This was the most important announcement of the week and it has the potential to dramatically impact the way digital content is created, distributed and consumed. Media companies have always been wary about Internet/Network-based delivery of content because of piracy. According to MPAA between 400,000 and 600,000 movies are illegally downloaded each day compared to the 1.2B pirate CDs sold and 76M counterfeit DVDs seized last year. The January deal has the potential to take the market into a new direction.
Steve Jobs will undoubtedly bring a great understanding of technology and consumer design to Disney's board. How is he going to influence Disney's overall media content delivery is anyone's guess. Based on Jobs' track record, the following could happen:
Full end-to-end proprietary delivery of Disney and Pixar content through iTunes portal using QuickTime/AAC format and FairPlay's digital rights management on a limited list of compatible portable players (iPod and other
Apple devices only). Last year, Disney announced plans for a mobile virtual network operator (MVNO). No doubt, the media giant will brand a few cell phone services with preferred access to Disney's (ABC,ESPN, Pixar) content, turning the wireless (and broadband) carriers into more bit pipe providers, cornering even more revenues in the process. Apple could embed a GSM or CDMA chip (with EDGE support) into the iPod to address what the ROKR totally missed: instant music gratification (who wants to store only 100 songs on a phone and be wired to download new ones?). Sounds good from a shareholder point of view? Short term: yes, but take a look at the results of this approach with the Macintosh and Apple II's marketshares. Consumer device manufacturers and other media companies will certainly respond to the threat by creating new open standards.
As a different approach, Apple could license (new revenue source) its DRM technology for use on copy-protected CDs and DVDs, and broaden the content to be shared on their devices and others'.
NBC just signed a deal with Apple to sell downloads of some of its TV shows on iTunes. It's $0.99 with cable on demand versus $1.99 on iTunes but you get to keep the program on your player (8 million videos have been sold on iTunes since the launch late last year).
Apple could go further and open source iTunes and DRM to create a community of content providers, device manufacturers, and service providers that would significantly increase the total market for media download by providing interoperability across the whole value chain. The only drawback: Apple/Disney need to continuously stay on the innovation edge and provide the best consumer device and content :-).
Last August, Sun announced the Open Media Common initiative to develop open, royalty-free digital rights management solutions and promote the creation, duplication and distribution of digital content while making sure that creators and owners get compensated. Drive participation in the network to increase revenue. The convergence of media and telecoms over a single IP network represents the most fascinating transformation and largest opportunity for this industry. Proprietary will not work.
