A Music Business Change Foreshadows What's Next

Reuben is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Amazon (NASDAQ: AMZN) took the retail world by storm, starting with books and expanding quickly into, well, just about everything else. While it has sold digital versions of books and music for some time, its new AutoRip service is starting to blur the lines between physical and digital media in an important way. Apple (NASDAQ: AAPL), which has a similar service, probably isn't very happy.

AutoRip
Amazon's AutoRip provides customers with a digital version (MP3) of the music they purchase on CD through Amazon. That alleviates the need to rip that music yourself, which is kind of nice. So, you get the music in two forms and you get a backup on Amazon's Cloud Player web-based music service and app.

That's pretty nice, too, but it gets even better. Amazon will provide an AutoRip copy for any music purchased from Amazon from as far back as 1998, when it started to sell digital music. Now that's just cool! There are limitations on the use of the music, but that's to be expected after the horrible time the music industry went through when the iPod first came out. That near implosion has spooked all content owners, and rightly so.

Apple Cloud
The AutoRip service is very similar to Apple's iCloud and iTunes Match combination. The Apple product will store all of your music in iCloud, including any music that is on your computer's hard drive, for $25 a year. That, too, is a decent deal, particularly since you could borrow a CD and still get the music put in the cloud for free.

A key difference, however, is that AutoRip is device agnostic. Amazon doesn't really care about where you play the music. It just wants to control the sale of music. The iPod gave Apple a dominant position in the sale of music, with everyone else, including Amazon, trying to play catch up. With a dominant eReader platform, that can be used on Apple products, and a new push into the music space, Amazon could stake out important territory in controlling digital content.

Apple, for its part, has to rely on continued penetration of Apple devices to gain more clout in the digital content space. That will be more difficult at some point in time, particularly with competitors like Google (GOOG) in the mobile operating system space. Note, too, that Microsoft (MSFT) and Nokia (NOK) have made a renewed push into mobile operating systems that seems to be gaining a lot of fans. Look out Apple, trying to control every aspect of your product may be about to bite you in the back end, again.

Content Everywhere
Most forms of content have been going digital, from books, to movies, to music. This is a big issue for consumers and companies alike. Clearly consumers want to consume what they want, when they want it. Companies, on the other hand, don't want to lose control of their content rights. That Amazon has been able to reach an agreement with music publishers to provide the AutoRip service is a huge step.

Since Amazon has such a large user base and broad product selection, it seems only natural that the company's next steps will be to provide AutoRip-like services for books, magazines, and most importantly movies. The movie industry already sells digital rights along with some DVDs, it seems a small step to allow Amazon to control that process. Doubly so since Amazon Prime is already a sizable movie streaming business.

The Digital Library
Helping consumers create a digital library would be a massive customer benefit. Being device agnostic makes Amazon a great partner in that regard. Disadvantage Apple on this one, for now, anyway. In fact, investors seem to be realizing that Apple isn't all things to all people and its shares have sold off materially over the past six months or so.

That said, after watching the music industry teeter on the edge of destruction, few are going to jump at the chance to give up control of their content. This is why the media industry created Hulu to compete with Netflix (NASDAQ: NFLX) and Amazon's Prime service. In fact, Netflix has found it increasingly difficult and expensive to ensure it has content for its streaming service.

While Netflix did lock up Disney (DIS) content recently, content owners have been notably upping their prices. Only providing video is a long-term weakness for the company, but its industry lead may allow it to prosper anyway. That said, a switch to Amazon's broader suite of services is starting to look increasingly compelling.

Ebooks have also seen a great deal of back and forth between the content owners and the content sellers. The government even got involved, with accusations of price collusion. Magazines, for their part, have only recently begun to embrace digital versions of their products. The problem here is often control of the customer database, which has immense value to a magazine publisher.

Still Not There Yet
The full-on digital library simply isn't a reality yet. Amazon is moving us closer to it and staking out an important position in the battle to control the content consumer's experience. Taking a device agnostic position hits at Apple's weak spot, which is increasingly sore from all the hits its glass jaw has taken.

Yours,

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ReubenGBrewer has no position in any stocks mentioned. The Motley Fool recommends Amazon.com, Apple, and Netflix. The Motley Fool owns shares of Amazon.com, Apple, and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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