Battle for Apple's core music empire

In the digital battle for the ears of music lovers, Apple Computer vanquished its opponents during the initial skirmishes. Its enemies are now regrouping for war on several fronts.

Microsoft has hired Toshiba to build its first portable digital music player, called Zune. Nokia is paying US$60 million ($93 million) for music and video distributor Loudeye. News Corp's MySpace.com plans to let the bands among its 100 million members sell music directly to their fans.

As deep as Microsoft's pockets are, as popular as MySpace is with teenagers, and as good as Nokia is at making mobile phones, I can't see Apple ceding much of its hard-won ground - especially if its engineers can craft an iTunes-friendly mobile phone and add full-length films to a widescreen iPod.

Microsoft may pose the biggest threat, given its record of flexing its hefty financial muscles to crush rivals. It has already succeeded in breaking the stranglehold of one entrenched gadget maker, albeit in a different industry.

Sony's PlayStation used to own the game-console market. Microsoft's strategy was simple yet relentless: Throw money at its Xbox project and make the console cheap enough to seduce gamers away from their Sony addiction. Between now and 2010, Sony's share will shrink to 50 per cent, with Microsoft's Xbox capturing almost a third of the gaming market and Nintendo's Wii taking the remainder, Reed Elsevier NV's In-Stat market research unit forecasts.

The scuttlebutt around internet chatrooms in recent months suggests Microsoft is considering giving away music to kickstart its efforts to displace Apple. Microsoft would replicate your existing iTunes song library in its own format, removing a powerful disincentive to switch allegiances. How it would access people's iTunes collections, though, is not clear.

Microsoft's first effort to produce a digital music player looks like a misstep. Documents filed last month with the US Federal Communications Commission suggest Toshiba is revamping its Gigabeat player rather than inventing a new device for Microsoft.

It may already be too late for a gizmo that just plays music to replicate the iPod's success. This week, Apple sent out invitations to an event next Wednesday where it is likely to make films available on iTunes and introduce a video iPod with a bigger screen. (See inset.)

In July, Apple chief financial officer Peter Oppenheimer said the company was "not sitting around doing nothing" about integrating its music technology with mobile phones.

Apple should be racing to get an iPhone into the shops after its venture to produce such a phone with Motorola flopped.

Nokia sold more units in the second quarter than there are iPods in the world. The company shipped 78.4 million handsets, including more than 15 million with music-playing capabilities.

Nokia's purchase of Loudeye will add a company that had sales last year of about US$20 million, compared with the US$900 million that Apple made last year from music.

"By acquiring Loudeye, Nokia can offer consumers a comprehensive mobile music experience," Nokia said last month. By the time Nokia is able to offer music next year, though, it may be too late.

MySpace.com, the social networking site bought by Rupert Murdoch's News Corp for US$580 million last year, aims to let its three million bands and artists sell songs via their member pages. MySpace.com is allying with a company called Snocap, run by Shawn Fanning, to get the service running in the United States by December.

Fanning's claim to fame - or infamy - is as the co-founder of Napster, which pioneered the file-sharing technology that allowed millions of songs to change hands for nothing before it was halted by lawsuits from the recording industry.

While music companies grouse about Apple's US99c-a-song, one-price-fits-all model, they owe the computer maker a huge debt for averting the threat of illegal downloads killing their business.

Snocap and MySpace.com will let artists set their own prices, levying a fee for each transaction.

There's some fine, energetic, innovative music available on the MySpace sites. There's also a plethora of derivative, talentless, amateurish efforts, making MySpace.com a kind of yard-sale version of the iTunes hypermarket.

While it's great for unsigned bands to find an audience, I doubt there's a huge pool of listeners willing to pay for the privilege.

Apple's dominance of the market for music downloads is bolstered by almost 60 million iPod music players, as well as more than a billion songs and more than 30 million videos bought from its iTunes music store.

It isn't just first-mover advantage that will make it hard to steal a slice of Apple's digital music pie; plenty of digital music players are cheaper than iPods, offering longer battery life, bigger memories or more durable screens.

Apple's easy-to-use software and sexy hardware, though, are a killer combination that will prove hard to dislodge.

Shaw Wu, of American Technology Research in San Francisco, wrote last week. "Replicating the ease of use and experience of iPod plus iTunes is a difficult endeavour, not to mention likely to infringe on Apple's patents. Doing it Apple's way is easier said than done."

- BLOOMBERG