Steve Jobs: Marketing and Musical Genius

Steve Jobs was out yesterday with an essay "Thoughts on Music," where he basically says DRM is stupid and that the music labels need to drop DRM entirely and sell unprotected music. In this essay he gives some history and background behind the current state of DRM and suggests that it simply is not working. And of course he is right. But this is beside the point.

About a year ago I penned an article called "iTunes, One Billion Suckers Served." In the article I argued that those who were buying tunes from the iTunes music store were suckers, and that by purchasing locked down music that is not portable for $1 a song, they were getting a bad deal. I still feel this way.

In his message about music, Jobs tries to dismiss the fact that iTunes music buyers would feel any lock in pain by using a statistical fact that only about 3% of music on an average iPod was purchased from iTunes with DRM:

Today’s most popular iPod holds 1000 songs, and research tells us that the average iPod is nearly full. This means that only 22 out of 1000 songs, or under 3% of the music on the average iPod, is purchased from the iTunes store and protected with a DRM. The remaining 97% of the music is unprotected and playable on any player that can play the open formats. Its hard to believe that just 3% of the music on the average iPod is enough to lock users into buying only iPods in the future. And since 97% of the music on the average iPod was not purchased from the iTunes store, iPod users are clearly not locked into the iTunes store to acquire their music.

The problem with this math is in the averaging. The problem is that not all 90 million iPods have exactly 22 iTunes on them. In fact, I would bet that the majority of these iPods don't have more than 3 iTunes on them at most and that, like most things, there is a small group of individuals that makes the lion share of the iTunes purchases and for these individuals leaving iTunes would be a lot more painful than merely walking about from the $22 that they spent on 22 songs at iTunes. I'm sure that there are many people who have spent over several hundred dollars on iTunes and these are the people in my mind who are the suckers.

So Jobs basically admits that DRM is a boneheaded idea, but justifies it by using the, hey, it's not me, line, it's the big bad record labels. And of course he's right and even though he doesn't admit it, the small group of major iTunes buyers are still suckers. And they are a small group, not 90 billion people with 22 songs each.

Still, it's somehow refreshing to hear Steve Jobs come out and say that DRM sucks. And this is where the marketing genius of Steve Jobs comes out.

An Apple a Day Hosted on Zooomr

Steve Jobs made the deal of a lifetime when he launched iTunes. He basically told the music industry, I will give you all of the profit for the music, and I will take all of the expense of the distribution, if you'll only do a licensing deal with me. The music industry scratched their heads unable to figure out why anyone would make such a bad deal and then said, sure, why not. They were seeing their business eroded by pirates anyway and maybe at least this could stop the bleeding a bit.

But it didn't. The bleeding continued and by legitimizing the iTunes store, they allowed Steve Jobs to push forward with the most successful tool for pirated music since Napster. The iPod. And of course Steve made much, much more on iPods than the music industry made on their 2 billion songs and he laughed about it (secretly inside) all the way to the bank. And Apple's stock price soared. And anytime anyone mentioned piracy, Jobs could just point to the iTunes store and their best efforts attempts.

So what in the world is going on now? Well, at this point Apple has gained enormous popularity. iTunes has gained enormous popularity. And Jobs is comfortable that his deal with the record labels is firmly in place. So the question left on the table is why should Jobs take all the heat for DRM? Everybody hates DRM. It's unpopular and Apple is not in the business of being associated with unpopular things.

So yesterday's message by Jobs is more of a political thing to publicly distance the Apple brand from the concept of DRM. Rather than put up with an indie underground that makes stickers like this (below), Jobs would rather bash the record industry, lose a few friends maybe, but get a bunch of attaboys from everyone else in the world.

And this is exactly what is happening in the blogosphere right now. Everyone is falling all over themselves with how cool and hip and right Steve Jobs is. It's pretty simple from a marketing and PR perspective and it worked.

So why the PR push now? Because the iPhone is coming out very shortly and Apple wants even more of a glow than they already have.

Apple fans are zealots. And they are zealots for a simple reason. Apple makes superior hardware to anyone else out there. And not just from a fashion and design perspective. They just make stuff that works. They are gaining important market share in computer sales (disclosure, I recently switched to a Mac myself and they featured my blog post about it in the Apple "Hot News" section).

Listening to Jobs give the keynote address of CES this year on the iPhone (yes, I say that in jest as he completely stole the show at CES by announcing his iPhone during CES), he had an unbelievable amount of charisma. He felt like a cross between Bill Clinton and a southern preacher who could just completely mesmerize the crowd. And they were mesmerized. At Podtech's CES bloghaus where I watched his keynote, he had the entire room glued to his every comment and as soon as he was done the blog posting went nuts.

So rather than be tied down with a DRM image, Jobs penned his anti-DRM missive largely to only further increase the hipness of the Apple image. And because of that he will sell more iPhones and he'll sell more Macs. It's smart. He won't lose the labels and his popular message resonates with the masses. And this is why Steve Jobs is a marketing genius.

Oh, and incidentally, about the DRM thing and the fact that the labels should just give up and allow him to sell DRM free music? Yeah, he's right about that too. Yep, Steve, You 'da Man.

AAPL 1-yr chart

Comments

[Tommo_UK]

Is all SJ's talk of anti-DRM just a red herring?

The Recording Industry Association of America, however, issued a statement interpreting Jobs' letter as an offer to license the FairPlay technology.

"Apple's offer to license FairPlay to other technology companies is a welcome breakthrough and would be a real victory for fans, artists and labels. There have been many services seeking a license to the Apple DRM. This would enable the interoperability that we have been urging for a very long time," it said in an e-mailed statement.

Opening the FairPlay DRM technology wouldn't be a wise strategy because Apple would have to give up the secrets of how that technology works, and it's likely that a hack for the technology would appear very quickly, Jobs wrote. Under its agreement with the record companies, Apple has just a few weeks to fix FairPlay if a breach is detected--otherwise the record company can pull all of its songs from the iTunes Store, he wrote.

"Apple has concluded that if it licenses FairPlay to others, it can no longer guarantee to protect the music it licenses from the big four music companies," Jobs wrote in his letter.

While initially I considered the RIAA to be just blustering in an attempt to find something positive to say in response to SJ's letter, increasingly I wonder if this isn't a giant game of double-bluff. Maybe what SJ wants to do is in fact get the studios behind Fairplay - but on terms than don't leave Apple solely liable in the event that it is cracked. If the studios agree to vary the terms of the agreement such that they cannot remove their catalogues from iTunes simply because Failrplay is cracked in the future and Apple is unable to produce a patch within the (very short) allotted time, then how does Apple lose by then licensing Fairplay to anyone who wants it, thus wiping WMA off the map?

I would see an agreement to license Fairplay as a win-win for Apple, and an amazing opportunity. WalMart, Yahoo, Amazon, et al could then offer Fairplay music, TV shows, and Movies for download, all of which would play on the iPod, Mac, PC, and - crucially - the aTV.

Perhaps this is what Jobs really wants .. if he's not afraid of ditching DRM altogether, he's damn well not going to worry about licensing Fairplay - if the industry wants to do it on his terms, and his terms alone.

There's more going on than meets the eye. Apple is a hardware company. It makes money from people wanting their superior products. Opening up Fairplay makes sense at this point, because Apple can now offer an end-to-end solution for music+video playback throughout the home. It needs content to drive sales of that hardware, and it needs as much of it available as possible.

I smell something unexpected coming: not DRM being dropped, but in fact Fairplay being broadly licensed on terms Apple can accept, and which doesn't leave iTunes vulnerable to the studios deciding to withdraw their catalogue at a moment's notice.

[macmatthews]

Steve Jobs has stated his case quite clearly, and yet now out come all the cynics looking for the 'real' motivation. Apple's position has always been motivated by 'user experience'. That's why they don't want to licence the Mac OS to operate on third party hardware. That's why all those 'suckers', as you call them, choose to use iPods in conjunction with iTunes, because it all works so beautifully. And because the iPod is so popular now, all these people now turn against iTunes saying people are only using iPod's because the music can only be played on an iPod. Well don't use iTunes then. No, hang on, you want to use iTunes because it is so good. But you want to use your tunes from iTunes on a crappy mp3 player you got from a Christmas cracker. I'm no lawyer, but I cannot see any justification for these countries insisting on Apple giving details of their DRM. Neither am I a computer geek, but even I know that it is child's play to get around the DRM by copying music from iTunes to a CD (which you should do as back-up anyway) and then re-importing the CD to iTunes. So who are the 'suckers'?