Apple's First Rotten Mistake

Radio, take a day off.

You can't possibly outdo Apple's first well-publicized mistake today so rest easy.

Apple actually did a good thing yesterday -- a deal with EMI (number three of the big four labels) to provide DRM-free music from the sizable EMI catalog. Good because it cooperates with the inevitable -- the marketplace (next generation) is demanding free use of the music they buy just as if they bought a CD at Tower Records -- if there were a Tower Records. And there isn't a Tower Records because they ignored the next generation.

But Apple did a bad thing yesterday, too.

It decided to charge a premium for DRM-free music -- 30 cents more than the gold standard that Apple CEO Steve Jobs himself set for the industry. Jobs added a little distraction to the rate hike announcement when Apple included improved fidelity for your 30 cent premium.

What is Jobs thinking?

Wasn't he the one who set the 99 cent standard in the first place? Fought four years against record labels to preserve it. Now this.

Never mind!

The new standard is $1.29. See, $1.29 doesn't have the magic of 99 cents, but it's worse than that. He's not going to get $1.29.

Steve Jobs sold out.

But Jobs is too smart to personally relinquish his halo, isn't he? .

How do you charge more for something that consumers are willing to pay less and less for?

One good thing that came out of it is that Jobs is sticking it to the other majors who are still resisting the DRM-free move. Now with EMI on board it is only a matter of time before all the labels get with the program. The fact that EMI had the foresight to drop DRM is fascinating because EMI had not been known as a particularly far thinking company in the digital world.

Still, why a bonehead move by Apple like charging more for what should be -- less!

And, you don't charge for improved fidelity. The music loving world expects that from their guru and all around spiritual leader Steve Jobs.

Jobs should have reduced the price of a digital download to, say, 75 cents. He knows this, but the record labels don't -- or don't want to believe it.

Now, that would be a big step in the right direction. It's like going to Starbucks and ordering a latte and being charged 30 cents more to make it hotter.

If I'm reading the next generation right, Jobs' move will not accomplish much as far as getting more consumers to buy music -- not unless or until Apple lowers the price. Apple could have gotten away with retaining the 99 cent price yesterday, but I'm not sure it can tomorrow. Tomorrow, it may take a number less than 99 cents to keep the legal downloading train on track.

And that brings to mind the many suspicions I've been having since the announcement was made -- my Hoboken, New Jersey background is kicking in here.

What if?

What if Jobs is really not interested in whether his move sells more downloads. We all know Apple makes its money from selling equipment not iTunes downloads?

What if Jobs doesn't fear competitors who will now be able to have access to his proprietary FairPlay rights protection system for their devices. After all, he's got enough ego to know nobody can build a better music device than Apple -- at least not a better looking or more intuitive one?

What if DRM-free iTunes helps make his problems with some European nations that want in on his FairPlay go away?

Oooh, this gets better!

What if Jobs is sticking it to the big four labels because I doubt they will sell more music with DRM turned off if the price of downloads is turned up?

Again, I never claimed to be Einstein, but Steve Jobs is the Einstein of our day in music media.

And I'm going to say it -- I think he's up to something.

Something that will benefit Apple -- and by extension his persona.

Something that will not benefit major labels -- there is no love lost there.

Repeat after me: charging more for what the marketplace has been paying 99 cents for is not a barn burner. It's business as usual and the record business is mighty slow these days. With digital downloads accounting for only 15 percent of all recorded music sales in the U.S., for Apple it's still going to be all about how many iPods it can sell.

The labels will think I'm nuts, but they should insist on at least returning to the magic 99 cent per download price. The labels have the most to lose and they'll find out the hard way that this is no time for a price increase. What is it with these people? They raise prices when demand cools off. Who does that?

The labels just got suckered by a smarter strategist who knows that eventually all music will be available without DRM and it will be available for free or at least much cheaper than 99 cents a download and without the need for a record label. The Internet will make this inevitable and did I mention that the iTunes store could potentially be the conduit for this free marketplace on the horizon?

Jobs knows.