The iTunes Business

Some iTunes Alternatives

FairPlay is an Apple-proprietary encryption scheme that determines what users can do with a file once they download it. FairPlay lets you:
  • authorize up to five different computers to play FairPlay-protected files
  • burn a protected song to CD as many times as you want
  • burn a particular playlist containing a protected song up to seven times
To authorize a computer, all you do is try to play a protected song on it. When you do, the computer generates a unique ID and sends it to the iTunes server, requesting authorization. If there are fewer than five authorizations on your account, the server adds this unique ID to your account and sends back a decryption key to store on the computer. The key itself is encrypted so you can't just send it to someone else to use. This computer is now authorized to play FairPlay-protected songs. The next time you click on a protected song, the iTunes software uses the computer's authorized ID to decrypt the key and then uses the key to decrypt song.

Most of the controversy surrounding FairPlay is about Apple's refusal to license it, not about the limitations it imposes -- as far as DRM schemes go, FairPlay isn't overly restrictive. But since Apple doesn't license FairPlay to anyone, you can only play a protected file using iTunes software, and you can only take it with you on an iPod or an iTunes phone. By keeping FairPlay in-house, Apple has effectively created a dependence loop between iTunes and iPod that some go so far as to call a monopoly on digital entertainment. In January 2005, one person filed a class-action lawsuit against Apple to this effect, claiming the company is violating federal anti-trust laws (see PCWorld: iTunes User Sues Apple Over FairPlay). As of February 2006, the lawsuit was still on track.

The other problem with FairPlay is that is creates a Linux shut-out. Since protected songs will only play on iTunes, and iTunes is only compatible with Mac OS X and Windows 2000/XP, people who use the Linux operating system can't buy content at the iTunes Music Store (actually, they can buy it -- they just can't play it). This has led to an ongoing war between Linux hackers and Apple. The most famous example of this battle is the back-and-forth between a team of hackers led by "DVD Jon" Johansen (who cracked the DeCSS encryption on protected DVDs in 2002) and Apple programmers. In January 2004, Johansen published a piece of code that disabled Apple's DRM scheme on the user end, allowing people to play FairPlay-protected files on a Linux machine. In March 2005, Johansen released a piece of software that disabled FairPlay on the Apple end, creating a glitch in the download process that stopped the encryption from being applied to a file. Just days later, Apple released a new version of the iTunes software that disabled this glitch. One day later, Johansen released another piece of code that recreated the glitch. And from there it goes on in much the same vein.

But it's not just Linux users who feel they're getting the shaft. There are some Apple loyalists who, while not overly concerned about the iTunes/FairPlay dependence loop, are offended by the fact that Apple is trying to restrict their use of their own legally purchased files. There's a sense that the company has sold out its customers in order to broker deals with the entertainment industry. And it's not entirely off base -- the technology business is not what it used to be.

Digital Rights Management
The digital-media business has gotten a lot more complicated in the last decade. When P2P networks opened a gaping hole in the entertainment industry's ability to control the distribution of its content, a war broke out between copyright holders and consumers. The current manifestation of that war is DRM and DRM hacking. FairPlay is only one example of DRM -- most companies dealing with licensed digital content have adopted DRM schemes that limit what a consumer can do with legally purchased files. See How Digital Rights Management Works to learn more.

The fact is, working with the entertainment industry to license content is not a simple process. When Apple strikes a deal to sell licensed content, everybody wants a cut. As soon as iTunes started offering TV shows, Apple having struck deals with the TV networks that own those shows, the five entertainment-industry unions decided they needed a cut, too. So out of that $1.99-per-show charge, Apple is paying royalties to a whole lot of people. Subtract from that the cost of building and maintaining the iTunes technology infrastructure, paying credit-card fees and advertising the service, and it looks like Apple's iTunes Music Store is more of a marketing vehicle than a big revenue generator for the $8 billion company. In short: The iTunes Music Store helps sell iPods. Estimates have anywhere from 10 million to 14 million iPods in use globally in 2006, each of which sold for $100 to $400 per unit. That's revenue to an $8 billion company.