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The real reason Apple’s mad about Harmony hack

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By Dennis Lloyd

Publisher, iLounge
Published: Thursday, August 5, 2004
News Categories: Apple

John C. Dvorak for CBS MarketWatch explains that RealNetwork’s recent iPod song compatibility hack for its Harmony jukebox software is screwing up Apple’s plan to put iPod technology into Motorola cell phones.

“This grand scheme only works if the platform is secure. You can’t sell an iPod phone and lock in all this easy money if people can buy from just anyone or just use bootleg music, can you? So along comes the RealNetworks hack, which screws up this scheme. Suddenly the iPod looks a lot like any other MP3 player except for its good looks, and those go away when it’s in the phone.

This explains why Steve Jobs and Apple wouldn’t let RealNetworks license any of its technology when asked last April. You can be certain that the Apple-Motorola scheme hatched before that and probably right after Ed Zander, Jobs’ friend, took over Motorola in January. With this scheme they had to keep the iPod locked down and that meant no licenses for interlopers and potential competitors.”

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Comments

21

j2003 - a few things in response to your post.

First of all it is very interesting that you can play protected AAC files within Real Player.  I didn’t know that.  However, you said that this means there is not much incentive to keep iTunes.  I disagree, iTunes is simple and easy to use and doesn’t spam you while you use it.  I hate Real’s products for the cluttered interfaces and annoying ads.

As for licensing, I wish Apple all the luck in the world at continued success in the music market.  However, I think waiting until competition is breathing down their neck before licensing is a bad move.  Apple is getting a bad rep with all the companies they’ve turned down for licensing so far.  By the time MS and other music stores get momentum Apple will have lost many potential allies and even if they do license then, it may be too late.  All the corporate alliances Apple turns away will probably turn to Microsoft or whoever becomes the dominant force rivaling Apple. Remember…

“He who is my enemy’s enemy is my friend”

Posted by feakbeak in Plymouth, MI, USA on August 6, 2004 at 12:14 PM (PDT)

22

The whole situation is frustrating to me.  I used to be a serious music buyer, to the tune of 8 cds per month on average.  I moved to a new area that seems to lack independent record stores, so I have less of a selection and typically a higher price.  I would be an ideal customer for iTunes, but for all the talk of ease of use, design quality, etc I still can’t buy a portable music player that does everything I need—universal format compatibility, high quality audio (better than cd), massive storage, long battery life, and a broad and deep selection of music.  The iPod/iTunes/Fairplay product is a good first step, but right now it only satisfies my requirements for massive storage.  They are working on the selection, ignoring the audio quality, and actively avoiding universal compatibility.  If I finally take the plunge and buy a portable player, I will probably have to get a cheap player and stick to mp3s that I encode for myself from my existing collection of cds.  But Apple is capable of making the product I need, and I would buy it if they would work it out.

Posted by Andy on August 7, 2004 at 5:37 PM (PDT)

23

feekbeak:

I don’t understand your comment about universal compatability and getting a cheap player and sticking to self encoded MP3s.

I’ve been an iPod user for a year and have only purchsed a handful of songs of iTunes. 

I’ve filled the rest of my 20 GBs with self-encoded MP3s. 

Universal compatability?  What formats do you want?

Posted by glucoseboy on August 7, 2004 at 7:26 PM (PDT)

24

Glucoseboy—I would like to play Fairplay/AAC and DRM’ed WMA as well as good ‘ol mp3.  Not too worried about Ogg or ATRAC or anything, but I’m aware they exist.  I understand the licensing issues, the battle for supremacy between competing standards, and the fact that Apple may feel they don’t have a good reason to include WMA compatibility on their products.  Bottom line is that I don’t want to sink $300 on a player until the manufacturers address my concerns from the previous post.  In the meantime, I’ve just about sold myself on a sub-$100 flash player, and I will just trash it when better products come along.

Posted by Andy on August 7, 2004 at 7:36 PM (PDT)

25

OS Licensing: Macintosh just peaked above 12% marketshare and, it never was dominant. Those ‘what if’ tales suggesting Apple is at fault for not licensing are crap, they are just trying to blame someone else for their bad decisions to go with Windows.

Apple is not in a dominant position in the music player/online music store markets, both are emerging markets with new developments weekly.

Real wants to license their Helix technology to other companies which goes against Apple’s moves to license iPod/iTunes technology (HP, Moto, Roku), thst’s no.1 reason why Apple has said no to Real (also Real is a crap company and future compatibility issues etc).

Apple will at best end up with 10% - 15% of the markets, when the markets have matured inferior ‘good enough’ solutions will as ever convince more customers while Apple retains the quality end. Whilst Apple continues to offer better products I will be a customer, and I expect to pay a premium for better. If Apple went down market to try to compete they would lose to the unethical, immoral and illegal tactics of companies like Microsoft and Real.

Apple is doing just great in the music markets (and others too), keep it up Apple!

Posted by Gandalf on August 8, 2004 at 11:53 AM (PDT)

26

7.dose the amercian aducation system work?
answer: obviously not

Posted by Hah on August 9, 2004 at 6:52 AM (PDT)

27

I think Dvorak danced around the “real” issue (no pun intended) but missed the point.  It is important for Apple to remain in control of their music scheme, but it goes beyond just preparation for future products.  This isn’t about music service competition (at least not yet), this is about technology protection.

Think about it, the only reason that Apple has secured as many songs and record labels/artists for their iTMS service is because they promised the suits that those digital files would have secure DRM technology.  The record labels aren’t going to license their products/artists if the digital media is easily hackable. 

Harmony shows that Apple’s iTMS DRM may not be as secure as they led the record labels to believe.  Yes, I’m aware of previous successes in reverse engineering Apple’s DRM (PlayFair/Hymn and other command based utilities), but these are really no threat to Apple’s relationship with the music labels because they are relatively unknown and not easily accessible by the average non-geek customer base.  However, when a power house like RealNetworks publicly gets around Apple’s DRM (even though they aren’t exploiting the iTMS songs, they are just using it as an outlet to sell their own product), this could be a very big threat to Apple’s future negotiations with the record lables.  Label executives are still stuck in P2P Paranoia Land and will pull their support from any format that comes across as being “insecure,” even if those insecurities are relatively harmless. 

Although Apple does not profit directly off of the iTMS, iTMS is the best and most efficient way to sell the iPod.  They can only continue to promote the wonders of iTMS if they can retain their contracts with the record lables and keep those contracts at rates that allow them to sell songs at $.99 a piece. 

I believe that Apple is angry at RealNetworks because of the potential (although realistically unlikely) threat that Harmony could have on Apple’s contracts with record lables.  If it were really a compeition issue, Apple would win hands down.  iTunes isn’t perfect, but it is light years ahead of Real Player 10.  Harmony sales would probably have a negligiable effect on iPod sales (and any effect they did have would be negative)—but that doesn’t mean that it doesn’t have the potential (no matter how slight) to affect Apple’s own contracts—and that is something that could radically affect their business.

Just my 2 cents

Posted by Christina on August 11, 2004 at 12:06 PM (PDT)

28

Nokia just partnered with LoudEye (who now own OD2) to deliver streaming music to their new 3G cellies.

http://news.google.com/news?q=nokia+loudeye

Within a year or two expect many new phones to come with a ~5GN Cornice or Hitachi microdrive. This will be used to save camera shots and to buffer downloaded music.

Ultimately the notion of spending lots of money for 40GB or 60GB non-wireless handhelds will seem as quaint as those monster cars from the 1970s. (Although that is not to say that in 10 years or so the average phone music player will not ship with a 100GB microdrive - just that getting way above the average for personal storage will seem rather silly).

Because of their massive cashflow and locked-in revenue streams, people will be able to get these camera music phones for around <$100 and fit them into their regular monthly service plans.

This is a lot more compelling as a business model than trying to persuade people to spend $200-$400 on an iPod.

There will always be a market for such luxury items but it will remain a niche product and be further marginalized when compared to the literally hundreds of millions of these streaming music phones that will sell every year.

Posted by Nokia on August 15, 2004 at 5:48 AM (PDT)

29

“I’m certain Apple could negotiate amazing contracts for the iPod’s tech.”

That would be attractive except that Apple doesn’t own most of the IP within the iPod. Apple licenses the OS from PortalPlayer, the UI is also created under license, the hardware comes from a bunch of sources.

That’s why Apple can license the iPod player to HP, but makes very little on the deal.

The only real IP Apple has in the iPod is the FairPlay system - which they realised quite late in the game and that’s why they bought the company to own FairPlay outright instead of licensing it.

You need to make a distinction between the iPod product and the FairPlay system. Apple’s real money in the future can only come from making the FairPlay rights system ubiquitous and taking a vic off the top but that’s where Real and LoudEye and Microsoft have them boxed in.

Posted by licensing on August 15, 2004 at 5:54 AM (PDT)

30

Can i use my Windows Media Player music and download it onto my ipod or do i have to use the ipod store?

Posted by BOO on September 3, 2004 at 10:00 AM (PDT)

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