Game-changer to Digital Dustbin: Why iTunes Is Shutting Down

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Wharton's Peter Fader and UT-Arlington's David Arditi discuss why Apple is shutting down iTunes.

If video killed the radio star, as the old song goes, then iTunes killed the record industry. Now, 18 years after Apple launched the music download store, the company announced that iTunes is shutting down.

During its Worldwide Developers Conference this week in San Jose, California, Apple announced iTunes will no longer exist as a digital jukebox but will be reformed into three separate apps for music, television and podcasts. While the change has been a long time coming —  sales of digital music downloads have dropped for six straight years, according to the Recording Industry Association of America  — it marks a significant shift in the company’s business model and in the kind of consumer behavior that Apple helped shape when it first opened the digital store in 2001. Music lovers were no longer bound to the full purchase of an album that was packaged and sold by a record label; they were free to buy single songs for 99 cents, which ushered in a new era of pick-and-choose consumption.

“iTunes is a cancer for the music industry. This was obvious 15 years ago … Good thing it will finally go away,” Wharton marketing professor Peter Fader wrote on Twitter. When Knowledge@Wharton asked him to explain his tweet on the K@W radio show on SiriusXM, Fader didn’t mince words. (Listen to the podcast at the top of this page.)

“I am wrong about a lot of things. I was wrong about the iPhone. I thought that wouldn’t work out well,” he said. “But when I’m right, I’m going to go to town. And I really do believe that iTunes, and in particular, the iTunes Music Store, the a la carte downloading model that Apple started, did more damage, destroyed more value for the music industry and for entertainment in general, and changed customer behavior in a bad way, encouraging unauthorized file sharing and so on. It’s remarkable that it ever happened. And it couldn’t end soon enough.”

K@W invited Fader and David Arditi, sociology professor and director of the Center for Theory at the University of Texas at Arlington, to discuss the demise of iTunes and the takeaways from the Worldwide Developers Conference. The following are key points from the conversation.

iTunes Was a Game-changer

The genius of Apple founder Steve Jobs wasn’t that he invented the personal computer or the music player or the smartphone. It was that he repackaged these products in a way that made them irresistible to customers, who queued hundreds deep outside his stores the night before a launch to gobble them up.

“iTunes … did more damage, destroyed more value for the music industry and for entertainment in general, and changed customer behavior in a bad way.”–Peter Fader

iTunes was no different. Napster, begun in 1999, was the original music file sharing service and a precursor to today’s streaming services, but it quickly ran into legal trouble over copyright infringement because the songs were shared rather than sold. Enter iTunes, which was initially exclusive to the Apple ecosystem before expanding to PCs. In short order, millions of would-be album purchasers were breaking up with their local record stores to download music at home.

“I don’t know if it killed value for the industry, but it certainly killed the way that we practiced listening to music,” Arditi said. “The big thing that I think iTunes did was it killed the CD. iTunes created a market for the song, not the album.”

Fader said Napster was trying to proffer a monthly subscription service at the time, but the music industry pushed back hard. “And then they basically handed the keys to the car to Steve Jobs, and he just drove it over a cliff,” he said. “He didn’t care. He just wanted to sell shiny objects, and I really do think that it changed behavior for the worse.”

While the music industry was busy arguing in the courts, the professors said, it missed an opportunity to pivot. New media had come around since the beginning of recorded music and record labels always found a way to nudge customers into buying them, but not this time.

“When we had digital music happen, everybody could just take their CD, rip it onto their computer, and they had instant access to it,” Arditi said. “iTunes was a way to regenerate what’s called ‘the album replacement cycle,’ so people would once again purchase their music, but purchase it in a new format.”

Now, Apple is pivoting to catch up to the most recent consumer trend: streaming.

It’s a concept Fader wrote about in his recent book, The Customer Centricity Playbook. “The whole idea of customer lifetime value [is] let’s make money not by selling the same piece of content over and over and over again; let’s make money by creating a recurring revenue stream from the customer, which would end up being more lucrative,” he said. “It would give them better diagnostics about which kinds of music are most appealing to the best kinds of customers. It’s just a better way to do things. The success today of Spotify proves that.”

Will Consumers Be Turned Off by Multiple Apps?

Apple will continue to sell downloadable music through its iTunes store (located in its Apple Music app), but the repackaging of apps is a recognition that consumers are streaming content more than buying it. Music will be on one app, TV on another, and podcasts on another.

“The big thing that I think iTunes did was it killed the CD. iTunes created a market for the song, not the album.”–David Arditi

The professors aren’t so sure that’s a winning strategy. They described themselves as typical consumers who want all their content in one place.

“[Apple was] getting a lot of reports that people thought that iTunes was really clunky, so they wanted to find this way to streamline it, which was to break it into different apps, which seems kind of counterintuitive,” Arditi said. “Now, instead of having one app for all these different things, you’re going to have three, four, five apps to access different types of media.”

Added Fader: “I had the same initial reaction, which is, ‘This is not streamlining.'”

Apple took a “bloated” piece of software that wasn’t aging well and “turned it into kind of a bloated business model,” he said. “It’s just not consumer friendly to have to hunt and peck for all these different apps and to not have all your content together in one place.”

A Swing and a Miss

Overall, the professors think the marketing strategy behind the announced shutdown of iTunes is confusing. Arditi pointed out that Apple really got rid of iTunes a few years ago when it created Apple Music. When the company wanted to bolster its presence with streaming, it acquired the popular Beats Music app in 2014, then discontinued it when Apple Music launched the following year.

Perhaps Apple should have rebranded differently, Fader said.

“I think that they had to change the name because it’s so much more than tunes,” he noted. “They could have announced iContent or something with a nice, streamlined interface that would blend these kinds of things — so people who watch this also listen to that — to actually kind of encourage more cross-format consumption. They just swung and missed at that opportunity.”

The professors said Spotify executives must be celebrating at the company’s headquarters in Stockholm. The streaming service consistently ranks among the most popular and last year counted 170 million users, compared to Apple Music’s 50 million, according to Forbes.

“In some sense, this was Apple sort of waving the white flag and saying, ‘We are not leaders in this area anymore,’” Fader said. “It’s an implicit signal, but I think a strong one for people who are reading the tea leaves here. Spotify is clearly zooming ahead on the music front. I think they’re just more beloved by their customers, as opposed to, dare I say, a majority of Apple’s customers who will listen to Apple Music more because of convenience, because they’re locked into it because of their Apple devices, rather than a desire to use that service.”

A ‘Lackluster’ Conference

The news about iTunes was part of a larger conference that yielded few substantive initiatives or buzzy launches. Apple debuted a new operating system for iPads in an effort to make the tablet more indispensable, showed off a $6,000 Mac Pro, highlighted the company’s commitment to privacy with technology that restricts how iPhone apps collect data, and offered a “dark mode” for iPhones to improve screen readability.

“In some sense, this was Apple sort of waving the white flag and saying, ‘We are not leaders in this area anymore.'”–Peter Fader

Taken in context, the iTunes announcement was a bit misleading because the platform will still exist in some format, Arditi said.

“This was really just a marketing strategy to give [the conference] buzz. Apple had an otherwise lackluster release of new products. Their other big announcement was dark mode, which I’m pretty sure my Samsung phone already has.”

Fader characterized the iTunes announcement as Apple’s attempt to get back into the music content game. “Just like pushing from vinyl to cassettes to CDs to downloads, now they’re pushing to streaming,” he said.

He agreed with Arditi’s point about the company’s messaging at the conference, calling it “lame.”

“You know, Steve Jobs is up in Heaven looking down and saying, “Tim Cook, really? That’s the best you could do? You can’t have any real news for us?’” Fader said. “In some sense, it really highlights some of the weaknesses of Apple. It highlights the kind of wrong move they made with the a la carte downloading. It also highlights the lackluster performance of Apple TV, which was supposed to be revolutionary, but it’s really been meh, so-so.”

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