Media companies awaken to find Apple way ahead of them

A couple of news stories this morning said to me that any company planning to beat Apple in media distribution had better bring their A game.

First, was the news that Wal-Mart has cancelled its movie download service announced with much fanfare last year. I had predicted the service wouldn't get any traction when it was announced because it tied downloads to DVD sales (a market category that Wal-Mart makes a lot of money at and was reluctant to cannibalize) and appeared to have no regard for how the customer would actually use it. But even more amusing was the reason Wal-Mart gave for canceling the service: HP discontinued the technology that powered it. If that reason is true, it says as much about Wal-Mart's technology decision-making as it does about its media business savvy. I doubt anyone will miss Wal-Mart's service; it was actually discontinued before Christmas, but the story didn't come out until after the holiday.

Secondly, the New York Times, the Boston Globe, and the major news wires are breathlessly noting that Amazon has signed on Warner Music to provide digital rights management-free MP3 music to its download service. The Times article does provide some interesting color starting around the fourth paragraph, quietly noting that Apple actually backs DRM-free music:

Warner, which releases music by artists including Josh Groban and Matchbox Twenty, was considered to be particularly reluctant to drop restrictions on copying. In February, after Apple’s chief executive, Steven P. Jobs, called on the major record companies to abandon D.R.M., Edgar Bronfman, Warner’s chairman, retorted that since movies and games carry copy protection, the notion of withdrawing it from music was “completely without logic or merit.”

The music companies had argued that Apple, which dominates the digital music market with its iPod player and iTunes service, should license its copy protection software to rivals. But Mr. Jobs has refused, saying that such a move would invite several problems, including the possibility that hackers would crack the technology. EMI Group broke ranks with the other major labels and agreed to sell unprotected music through iTunes in April.

Now, some music executives are privately backing the idea of dropping the software from music sold through virtually every service except iTunes, in order to strengthen Apple’s rivals and potentially diminish Mr. Jobs’s advantage. The major labels have been upset with Apple’s inflexibility on music pricing, among other issues.

So this announcement is being spun as a snub of Apple's approach, despite the fact that Steve Jobs asked the music companies to abandon copy protection in February. All I can say is that despite the spin, Warner has come around to embrace Apple's approach. And in fact, the article admits as much in the third to last paragraph:

Warner’s move comes roughly four months after the industry’s biggest company, Universal Music Group, part of Vivendi, said it would sell music without restrictions through an array of services, including digital stores run by Wal-Mart, Real Networks and Amazon, but not iTunes.

Warner may not adopt the same approach. A person briefed on Warner’s plans said the company was seeking to negotiate a deal to sell unprotected files through iTunes.

The bottom line: Bad music results just woke Warner Music to the fact that consumers don't want DRM. But there's another wake up call coming, just as it came to Wal-Mart: competing with Apple will still only reach a small part of the digital download market. It sounds like Warner understands that fact and is working to fix it; it's only a matter of time before Universal gets with the program too.

And what about movies? That market is still developing. But with yesterday's news that Apple has signed Fox for movie rentals, I think Apple is using an old advertising slogan as its strategy to succeed in that market too: rinse and repeat.

Technorati Tags: Apple, Downloads, iTunes, Media, Movies, Music, Universal Music, Wal-Mart, Warner Music