Brian, thanks for having me on your blog. It is one of my must-reads. I suspect we’re going to disagree on some issues, but I’m sure I join many of your readers in saying that I have great respect for you and your views.

There are several issues you raise in your intro: music apps for the iPhone other than iTunes; streaming vs. download; paid vs. free. What I’ll do is state my opinions on each of these and see how you react.

Bill Rosenblatt:

When Apple released the SDK for the iPhone and iPod Touch, it signed a death warrant for iTunes.

Think about it: iTunes is a very nice app but it is based on an obsolescent notion of an anemic device and the use of side-loading and cables, which are a kludge, though admittedly a kludge that Apple taught users to put up with. If you can do everything you want with music on your portable device, why should you bother with an app that puts 90% of the power on a PC or Mac?

No, iTunes is going to look a lot less attractive in the face of iPhone-friendly music apps… one or more of which may even come from Apple.

I fully agree that the iTunes model needs a major revamp. The notion of needing to go back to your PC to sideload updates to an iPod is silly. Really silly. Imagine if we still had to take our Blackberries back to our PCs to synchronize our email.

When I was working to startup Fluxe / MediaMaster we were looking to solve exactly that problem, but the grayness of copyright law and the fear of music publishers holds that evolution back. I’m hopeful that the recent Cablevision ruling clarifies a number of the associated issues and lights the way forward.

As far as iTunes goes, though, I don’t think it’s the death of the application or the store. Just like most still use Outlook to manage email on our PC, I think most people will want a robust PC client for managing music. And, I think people will go to the iTunes store to buy media for many, many years to come.

Bill Rosenblatt:

People feel the need to own [and download] music because that’s their experience with physical music products. But if people can be educated to get their music digitally, then it’s one more step to educating them to rely on their music being available on some great celestial jukebox. The record labels aren’t in a position to do the educating, so that task will fall to ISPs, carriers, etc.

I’m not saying we’re there yet, but I see this coming 5-10 years down the line. In my own case, the very few music albums I have bought over the last year – and I am a voracious music hound – are those that aren’t available any other way. Like Frank Zappa’s catalog on Rykodisc, now owned by Warner Music Group.

To me, stream vs. download is an issue of how you access content to which you hold rights, rather than an issue of ownership. In Brian’s world of the future, consumers will keep their media collections in the cloud, sometimes streaming on-demand (when they’re connected) and sometimes downloading files (for offline, disconnected scenarios).

As for the ownership model, I think we’re going to see that continue a lot longer than you suggest. I believe that humans are fundamentally collectors, who like having stuff they own and control. (How else can one rationalize the extent of DVD sales at $20 per disc, when there is a rental market readily available?) I'll wager that consumers will continue to buy media, but look for increasingly robust means for accessing their stuff.

Bill Rosenblatt:

People won’t pay for “just the bits” of music for too much longer. Look at the stats that BigChampagne just released on Radiohead’s much-ballyhooed “name your own price” scheme: apparently at least an order of magnitude more users got that Radiohead album from illegal P2P networks than from Radiohead’s own site, even though Radiohead made it possible to name a price of zero.

The music industry is in the process of capitulating on this. Now that everything is going to MP3 for permanent download, and all of the major sites have essentially the same catalog, there is going to be little to differentiate among retailers except price. That plus the powerful downward pull of illegal P2P equals prices on permanent downloads that drift down to the price of “manufacturing” and “distribution,” i.e. zero.

My view is that the major labels see this coming, so they are pinning their hopes on a combination of ad revenue (MySpace) and subsidies from device makers (Comes With Music). People will pay for value added services, but even then more and more of them are going to be free.

I take a different view of where things are headed. As I mentioned above, I think people will continue to pay for bits… where they find value. Unfortunately, the music industry and the studios still haven't resolved the gulf between perceived value and pricing. That’s the reason consumers turned to alternate, often illegal, venues for acquiring their content.

Perceived value is highly tied to DRM and access rights. I think we’re going to see Hollywood hit speed bumps through that education... the same ones that the labels hit.

And, both the labels and Hollywood have yet to fully understand the ramifications of network-centric media. The lawsuits against MP3Tunes and Cablevision underscore that.

The pressure is on the copyright holders to figure out the new model fast, before consumers, technology and the courts take their leverage away entirely. Or, before Apple does.

And, to address your comments about P2P... The labels, government, and ISPs will eventually figure out a way to keep P2P to an “acceptable” level, just like Visa and the banks found an “acceptable” level of fraud. It’s a natural part of the system that can be minimized, but not eradicated. Ubiquity of product across a broad number of legitimate outlets will also help with the P2P problem over time.

Bill Rosenblatt:

As far as new iPhone/iPod Touch versions of services like last.fm and Pandora are concerned, I think they will gradually eat into iTunes sales. The fact is that very few people buy tracks from iTunes continuously over long periods of time; they buy some music, then stop, then get tired of what they have, yet don’t like the idea of having to pay a buck (or equivalent outside the US) for each new song.

Services like last.fm and Pandora (and others) are where these users go. They great examples of the power of social networking applied to music, and they deserve their growing user bases. It’s just highly unlikely that the music industry will ever get people to pay for any of these services; they’ve lost the window of opportunity.

By the way, Brian, I totally agree with your statement “Perceived value is highly tied to DRM and access rights.” The problem is that in giving up on both DRM and more and more paid access models, the music industry is undercutting its own ability to create such perceived value. Hollywood, at least, has some breathing room in the years to come.

Bill, you're probably right about where things end up, but I believe it'll be a much longer haul than you suggest. I'd guess that these services will have a net positive impact on iTunes sales in the next year. The iPhone does a great job of expanding music discovery through such services and making the iTunes store readily available at the "aha" moment.

Human behavior changes slowly and technology seldom evolves as fast as experts predict. To wit, cell phones still haven't obviated the need for land lines. And like cell phones to land lines, services like last.fm and Pandora may ultimately eat into iTunes', but not for some time.