Say That Again

by Martin Thörnkvist


Filed Under:
complements, content, strategy, tech

Companies:
apple



Stop Thinking That Tech & Content Are Fighting Each Other

from the forward-thinking dept

The following is a guest post from Martin Thornkvist, who both runs a Swedish indie record label, and works for Media Evolution -- an organization designed to help its various members learn about and embrace new media innovation opportunities. This is cross-posted from his blog at Media Evolution, and raises a really good point. Too often people talk about technology and content as if the two are at war with each other, rather than recognizing how it's a complementary relationship.

The first quarter 2011 Apple made a profit of $26.74 billion $6 billion. An impressive 17% of that is from their latest product, the iPad. Having followed Apple's reports for some years it struck me just how unimportant content distribution is for them. In economic terms at least. 

The iTunes store counts for only 5% of Apple's overall profit. In light of that fact, I have a hard time understanding why they are upsetting content providers by increasing the areas where they take a cut of the revenue.

It's obvious that Apple, and other tech companies, are using content to sell hardware. And damn, they are good at making us buy new products each and every year.

Hook and bait

It's obvious that the main objective of dealing with content for Apple, and tech companies in general, is to boost hardware sales. These days you can't hear a mobile executive talk without mentioning the importance of building an ecosystem for content to sell handsets.

The fisherman needs both a hook and bait to catch a fish. The fish is too smart to go for a hook without bait, like customers with tech products. And the bait without a hook is a fiesta for the fish rather than the fisherman, kind of like being a fish in a bay of pirates.

When looking at the media landscape we can see that everybody wants to be the hook. The hooks are owning the customer and the ecosystem in which they interact. That means they can control price, pace of releases and the right to set the rules of the game

The media industries were used to being the hooks. That changed many years ago. Now, it's just about creating those alternative hooks of income streams yourself.

To many the question of being a hook or a bait is emotional. Everybody sees their work as the center of the media landscape and wants the rest to obey to their wills.

Stop making life hard for each other

Even though content distribution represents a small percentage of Apple's overall profit, they are making life hard for content producers by changing the rules of the game. Most recently they announced that for publishing companies to sell their subscriptions inside applications, they will take a 30% cut. It's still uncertain whether that counts for music apps like Spotify as well.

The content side is making it equally hard for tech companies that want to develop new media platforms. Music labels, film studios and book publishers can arguably be said to make it a nightmare to license their products. This is instead of acknowledging developers and engineers to be their best buddies to create new ways of providing content to customers, and eventually help them make money they badly need.

Interdependent relationship

We need to understand that technology is nothing without content and content would be nothing without technology. Technology and content for sure has an interdependent relationship.

For a long time the content producers had the upper hand. Right now the technology providers act like they have it. But in the long run they both need to cooperate to keep prospering.


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  1. identicon
    Mike Stabile, 26 Feb 2011 @ 2:34pm

    Re: Hard Time Understanding...

    Apple's move here not fighting the content producers. What they are doing is trying to force the other content distributors off their platform or take a large cut of the revenue.

    I think it is important to understand the relationships in play here

    content producers: music artists(recording labels), writers(publishers), newspapers, etc

    apple negotiates with these organizations to sell their content in iTunes Store.

    content distributors: Netflix, ebook stores, music streaming services, etc

    These companies negotiate with the content producers to sell their content in their stores

    Apple's new rules are targeted at the content distributors because Apple doesn't control those revenue streams. iTunes is about the only place the average user will download music. But streaming media is outside of their sphere at the moment. iBooks doesn't have enough content to compete with Amazon. So to push into these markets Apple is creating new rules to give them an absurd advantage. They figure they have a large enough userbase and their users are tied to their products because all of their content is purchased through iTunes store and and won't be available outside of iOS that there users won't leave.

    Also Apple has the best UI for purchasing content on iOS because their rules don't let other companies build apps with their own built-in purchasing tool. For example if you use the Barnes and noble app and you want to buy a book the app sends you to the B&N website to buy. It's clunky and not very friendly. B&N could build a smooth interface to let you buy right with in their app but Apple won't let them. To make matters worse the new rules won't even let B&N link to their website anymore. They must build into their own app an iTunes cash register. All of this so the user isn't confused. Because everything on iOS should be purchased through iTunes.

    About iTunes only being 5% of Apple's revenue. I think that is a point they are trying to change.

    What it comes down to is Apple wants the iTunes Store to be the only place you can purchase content on iOS.

    To me this is an anti-trust case. I know this all depends on how you define the market, which in this case should be iOS. A multi-platform software with a very large userbase with only one legal/allowed store with rules and setup locking users into their platform and store front.

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