Monday, April 04, 2011

Amazon, Apple and Google

John Naughton has a terrific column Amazon's new Cloud Drive Rains on everyone's parade in yesterday's Observer:

"Impetuosity and audacity," wrote Machiavelli, "often achieve what ordinary means fail to achieve." If you doubt that, may I propose a visit to the upper echelons of Apple, Google and Sony, where steam might be observed venting from every orifice of senior executives? If you do undertake such a visit, do not under any circumstances mention the word "Amazon".


Behind the scenes in the US, though, there has been frenetic activity, with Apple, Google and Amazon racing to get into the streaming business. Apple has cloud services, customers who are used to paying for music, a good range of mobile devices but no licensing deal for streaming. Google has terrific cloud services and millions of Android devices but no music store customers and no licensing deal. Amazon has cloud services, a music store, paying customers, a terrific e-commerce operation, and access to Android devices. But it also had no licensing deal with the record labels. John Naughton Observer, 3 April, 2011

This last sentence is not exactly right. Both Amazon and Apple already have digital distribution deals with the record labels; its just that Amazon's existing digital distribution deal is in crucial respects rather better and more permissive than the Apple deal. Ironically, and again crucially, Google does not have an agreed license, though it has been negotiating hard for months and the Amazon chutzpah may well make it harder for Google to get the deal it badly needs. Amazon has been selling digital music since 2007, so it does have a licensing deal with the labels and the Amazon deal is actually rather more favourable to streaming than the digital distribution deal that Apple was granted some years earlier. The crucial point about the music distribution deal that Amazon has, is that it allows Amazon to sell and deliver 'unencrypted' MP3 files to consumers -- and Amazon's new Cloud Drive is just allowing consumers to store their files in the cloud, rather than on a hard disk. Amazon already has a license to distribute (most) music to consumers through the web in a form in which music can easily and simply be stored in an individual consumers 'music locker'. Amazon's license with the record labels, is not ideal, but it is workable for streaming music and gives Amazon good leverage. It is not ideal because, Amazon's rights are currently restricted to the US (or in practice restricted to the US where individual content shifting is explicitly approved by the courts), and because without more leeway from the licensors Amazon may have to maintain individual Cloud Drives for each consumer (it would be more efficient to have individual libraries where common tracks were represented by 'tokens' rather than full copies). Apple, on the other hand, has distribution deals with the music labels which are explicitly tied to Apple's commitment to encrypting music in the way that is proprietary to Apple, and which limits music to devices recognised by the Apple DRM. Apple, we should assume is still significantly hobbled by these agreements. Having to encrypt all 'streaming' music in the DRM specific to iTunes is the major factor delaying Apple from introducing the 'cloud based' iTunes that it knows that it ought to be offering. A music streaming service needs the freedom for music to be delivered to a device as many times as it may need to be played, but Apple being lumbered with 'Fairplay', its download-tracking, DRM for iTunes clearly needs some permission, some wiggle room, from the music companies for this to happen. Amazon came along much later with its request for a music distribution deal, and the music companies were so desperate to have some competition for Apple that they agreed to Amazon's terms which give them more scope for internet-based distribution.

One irony of this situation is that the roles are reversed when it comes to books. For books, the Amazon distribution rights are more clearly dependent on their commitment to DRM and to a proprietary format. Amazon was the innovator in the ebooks space and Apple was playing catch up, so the publishers were less insistent in their negotiations with Apple on the requirements for DRM. The Apple iBooks standards are less proprietary, more open to industry standards than the Kindle. Apple seems to be cast (perhaps unwillingly) in the role of bad cop for music, whereas Amazon is looking like good cop in the music sphere and 'bad cop' for books. Google would love to be playing the role of good cop in both markets, but it is not clear that it has the necessary leverage. It needs to come up with a proposition for the record labels, that is good for consumers and wrong-foots both Apple and Amazon. That may not be easy.

No comments: