INVESTING: Thank Apple for putting music industry back on feet

As a tool of creative destruction, the Internet did a job on the music industry. For a few years, the largest consumers of music were obtaining the product for free, and stocks in the sector suffered as a result.

Today, the industry is getting back on track, and investors are making money again.

Music executives worldwide should be lavishing Steve Jobs of Apple with bottles of champagne and cigars.

After courts shut Napster down, other illegal download services popped up faster than authorities could count them. But users were reluctant thieves. Surveys showed most would have preferred to pay for the songs, if there was a way to do it over the Internet.

Enter Apple’s iPod products and the iTunes online music store, which have restored the concept of consumers paying for music. Apple just opened an online music store for Japan, and sold 1 million songs in only four days. It took the American market a week to accomplish that.

Apple’s stock has done well the last few years, and the iPod is a big reason for the huge run. As usual, success brings competition. Napster has reformed itself into a legal music download site, and the company went public a few years ago. The stock isn’t doing great yet, but we’ll cover that in a minute.

I like to listen to music if it is easy. I signed up for the Sirius satellite service last year, and I love it. (I own Sirius stock). I don’t like paying $15 for a CD for only two good songs, so the download idea had potential for me.

About three months ago, Yahoo started offering unlimited music downloads for $7 a month. I signed up for a one-week trial, but the service was a disaster.

The software needed to run the program did unspeakably bad things to my computer, and the site was difficult to figure out. I canceled the service. Yahoo is thriving in some other areas right now, but the company hasn’t figured out music.

I did sign up for Napster recently. It’s a little more expensive than Yahoo, but worth the difference. Napster’s site is flawless, and the software is kind to my computer. I pay $15 a month for unlimited downloads. After I have the songs, I can burn them to a CD, or download them to an MP3 player. By virtue of ease of use, Napster likely will become much more popular in the next few years, and the stock should rise accordingly.

One positive effect of Napster’s growth: It likely will spur sales of non-iPod MP3 players. If you own an iPod you only can load songs onto it that came from CDs or from Apple’s iTunes site. Because Apple charges a dollar a song, Napster’s pricing is much more cost-effective for people who download a lot of songs.

Dell and other computer makers are seeing this, and are making quality, competitive players that are compatible with every download site except iTunes. Apple is going to maintain a large lead over these other sites for a while, but Napster and other companies will continue to eat into Apple’s share until Apple opens the iPod to any site. Until that happens, Dell could sell a lot of MP3 players.



Hauke is a local money manager. His column appears weekly.Views expressed here are the writer’s. Hauke can be reached at 566-2162 or at keenan@longboatglobal.com.

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