other words, it doesn’t matter what the users want. It only matters what Apple wants.

But seriously, folks. I have no love for Real, and no axe to grind with Apple. I love my various iPods and other Mac products… and have no intention to buy music from Real.

That said, this is extinction management at its finest.

Posted by Bradley Allen on July 29, 2004 at 1:18 PM (PDT)

16

I’m a new iPod user and I guess I’m in the minority in thinking the deployment of Harmony was a huge faux pas by Real. Real is trying to save their company using any measure whether good or bad. They complain about proprietary data and open source and their product doesn’t even run on Mac. Why would I form a relationship if I am Apple with a company that doesn’t bring anything to me? How is a partnership advantageous to Apple?  It just doesn’t make good business sense. If Apple did not continue to provide innovative products then I would be concerned, however that has not been the case.

The bigger issue I have with Harmony is the hacker aspect of it - so basically Real makes an offer to Apple - it’s refused, they then hack the product?!  So Oracle can then do this to Peoplesoft? (not a good analogy but you get the gist) Fundamentally how is that a good thing for a company to react in such a way? This is pure ego stuff disguised as “good for the consumer”. Real is just trying to keep their company afloat because their business plan did not fully anticipate or appreciate their competition or the market. That is simply bad business in my mind. Yeah, Apple did flip them the bird so to speak when they rebuffed Glaser in such an overt way (email leak) so to me this is Glaser’s “pay back time”. Again bad business.
Long term strategy - if this is Real’s business ethics do you as a business want to openly link yourself with such a company?  I’m not dumb enough to think ethics go out the door all of the time but in such a blatant way is not a wise decision. He is also marketing users to cheer on a David vs. Goliath situation. Uhm Real is not a small programmer who is being unfairly put upon.  To think otherwise is naive.

Posted by aec on July 29, 2004 at 2:48 PM (PDT)

17

Is it just me, or does anyone else really just want to watch Jobs’ screaming hissy fit he threw when this came to the news? I’ll bet that was NOT a happy day around the Apple campus. (Cept maybe in the legal department)

Posted by Ghent on July 31, 2004 at 3:27 AM (PDT)

18

I now have music from both itunes and real/harmony stores on my ipod.  So it appear you can use both sources on the same ipod at the same time.  Though keep in mind, I have auto-sync turned off.

Auto-sync always annoyed me anyway.

The only thing I couldn’t do was play real/harmony musik in itunes, or itunes music in real player.

Posted by redruM on August 4, 2004 at 2:59 PM (PDT)

19

I dont recall any ‘one-finger salute’ when Glaser approached Jobs; as I recall, Jobs simply did not reply to Glaser’s email overture at all, Glaser subsequently whining about this publicly. Did I miss something?

Posted by Vaughn Cordero on August 10, 2004 at 7:55 AM (PDT)

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