Apple under Jobs famously created the iPod/iTunes ecosystem which leapfrogged over existing mp3 players and even free illegal downloading by making it insanely easy to buy songs and (later) video content.

That ecosystem was largely responsible for the iPod’s success, which laid the groundwork for the iPhone and Apple’s subsequent dominance of the consumer electronics market. It was arguably the smartest move Steve Jobs ever made.

However, when Jobs set up the contracts with content providers (big studios, mostly), he decided to use subscription/licensing model (similar to software) rather sell users rights to a single copy of that content (similar to DVDs.)

Under copyright, the content creators own the content. Thus, while you can own a book (the board, paper, ink, etc.), you don’t own the contents of that book. You do, however, own that single representation of the content. That’s why you can sell that book without concern for copyright.

Jobs could presumably have set up iTunes so that a purchase meant a purchase of a single representation of that content. Instead, he set it up so that you’re buying not that single copy by a subscription to download that content.

As a result, when you “buy” a piece of content through iTunes, it’s not like a DVD that you can stick in your library and play whenever. It’s like buying a DVD that the studio (the content owners) can alter or erase whenever they want to.

Previously, the difference has been moot. The iTunes environment made it feel as if you had moved your CD, DVD and BluRay collection online. Because online libraries “feel the same” as your bookshelves at home, most people don’t care.

However, according to Forbes magazine, Apple’s relationship with some of the studios is breaking down and some of the studios are beginning to pull their content out of iTunes. This effectively means the content in question will no longer be available to the users who purchased it.

To make matters worse, Apple will apparently not be obligated to refund your money, due to impenetrable legalese in the user agreement. Apple may choose to refund, but apparently, they’re treating the obligation as like a subscription: the longer you’ve “owned” the content, the less likely they are to give you a refund.

While Apple is no doubt within their legal rights to treat users this way, 99.9% of iTunes users think that they’ve purchased a single copy of the content (downloadable on multiple devices) and therefore, by making the content unavailable, Apple is stealing.

As of now, this problem appears to be limited to a small number of customer and a small amount of content. However, the situation could easily metastasize into a PR debacle. The reason? Media consolidation.

At this point, the big media conglomerates (like Disney) control so much content that they’re more powerful than any of the companies that distribute the content. Witness, for example, Disney yanking its content off Netflix.

Let’s suppose that Disney decides to do the same with iTunes. While consumers realize that Netflix content changes (and costs a very low monthly fee), consumers think of their iTunes purchase as content for which they’ve paid a premium price. 

If, as looks likely, that content starts disappearing, consumers are going to be furious and chances are they’re going to blame Apple rather than Disney. Why?

Because to make consumers whole, Apple will need to refund billions of dollars–which they’re not going to do, as evidenced by the stance they’ve already taken.

Disney, however, could easily and relatively painlessly make those consumers whole by offering, with proof of purchase, free subscriptions to their services and/or continuous access to that content through Disney’s own service. Indeed, such a program could help Disney capture viewers for its service, similar to the “free to try” business model.

Regardless of how the PR plays out, though, Apple ends up losing the consumers’ trust, which will inevitably blunt iTunes revenue. Indeed, since I read the Forbes article, I’ve decided to completely stop purchasing “keeper” content on iTunes. I’ll either rent only or buy the actual BluRay, thank you very much.

A 10% reduction in goodwill (for instance) resulting from this massive failure to manage consumers’ expectations would therefore tarnish Apple’s brand equity to the tune of $17 billion. And that’s not chump change, even to Apple.

There’s a saying in business that “the higher you climb, the further you fall.”  It would ironic, and deeply sad, if in addition to creating Apple’s current greatness, Jobs also planted the seeds of the company’s eventual decline.



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