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Apple locks out RealNetworks from iPod

/ Source: Forbes

The only surprising thing about the fact that Apple Computer has now locked RealNetworks out of the iPod is that it took so long for it to happen.

Apple Computer, you'll remember, was "stunned" earlier this year by RealNetworks' creation of Harmony, a downloadable music format that allows its users to play songs on an Apple iPod. Apple, being rather protective of its digital rights management scheme called Fairplay, wasn't amused, and promptly threatened to lock Harmony users out of the iPod with a forthcoming software update.

That is precisely what Apple has started to do. The software released with its iPod Photo music player renders songs encoded in the Harmony format unplayable. You probably can expect a renewed cat-and-mouse game, but with luck RealNetworks Chief Executive Robert Glaser has learned his lesson about picking a public relations fight with Apple and its CEO, Steve Jobs. And if it can be done on the iPod Photo, it likely can be done just as easily with a software update to other iPod models.

Still, there's a bigger question at stake here, and eventually Apple is going to have to address it. The music industry wants a unified digital standard, so that buying a digital song is as easy as buying a CD. Buy it once, play it on the platform of your choice — so long as you don't copy it to share with 150 of your closest friends.

Only iPod
RealNetworks announced Harmony only after Glaser had approached Jobs about licensing Apple's Fairplay technology, and it stands to reason that others — from music labels to software vendors — have asked as well, only to have their overtures rejected. As far as legally downloadable songs go, only those bought on the iTunes Music Store will play on the iPod.

Edgar Bronfman Jr., chief executive of privately held Warner Music, a former unit of Time Warner, addressed the subject last week in a speech at the UBS Media Week Conference. "Convincing [Jobs] of anything other that what he believes is a Herculean task for anyone," Bronfman said. "I know it has been for me. He does not want interoperability."

RealNetworks has said it remains committed to the Harmony platform and to interoperability, which is a good idea in theory. But until the industry agrees on a single unified standard, Apple has every right to lock any format it chooses out of the iPod, though I think the time will come when this no longer makes business sense.

The digital music market isn't big enough yet for these squabbles to get serious. CD sales still far outstrip legal music downloads. As of its last publicly disclosed count, Apple had sold some 150 million songs on iTunes, while CD sales still number in the billions. And, interestingly, after bottoming out last year, CD sales have started to recover. CD sales in 2004 (up to Sept. 12) were more than 7 percent higher than in the same period of 2003, according to Nielsen Soundscan.

When the number of downloads starts to reach parity with CD sales — and that's still a long way off — the music industry will be better positioned to demand interoperability. But that can occur only if another online vendor gets enough traction to raise a serious competitive threat against Apple, which won't happen anytime soon either.

But when it does, music labels will have an important ace in their deck: They own the music. And if they don't get their way, they can withhold licensing from vendors who don't play ball. That would unleash another ugly PR fight, making Apple's squabble with RealNetworks look sillier than it already does. I can't help but wonder who will come out on top.