Apple, Business, Companies

iCloud: True Cost of Legalization of Piracy


A few days ago Apple announced their iCloud service on WWDC 2011. iCloud is a holistic cloud service offering to store files, photos, music, backups, etc. and allows to seamlessly sync your workflow with other Apple devices. The service will supercede the current MobileMe service in the coming fall and will be offered for free, at least in a basic configuration. This is all nice and dandy, though some of the functionality is also offered by other players in the market, notably Google’s Music Beta.

Especially regarding the music aspect of iCloud there has been a lot of speculation before the official announcement and we will examine it here in more detail. As we have reported ealier, Apple indeed scored deals with major music labels in order to up their service a notch compared to the competition. Apple reportedly had to fork over something between $100 million and $150 million to sign the necessary contracts. Google reportedly has been in negotiations with recording companies but deemed the conditions unacceptable. Given that Google did not generate billions of dollars revenue to the recording industry, we can only imagine what the music industry said to Google.

For $24.99 per year, they offer access to master quality music tracks after they have been identified by a scan and match mechanism, now dubbed iTunes Match. Contrary to other services where you have to upload your music, which can be a bit lengthy for larger collections, with iCloud your collection is scanned locally and a list of tracks is submitted to Apple. This is not for songs bought via iTunes though, as these can be automatically pushed based on the purchase history. It includes any music file, be it DRM-protected or not. As ZDNet put it, this can be regarded as a complete music pirate amnesty for $24.99 a year. The interesting bit will be what will happen if all the folk that got sued by RIAA decide to countersue RIAA and the recording labels, claiming that record labels legalized piracy and use the same parts of DMCA against the content owners that RIAA used to sue them in the first place. Sounds like a wild tangent, but according to our sources, it isn’t exactly all that far fetched. 

While this view has something to it, I would put it a bit differently. This is actually fierce competition for music subscription services. Paying around $25 a year is clearly a subscription, Apple said that access to songs will be cut once the user stops paying the service. Compared to other services out there, this is actually pretty attractive pricing. The main difference is that in other subscription services you may choose songs at your discretion, while for iCloud you’d first have to pirate them… err at your discretion. Of course it also includes songs from stores offering their media in DRM-free formats or your personal rips of CDs, so it’s not all piracy really.

An interesting side point that might lead to injuction and delay of service introduction in several countries (Germany, Austria, Switzerland) is that German music subscription provider Simfy just filed a complaint at the German federal cartel office. Simfy is still waiting after more than three months to get an iPad app approved by Apple. Apple didn’t specify why the approval has been withheld until WWDC. According to Simfy, Apple has always been considered a valueable partner, but such market-controlling conduct cannot be accepted. As to why Apple does this, Simfy thinks is obvious ? they are competing with Apple with their own offerings. An interesting point is that Microsoft never blocked the installation of other productivity tools on their platform for instance and the company was prosecuted for monopoly.

If anything the whole deal with iCloud brought a lot of money for recording companies, who constantly complain about piracy. I’d consider the $150 million licensing fees as some sort of payback for how Apple effectively controlled music pricing via iTunes. At the same time, iCloud’s $24.99 yearly subscription can be considered quite attractive for users having a large pile of non-legally obtained music. Of course no one is going to stop you upload them to Google’s service for free…