Apps & Mobile

Why The iPhone Is Not Big News For The Music Industry

Anticipation of the iPhone launch has grown to a feverish pitch including glowing reviews from influentialIphone
Wall Street Journal tech writer William Mossberg and the NY Times.

But three major hurdles will keep the iPhone from having a major effect on music sales.  First is price At $500-$600, the iPhone is out of reach for most consumers particularly younger music fans.  Second is availability.  With only AT&T carrying the phones for the foreseeable future many will avoid the hassle of switching carriers.

Applelogo_2 Third and most important is that Apple’s iPhone does not support over the air downloads.  Modern
consumers want what they want when and where they want it; and that is particularly true of those who carry music enabled cell phones.  At 99 cents music can be an impulse buy; but not if you have to get home and hook up to your PC to get it.

The iPhone is elegant and even revolutionary technology, but it’s not yet disruptive technology. There’s a big difference.

Take your own video tour of the iPhone here.

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  1. Judging by today’s selloff, I think potential customers are starting to realize how expensive the iPhone will be. If you sign the mid-range $99.99/mo service plan after purchasing the 8GB iPhone model, that alone will set you back $3000 during the two-year contract (without any accessories)!
    Here’s a few other potential hurdles that could prevent the iPhone from exceeding its already lofty expectations:
    * You must be an AT&T customer to use the iPhone. With a market share of 20%, that means 80% of wireless customers must cancel their current contracts to sign with AT&T. Being a Sprint customer, I would have to pay a $175 cancellation on top of the $3000 price tag for the iPhone. AT&T’s exclusive contract runs through 2009.
    * Only 4 & 8GB of hard drive space? My tiny video iPod holds 30 GB for less than $200.
    * Recent surveys have shown that the majority of IT departments will not even consider the iPhone due to its PC incompatibilities & exclusive AT&T contract. That will dampen business spending & all but eliminate demand for the higher-tier contracts.
    This is the ultimate “sell the news” scenario. On Jan 9th 2007, Steve Jobs announced the iPhone at the Macworld Conference & Expo. The stock has since been on fire rising 50% to $125, adding $30 billion to the company’s market capitalization. Will the iPhone really hold that much value for Apple? This huge runup comes after a fantastic finish to 2006 after Apple’s stock bottomed out at $50 in October. Thus, nearly everyone holding Apple is sitting on huge gains.
    Expect an Apple selloff on Friday when the iPhone is finally released. 3 similar mini-selloffs have occurred during this recent runup:
    * June 26th: Apple announces 6 AT&T service plans for the iPhone. The stock drops 3% on investor concerns over the high prices.
    * June 11th: Steve Jobs shows off the iPhone at Apple’s World Wide Developer’s Conference. The stock falls 5% after investors saw no “surprises”.
    * March 20th: Apple beats 4th quarter analyst earnings & revenue estimates. The stock falls on profit taking.
    Apple’s recent success has created impossible expectations. With all the mega-hype already priced into the stock, just meeting expectations will create a selloff. I plan to sell tomorrow and buy back in a couple months. Longer-term investors need not worry because the future looks bright with Macs gaining market share & the iPods continuing their dominant foothold on the music industry.

  2. While I agree that theh short term impact on the record industry will be slight, I think in the long term all three of your primary points will be addressed….the price will surely drop (and capacity grow), the AT&T exclusive will expire and Apple will almost certainly include wireless downloads in a future model.
    The more immediate impact will be on the ringtone industry. As MP3 players become integrated with phones on a more functional level, ringtones are just going to come from a persons own music collection.

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