As the iPod Turns: Business Deals Spark Controversy

When you’re on top, your competitors are bound to gang up on you. Such is the philosophy behind Microsoft’s latest deal with Toshiba, JVC, NTT DoCoMo, Creative, iRiver and three other firms that have reportedly banded together in a power play to prevent Apple’s iPod from holding a monopoly over the Japanese portable music player market.

Promoting Windows-based music and video services, the nine companies reported yesterday that they will emphasize how compatible their respective software, devices and services are and how efficiently they all jive with Windows PCs.

The consolidation follows the release of a Japanese version of the Windows Media Player 11 beta. Even though NTT DoCoMo said in May that it would offer phones featuring Windows Media Player, it has teamed up with computer giant Microsoft in a move that would seem counterintuitive: NTT wanted to offer the phones so that the music download market in Japan would not move too far toward computers.

According to statistics published by the Recording Industry Association of Japan this week, computer downloads are becoming increasingly popular, with a 5.3 percent increase over one year. Ten percent of music download sales in Japan are from computers, with Apple holding 6.7 percent of that figure. Yet, the Apple iTunes store in Japan is relatively new: it was launched in August 2005, and still has a long way to go to replace mobile downloads. But it looks like the mobile companies are starting to fear the Apple conglomerate and join forces with competitive computer media providers.

This isn’t the first or the last occurrence that has Apple standing alone due to alienating its potential partners.

Earlier in May, Apple canned its controversial “Made for Apple” iPod licensing accessories program and replaced it with a flat fee program that is easier for Apple to manage but has some of its manufacturers seething.

The initial program was based on Apple claiming a percentage of revenue from all products that connected to an Apple 17pin iPod connector. In a move that upset Bose, a manufacturer of high end iPod accessories, Apple upped the fee to 10 percent after it had reportedly said the fee would be between one and two percent.

An EENews.com post stated that Dominique Water, head of Bose’s Asia Pacific operations, was less than enthusiastic about the fee increase. “All Apple partners were told of the decision by Apple to license fees for the ‘Made for Apple’ program. This is a massive license fee which will not sit comfortably with many partners. Bose is not happy as the proposed fee is excessive by any standards.”

A Bose executive recommended that MP3 vendors running the Microsoft system join up to have a common port across all MP3 devices so that more manufacturers would develop accessories. Apple has the edge because it is the only media player provider that has a common port.

Apple accessories are not doing well worldwide: the iPod product sales have increased 400 percent, but accessories have only increased by 30 percent leaving retailers with a mass of unsold stock. As a result, retailers are coming back to authorized Apple partners. Apple recently assessed its partners with a flat fee of $4.00 USD per unit instead of a percentage.

Apple has decided to maintain its MP3 chip alliance with SigmaTel instead of Samsung Electronics after an executive angered Steve Jobs by leaking information of the potential deal before all the papers were signed. Samsung’s “punishment” is losing the Shuffle business, but it still will supply the MP3 media processor chip for the next-generation Nano.

So the recent developments seem to boil down to one conclusion: you can mess with Apple, but you’d better have some pretty big ammunition to carry it through, or else you’re going to get crushed.