TMO Reports - Steve Jobs: No Subscriptions For iTMS, No Video For iPod

by , 6:30 PM EDT, April 28th, 2004

In a press conference held today for the first anniversary of the iTunes Music Store (iTMS), Steve Jobs made several things very clear. He said there will be no video on iPods, no subscription service at iTMS, and he took the opportunity to stress that the results of the last year showed that Apple's lock-in between the iPod and the iTMS was a winning strategy.

Video players

Mr. Jobs addressed the issue of video on iPods when asked by Mike Wendland of the Detroit Free Press whether or not Apple was looking to add features to the iPod. "We want it to make toast," replied Mr. Jobs. "We're toying with refrigeration, too."

While intended to get a laugh, which it did, Mr. Jobs also offered a more substantive answer as to why Apple had heretofore not added too many features to the iPod. "One of the things we say around Apple, and I paraphrase Bill Clinton from the 1992 presidential race, is 'It's about the music, stupid.'"

Mr. Jobs says that there is a big difference between the way people listen to music and other activities like watching videos. Specifically, he said, you can listen to music in the background, while movies require that you actually watch them. "You can't watch a video and drive a car," he said. "We're focused on music."

Subscriptions

Mr. Jobs was also asked by Josh Bernoff, an analyst with Forrester Research, whether or not Apple would be considering a subscription service for the iTMS. Subscription services allow users to stream music from a download services entire catalog for a fixed fee. Both Napster and Real are offering subscription options with their online music stores, and many have wondered if Apple would do the same.

"The subscription services are not succeeding," said Mr. Jobs. "People want to own their music, not rent it." He again compared the music download business to the video market, where he said people watch their favorite movies 5-10 at most, while people listen to their favorite songs again and again. "Purchasing music is an ingrained thing," he said, citing traditional music sales of vinyl, cassettes, and CDs.

Lastly, he noted that when you subscribe to music, you can't take it with you on a portable music player.

In contrast to Mr. Jobs statement that the download services were not succeeding, Forbes reported this morning that Real Networks is claiming 450,000 subscribers "who were buying 1.8 million songs per day on its Rhapsody music download and subscription service."

We confirmed with Real that this report was inaccurate, and that the service is actually streaming 1.8 million songs, not selling. The Real Networks spokesperson also noted with us that the Rhapsody service was reporting US$12.3 million in sales from both subscriptions and downloads for the 1st quarter. While well behind Apple's own figures, that suggests that Real's subscription service has had its own measure of success.

The lock-in strategy

In his opening comments for this press conference, Mr. Jobs took the opportunity to defend his decision to lock iTMS downloads into being playable only on iPod portable music players.

"We're excited about the results from the first year," he said. "We're really excited that with iPod and iTunes, we can show what we can do when we aren't limited by our 5% ceiling in the PC market."

Apple has come under fire of late for not being more aggressive in licensing FairPlay, to other music services or music players. This was especially true when Apple rejected Real Networks' offer of an alliance with Apple based around FairPlay, the technology that controls where an iTMS download can be played. Mr. Jobs then went on to belittle Real's position as an online music retailer during last week's Apple shareholder meeting.

Mr. Jobs' statement this morning suggests that he considers the success that Apple has seen with the iTMS and the iPod show the wisdom of his company's approach.

Archives

A somewhat intriguing glimpse of the future was offered when Steve Jobs said that one of the biggest challenges in working with the labels was getting their out of print archives online. Mr. Jobs said that most of the labels had less than 1/3 of their entire catalog in print, largely because of the physical and financial limits the real world imposes on physical inventory. He added that "it's getting even worse with the demise of small record stores."

According to Mr. Jobs, Apple would like to get that back catalog on the iTMS. That would offer untold options for music lovers of all varieties to get what we currently consider to be "hard to find" songs.

Pricing, record labels, and rumors

Steve Jobs says that USA Today was inaccurate in reporting that many of Apple's full albums are currently priced at more than $9.99. According to him, prices higher than $9.99 are the exception, and not the rule. Furthermore, Mr. Jobs said he expects full album prices to decrease in the future.

These comments came in response to questions about whether or not Apple had been asked by the labels to increase prices to the rumored $1.49 - $2.49 price that has been reported by various publications recently. Mr. Jobs declined to go into details regarding negotiations with the labels, but he emphasized that Apple was continuing to sell songs for 99 cents each.

In a related question, Mr. Jobs said that the labels had not asked Apple to open up iTMS downloads to other portable music players outside of the iPod.

Zero to 70 million in 6 seconds

Lastly, Arik Hesseldahl of Forbes asked Mr. Jobs about missing his goal of selling 100 million songs in the first year of operation. While Mr. Jobs admitted his company had missed its goal, he also said that "Zero to 70 million in one year is impressive. One year later, and here we are with 70 million songs at a rate of 140 million a year. We're pretty excited about this, and zero to70 million in 6 seconds is pretty cool."

Apple