The Value of Content: Part $

Hear it? Cha-ching! The sound of money? Cha-ching! On the Internet? Cha-ching! At the Apple (online) iTunes Music store?

Press reports suggest there have been some three million downloads from the iTunes Web site in the first month following the launch of the iTunes service on April 28. As noted in The New York Times at the end of May:

"This is an impressive figure considering the limited access: less than 1 percent of the country's home computers are Macintoshes that are compatible with the iTunes Music Store, and only a fraction of those [Macs] have a broadband connection to the Internet."

By the time this column appears in July 2003, the small number of Mac users who can access iTunes may have downloaded some five million iTunes files, possibly more. Impressive number, five million.

Paying for content—paying for lots of content—on the Internet. How interesting.

Admittedly, at 99 cents a tune, Apple's $3 million in iTunes sales over 30 days is a small percentage of monthly revenue for a company that has been selling some $500 million in computers, iPods, and software each month for the past six months. Moreover, the three million iTunes downloads represent a fraction of the estimated monthly file-sharing traffic in digital music.

But Apple's "build it right, price it right, and they will come right to us" strategy provides compelling evidence that consumers will pay for digital content, in this case, digital music.

The iTunes experience provides important lessons for other content providers who hope to do good and do well selling content over the Web. Success depends on more than content or luck. Indeed, three factors appear to account for the initial iTunes success: content (lots of it), cost (fair pricing) and convenience (ease of access and use). These three factors—content, cost, and convenience—help explain the success of VHS and DVD sales over the past decade.

Today the sale and rental of VHS and DVD products exceed domestic box office revenues: $11 billion for DVD/VHS compared to $9 billion for box office. But these are hand-in-glove relationships: the success of VHS/DVD sales and rentals are dependent on good box office. In other words, bad content fails to sell, whatever the format.

College students spend millions each year using copy machines in college libraries. In this case, college students pay for the convenience of having access to course readings and other library content in their dorm rooms and apartments. Moreover, there is lots of content, the costs are reasonable (about 7-10 cents a page), and it is very convenient.

Print and media providers are monitoring the iTunes activity. Other online music services have already changed their pricing strategies in the wake of Apple's iTunes announcement.

Print publishers—particularly newspapers that demand $2.00 for an archived article, and book and magazine publishers that incorrectly view content in terms of dollars, not dimes—would do well to watch closely: Build it right, price it right, and they will come right to you.

[Author's note: The April 2003 Digital Tweed column was titled "The Value of Content." The column noted that while content providers in the book, music, and media industries have sought protection from the courts, they also are learning lessons from the market. Apple is a corporate sponsor of The Campus Computing Project.]

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