Online digital music stores and personal digital music players are all the rage in consumer electronics right now. There’s a lot of hype, hypothesis, and even hysteria out there, which is pretty incredible for a market that is still so very much in its infancy. Industry analysts are predicting a looming “shakedown” of the digital music industry, and the field hasn’t even filled out yet. Who will prevail? That remains to be seen. What makes this race interesting is so many of the rules have changed. On the surface, all the online music stores and personal digital players offer pretty much the same thing. What’s “below the surface” may turn out to be more important as the pretenders are separated from the contenders.

A great majority of the music “shared” through Napster, Kazaa (and other such programs) was encoded using the MP3 format. Why? MP3 compression produced good quality, at a small file size. It could be decompressed and burned onto decent-sounding CDs. MP3s could be played on any computer or personal digital music player. However, when it was time for an online music store, MP3 was out. Why? MP3 doesn’t support Digital Rights Management (DRM), which is required when selling, rather than sharing, music online.

Two competing formats have emerged that support DRM. One is the successor to MP3. You’re thinking, “oh, of course - MP4”. Well, you’re partially correct. It is the audio component of the MPEG-4 standard, but it’s actually known as Advanced Audio Codec, or AAC. The other format is Microsoft’s Windows Media Audio, or WMA. Besides supporting DRM, both AAC and WMA are improvements over MP3, especially in sound quality versus file size comparisons.

The “granddaddy” of the online music store business is Apple’s iTunes Music Store (iTMS). Quite a young granddaddy, actually, considering iTMS opened its digital doors just one year ago this month. Although the final numbers are not in, iTMS has sold well over 50 million songs this first year, and is currently selling at a rate of 2.5 million songs per week. Do the math, and that’s on pace to sell 130 million next year. At 99 cents per song (of which Apple gets less than half) that’s a nice chunk of change, but the truth of the matter is Apple’s not making any “real” money selling music. They’re making their money selling iPods to play the music on. And they’re selling iPods (especially the new iPod minis) faster than they can make them. iPods and the iTMS work seamlessly with both Macs and Windows PCs, and in fact iTMS/iPod didn’t go through the roof until the doors were opened to the Windows community. However, as capable as the iPod is, it doesn’t play WMA files – on purpose.

After seeing the success of the iTMS and the iPod, others have jumped on the song-selling and portable player bandwagons. Figuring that 90% of the world uses Windows, these newcomers are going with Microsoft’s WMA format on their stores and players. All except for RealNetworks, who will use AAC, but with a different DRM scheme not currently compatible with the iPod. The sales leader of the WMA-based music stores is Napster 2.0, which has sold about 5 million songs since their “rebirth” last October.

Many analysts feel that Apple is gearing up to repeat their past mistakes of developing innovative technology, then “keeping it to themselves”, rather than licensing and promoting it to create a larger market. Who is waiting in the wings, hoping to capitalize again? And, might Steve Jobs and company have a surprise up their sleeve? More next time.

© 2004 Peter F. Zimowski