Cars are Where People Listen to Music

Though it might seem that MP3 players are the dominant way people consumer music, the car stereo is the most popular device to listen to music, followed by the home stereo and the PC, Forrester Research says.

About a third of U.S. adults regularly listens to music on a MP3 player, and eight percent listen on their mobile phone. Many observers have suggested that the iPhone is the next-generation replacement for the iPod. The usage statistics so far do not generally support that contention. Most people seem to use their MP3 players.

The Data Digest: Which Music Devices Do People Use

Teens Abanding CD Format

The amount of music that consumers acquired in the U.S. increased by six percent in 2007, say researchers at the NPD Group. But there are key format changes. Legal downloads now account for 10 percent of the music acquired in the US. market.

At the same time, there was a continued decline in CD sales, which resulted in a net 10 percent decline in music spending from $44 to $40 per capita among Internet users.

NPD estimates that one million consumers dropped out of the CD buyer market in 2007, a flight led by younger consumers. In fact, 48 percent of U.S. teens did not purchase a single CD in 2007, compared to 38 percent in 2006.

The percent of the Internet population in the U.S. who engaged in peer-to-peer file sharing reached a plateau of 19 percent last year; however the number of files each user downloaded increased, and P2P music sharing continued to grow aggressively among teens.

Twenty-nine million consumers acquired digital music legally using pay-to-download sites last year, an increase of five million over the previous year.

But note: sales growth was driven by consumers between the ages of 36 and 50, reflecting an aggressive adoption rate of digital music-players by users in this age bracket in 2007.

Reflecting the growth in that sector of the market, Apple’s iTunes Music Store became the second-largest music retailer in the U.S. after Wal-Mart, based on the amount of music sold during 2007 (based on a 12-track CD equivalency for music track downloads).

Backdoor Sony music MP3s

Sony's music download service uses the Windows Media Audio (WMA) format, not MP3. So it is interesting to find this bit of advice on the download site about how to take the copy-protected Sony music and transfer it to an iPod, an operation that is the equivalent, after a bit of work on the users' part, to supporting an MP3 format free of digital rights management.

"Attention iPod users:

Our download service provides files in the WMA music format or the WMV video format, which is not supported by Apple Macintosh computers. To use your music with an iPod, simply follow the steps below:

1. Save each downloaded song to your PC
2. Burn a music CD (in CDA file format)
3. Import the music from the CD into iTunes
4. Update your iPod"

If this forecast by Strategy Analytics is correct, most of the action in the music download business, exclusive of phone-specific ringtones, will not be generated by mobile service providers.

Some Progress on Music Front, Unless You are Apple

Warner Music has decided to offer its complete catalog, free of digital rights management, through Amazon's new MP3 store. EMI, Universal, and Warner now offer their catalogs in DRM-free digital formats, leaving Sony BMG the lone major music giant still clinging to the DRM approach. Amazon now claims to offer for than 2.9 million songs in MP3 format from over 33,000 unique labels.

Now, with the move to MP3, the labels that have chosen to open their music have a way to encourage multiple download services to flourish, keeping labels safe from being dominated by any single digital distributor, namely iTunes.

iTunes Dominates Downloads

Much as Google dominates search and search revenue, Apple's iTunes dominates legal music downloading. Aside from ringtones, it isn't so clear to me how well mobile service providers will do with their own music-selling efforts. Every little bit helps, I suppose. But music doesn not look anything like a "killer app" for mobile service providers.

Does Music Industry "Get It"?

as someone who arrogantly and wrongly has accused whole industries of "not getting it" at points in the past, I never like to presume I understand executive thinking better than they themselves do.

What sometimes appears as "cluelessness" often has more to do with deliberate timing. and rational calculations about how long to let one revenue model atrophy before heating up a replacement revenue model that will cannibalize the older model.

So let me be charitable. Perhaps U.S. music executives do have a plan for changing their business model and packaging. Perhaps they are executing on that plan even now.

Album sales declined 9.5 percent last year, while digital song sales grew 45 percent, according to Nielsen SoundScan. Physical product sales were down 15 percent, including sales of "singles."

So maybe the issue is simply figuring out better ways to handle digital rights that aren't unfriendly to consumers who have paid for their music, nor damaging to copyright holders. It's a tough problem, to be sure.

And the problems extend far beyond copyright issues. As someone who has made a transition to iPod as my primary music playback system, and as someone whose PC-embedded hard drives need to be replaced once a year or so, the issue of storing and managing the music collection is a serious problem.

The reason, of course, is that each iPod syncs with just one hard drive. Lose that hard drive and one has two options: completely erase the contents of the iPod, or never change the data already on the iPod.

So now I have to take two paths to make sure the music isn't lost: store the copies on an external hard drive that hopefully "never" dies; and then keep the compact disk as well, since the external hard drive will ultimately fail, forcing me to restore or simply forget about the music stored on it.

As a simple music customer, this is a problem. Unless I have physical media backup, the music always is at risk of loss, for mechanical reasons. But keeping those CDs is not ideal, either. And the process of restoring lost music is time-consuming. So music storage "in the cloud" seems promising, at least to me.

RIAA Suit: Not as Bad As First Thought

Engadget has done some digging and reports that the Recording Industry Associaton of America's lawsuit against Jeffery Howell is not for ripping CDs to an MP3 player, but to pedestrian illegal downloading. While we might disagree about the practice, RIAA is within its rights to pursue that sort of action.

So it appears the difference is the public assertion, as part of the suit, that MP3s ripped from legally owned CDs are "unauthorized copies." That remains the more critical issue. Is that sort of thing, done for personal use by the legal owner of a music CD, fair use or not?

MP3 Challenges Business Model

We assume iSuppli is not far off the mark in publishing this forecast of MP3 player shipments. And since the Recording Industry of America seems intent on declaring war on sideloading of music, one assumes the goal is to take control of the revenue model for MP3 downloading, forcing users to pay for downloads rather than sideload.

While acknowledging that there are copyright issues involved, there also are technologial issues. Precisely to avoid its use as a mass copying device, every Apple iPod, for example, allows linking to each iPod to just one PC and its hard drive. Which is fine if one's hard drive or CPU or input devices never fail. If a user's PC does become unusable, any iPods linked to that PC now have a problem. They no longer can sync. Which means the devices are permanently loaded with exactly what is already on them, or must be erased and synced to whatever new PC a user designates.

That means reloading all of the original collection of music.

Alternatively, if one loses the use of the MP3 on which purchased downloaded music has been loaded, there might be no legal way to move the music to an alternate MP3 player when the original MP3 player itself dies.

Both of these sorts of technical issues must be confronted by MP3 music users. In essence, the Recording Industry of America argues one should be able to buy a music CD, but only be able to play it on one device: a home audio system but not on one's vehicle audio system, for example.

There are copyright issues here, to be sure. But there also are major end user technology issues dealing directly with personal use of legally-obtained music. And the ability to copy is essential is a "purchase" is to be anything other than a "rental." In other words, if a user "buys" a song, but then cannot transfer the song to another playback device when the original hard drive dies, is that really "ownership" or simply a "lease of unspecified but limited duration."?

Music Industry Fights Legal Music on iPods, PCs

How long can an industry that sues its own paying customers thrive or survive? In what appears to be an escalation of on-going legal efforts, the Recording Industry Association of America has sued Jeffrey Howell, a Scottsdale, Ariz., man who kept a collection of about 2,000 purchased music recordings on his personal computer, reports Marc Fisher, Washington Post staff writer.

The RIAA argues it is illegal for someone who has legally purchased a compact disc to transfer that music into his or her own computer. By extension, one would assume the RIAA also opposes sideloading music onto an MP3 player.

That is going to be problematic if digital music downloading continues to grow, as iSuppli and virtually every other research outfit argues.

The RIAA argues that the MP3 files Howell made on his computer from legally bought CDs are "unauthorized copies" of copyrighted recordings.

The Howell case was not the first time the industry has argued that making a personal copy from a legally purchased CD is illegal, says Fisher.

But lawyers for consumers point to a series of court rulings over the last few decades that found no violation of copyright law in the use of VCRs and other devices to time-shift TV programs; that is, to make personal copies for the purpose of making portable a legally obtained recording, Fisher notes.

Digital media has proven to be a headache for copyright holders, to be sure. In a previous era where only imperfect analog copies could be made, and recording was cumbersome, the issue was inherently limited in scope. Digital technology of course creates an infinitely-bigger problem, in part because copies are identical and because it is much easier to copy.

The problem is that common sense suggests one should not have fewer rights in a digital domain than in the analog domain being displaced. That is to say, one should not find that legal personal uses of media in the analog domain are illegal in the digital domain.

That's essentially what the RIAA is arguing. There' a "moral hazard" here, as economists might describe it. If any established code of conduct, law, regulation or practice is routinely violated often enough, behavior changes. What formerly was seen as "prohibited" now is seen as "right."

While it is understandable that the RIAA wants to protect a business model, it isgoing about things in an ultimately destructive way by making war on its customers. The RIAA might think it is within its rights to restrict copying of a single user's legally-bought music to that user's own MP3 player. Users do not agree.

So by insisting on defense of its rights, seen as a violation of fair use by users, the RIAA creates a climate of greater "lawlessness," as users simply will lose all respect for the RIAA's position.

Amazon to Sell Some Warner Music Without Encryption

Warner Music is making its entire back catalog, free of copying restrictions, available for purchase through the Amazon MP3 store. New releases won't be part of the deal.

Amazon therefore will be able to sell 2.9 million songs in encryption-free MP3 format. Music copyright holders obviously don't like the MP3 format. As a user, I wouldn't buy any music that isn't in MP3 format. Let them flail around some more. No MP3, no sale. That simple.

Many music industry executives probably still are kicking themselves for not "getting" digital distribution, then not "getting" iTunes.

iPod Touch: Optimized for Video and Web

The newly released iPod touch is for all intents and purposes an iPhone with reduced functionality. The iPod Touch skips Bluetooth, phone capabilities, a camera and has a lower quoted battery life.

It has more storage than the iPhone though, which tops out at 8 Gbytes. The Touch is available in 8 Gbyte and 16 GByte versions, whereas the iPhone is only available in 8GB capacities. Other than that, the iPhone and Touch are identical. 802.11b/g Wi-Fi is available on both devices.

The Touch uses the same interface as the iPhone as well, but the Touch is shorter and thinner. Brilliant people, those marketers at Apple. They are creating a family of products each optimized for a different use case. The iPhone is the most capable phone. The Nano is a cheaper video player. The iPod has the most memory if you a music player.
The iPod also has dedicated volume control buttons; Touch doesn't.

The Web browser on the Touch probably is a major positioning feature. Lots of users will focus on using Wi-Fi to download music. Personally, I see it more as a Web browsing platform. Email access is not something you'd really want to do on a Touch. That's a better experience on an iPhone but arguably not as good as an iPhone as on a BlackBerry.

To prevent people from confusing a Touch with an iPhone, Touch has no audio input jacks or Bluetooth, so you really can't use a microphone. It definitely is not a phone.

So the issue is what people will make of it. It's a better Web browser and video player than a music player. The iPod is a better music player. The video-capable Nano is a cheaper music and video player. The iPhone is the only phone. The Shuffle is a better device for running and exercising because of its non-existent footprint. Unless you need to keep stats on your training progress, in which case the Nano works with some Nike shoes to collect data for you.

The net result is that lots of users will wind up owning multiple Apple products, while Apple covers the whole range of price points for devices that all are mobile music players. Clever, those marketers at Apple.

All of this is interesting for other reasons as well. One wonders how long it will be until data-optimized, communicating mobile devices might develop as a distinct niche: optimized for Web applications primarily, though capable of handling email and voice. Would such a niche necessarily require full-time mobile access? Or is there room for use cases based on Wi-Fi connection as a primary access method? Perhaps dual mode capable, but without the recurring monthly post-paid fees? Perhaps prepaid mobile access as a supplement to Wi-Fi as the primary access? Using WiMAX perhaps?

The new use case would be based partly on the characteristics of the device, partly on the nature of the access, partly on the user payment model and partly on the provider business model.