TENSION IN THE DIGITAL WORLD

There’s an uneasy tension between technology and entertainment companies over the control of digital media. How that is resolved will help shape the direction that the digital music business takes. As we reported yesterday, Microsoft and Time Warner purchased a majority stake in digital rights management company ContentGuard, giving the two companies a way to influence some of the technology behind digital media and entertainment. ContentGuard has important technology patents in DRM area, but given your deep and abiding love for all things DRM you already knew that.

At the same time, there are reports that say Apple’s early lead in the digital download market is putting it in a position to control the direction the business takes. A report in the Financial Times looks at Apple’s business plan of using downloads to fuel iPod sales and the $.99 price point, and contrasts them with Apple CEO Steve Jobs’ assertion that Apple doesn’t make money on iTunes. That, despite that Apple has sold 50 million songs. Merrill Lynch has estimated that global iPod sales will earn Apple $900m in 2004. That’s a lotta earbuds.

Breaking down where the $.99 from each track, Apple gets $.10, record companies get $.65 and credit card companies get $.25. Jupiter Research says that Jobs saying that Apple makes no money on the songs “discredits his competitors' chances of making money and strengthens his position in negotiating with labels,” pointing to the credit card company’s fee as a prime place to negotiate savings. Because as anyone who has ever missed a payment knows, it’s easy to negotiated with credit card companies.

Price is the key point where a new, smaller online store could compete with Apple. But Russel Coultart of recordstore.co.uk told the FT that "…on individual downloads, no one is making money. Jobs arbitrarily set the price and now downloads are $.99. Who defined music as being worth $.99? If we set the price at $10 a track we wouldn’t have to sell so many to make money.”

At last week's Digital Hollywood conference, speakers postulated that Apple could be on its way towards a position of power similar to the one MTV has within the music biz, speculating that dominating the digital music distribution market may eventually allow Apple to "call the shots.”

British telecom company BT Group joined the fray today, launching a new digital-rights management software business today to protect music, movies and photographs from digital piracy. It said it will target the consumer and small business sector with a 100 pound ($184.70) product, and hit up larger media companies with a product that costs several times that amount.

It’s going to be a wild ride.