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Your 99c belong to the RIAA – Steve Jobs

Apple makes nothing from iTunes store

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Wasn't the Internet, this weightless kingdom of bits and bytes, supposed to make distribution costs just vanish? Apparently not.

At an Apple financial analyst conference on Wednesday CEO Steve Jobs admitted that Apple makes no revenue from the online download service, the iTunes Music Store, that he launched in April. As iTMS is the leading download service, with 80 per cent market share (or so Jobs claimed), where's your 99 cents per song going?

Well, although it costs nothing for the record industry pigopolists, this small ragged army, to make a digital version of one of its hoardings available to hear, somebody must pay. It costs Apple real dollars to provide the hosting service that delivers that digital file to you, and to write the sophisticated software that delivers it. Meanwhile, almost all the cash is flowing back to the copyright holders. Who, when you last looked, were a dinosaur oligopoly of five record labels, desperately seeking a way to preserve their copyright cartel into a new century. They were down, and they were out: but Steve Jobs rode to their rescue.

"Most of the money goes to the music companies," admitted Jobs.

"We would like to break even/make a little bit of money but it's not a money maker," he said, candidly.

So now we have it on record: the music store is a loss leader. Jobs said Apple would pay its dues to the RIAA, then seek to make money where it could, from its line of hardware accessories. When the conversation turned to rivals such as eTunes and Napster, Jobs said: "They don't make iPods, so they don't have a related business where they do [make money]".

Running counter to several thousand years of basic human observation, Apple decided it could afford to control those points where we share music. It developed an opportunistic business with such compromises built in: a plan is to infect as many computers it could with restrictive DRM technology to allow us to rights we once took for granted. But why, you ask, is Apple helping an extinct, and unworthy industry back on its feet? Precisely why does this strike you as greedy, desperate and gasping? Let us explain.

DRM is non-negotiable

Digital media presents with a particularly nasty social problem: we love to share and enjoy our common culture, but we want the artists to be rewarded, too. But when the distribution medium is as careless and fluid as the Internet, dues are easily overlooked. We're simply too lazy to reward the artists. However, inspired by NGO-backed initiatives as the move to low-costs drugs, a global consensus is coalescing around the idea of something called "compulsory licensing".

This can take many forms, but if you want it simple, it means a cent on your income tax, or your blank CD purchases. Are you still standing? Good, for this creates a vast pool of wealth from which the artists can be rewarded. It's not alien to most people: we pay taxes everyday for roads we don't use, or healthcare for neighbours brats we'd rather see strangled. But that's how society works: with a bit of give and take. And if it means the artists gets a guaranteed income, that, we can generally agree, is a good thing. Fortunately the technology helps us here: because unlike most taxes, we'll be able to target the most popular. And all this can be done while preserving your anonymity, too.

Imagine such a model: you could click, download and play your favorite as much as you wanted, safely knowing that artists wouldn't be being ripped off, and that your clicks were earning them more money. Doesn't that make you feel warm and fuzzy?

Stripped to the core, compulsory licensing resolve two real social nasties without each side losing face. A flat tax is simply the easiest way of getting rid of the problem: we all get to swap music, and all the artists get paid. Now, problem: go away. And it's gone.

It doesn't make Steve Jobs feel warm and fuzzy, however, because he thinks he sees a real nasty, short-term business opportunity. Always a nervous kind of character, one to jump too early, Jobs sees a window of opportunity, by tying Apple to be the RIAA's slave.

When that 99 cents leaves your wallet, the RIAA monopoly swallows most of it, and the credit card companies swallow the rest. As the supplicant in this relationship, Apple is left holding the can.

While much of the received wisdom in both the music industries and technology industries see compulsory licenses in one form or another as inevitable, both Apple and RIAA are agreed on the short-term solution. One where the ancient copyright rules spin the money back to the pigopolists, and some sucker, like Apple, is left holding a brand of dubious (and soon to be extinct) value.

Alas it's Jobs who wants to be first - the first tech CEO - to offer himself up for a beheading. Having got so much right about personal computer ergonomics, it's initially surprising to find Jobs accepting a deal on such bad terms. At Wednesday's conference call, Jobs sounded positively happy that he was losing money on iTunes, so he could make the RIAA that little bit richer. But vanity plays havoc with even the finest minds.

At the end of the day it's for Apple's board to peg Jobs' peculiar exercises with such diametric labels as "excusable vanity" or "hopeless cause". But however you sliced it, and with the weight of history bearing pretty heavy, Steve Jobs' decision to give the RIAA a perpetual monopoly doesn't look so smart. As Jobs admitted, Apple is in a supplicant position in which it makes no money.

We like having Steve around, as the Jobs judgement is typically both coherent and devoid of technoutopian fantasies, but this could be fatal. ®

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