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A Talk with iTunes' Conductor

By Alex Salkever Phil Schiller has had a busy week. Apple's senior vice-president for worldwide product marketing and chief pitchman has just overseen the wildly successful launch of Steve Jobs's new iTunes Music Store, available in the new iTunes 4 software. In the service's first week, Apple (AAPL) sold over 1 million songs at 99 cents a pop, setting a new record for download sales and forever changing the landscape of the digital-music business. I recently spoke with Schiller about the thinking that led Apple to make its bold move. Here are edited excerpts of that conversation:

Q: What will it take to make the iTunes Music Store profitable for Apple?

A: We're not looking at it in terms of a stand-alone business. It's part of all the things we're doing at Apple. And first of all, I hope it can drive more iPod business. That has been very successful for us, and we would like to see that continue to grow.

In addition, it's part of the whole digital-life strategy, and it has been very successful for us. iTunes has become the most popular application used by Mac customers -- more popular than mail or word processing. To date, we have distributed 20 million copies of [iTunes software]. I explain that as a way to point out that digital-lifestyle applications are becoming a reason for purchasing a computer. And music is probably the most important one.

Q: Are you actually hearing that in feedback from people who purchase Apple computers?

A: Yes. When we talk to customers about their top reasons for purchasing a computer and the top applications they want to run on their computer, increasingly these media applications are becoming the top reasons. That's why [the launch of the iTunes Music Store] is a watershed event.

For the first time, we have an end-to-end digital-music system that covers the way you buy the music, they way you manage the music, and the way you listen to the music. That has never been offered before.

Q: Are you seeing a lot of people who are buying their new Apple computers and an iPod in the same purchase? What effect is iPod, iTunes, and music having on "beyond the box" sales?

A: We do see a fair number of those. I can't give you exact numbers. But we do see lots of existing customers buying [iPods], as well as Windows customers.

Q: How flexible will you be on price per song? Some analysts have said 99 cents per song is too high. It seems like a neat opportunity to, say, try lower prices to move back-catalog stuff or create a more fluid pricing strategy.

A: This is the first time anyone has offered a per-song store where every song is offered for 99 cents. In addition, you get all the rights on all the songs. It isn't that some songs let you burn and others don't, and some songs can go into a portable player, and some have to be streamed. That's how everyone else has tried to do this before -- complex rights, different rights for different sets of music. Apple has gotten a broad set of rights across all this music. That's a landmark.

Q: What percentage of Macs out there today can take advantage of the iTunes Music Store? You need OS X to buy music online with iTunes 4.

A: We count somewhere north of 25 million active Mac users in the world. Over half of that user base [own] systems that can run Mac OS X. We think the numbers are quite large.

Q: Is there any digital-rights management (DRM) built into the downloads themselves, or is it all in iTunes 4?

A: No, it's all built into the [iTunes] system. Our goal is to make it transparent for the user so that they never have to think about DRM. We're using a DRM technology under the hood called FairPlay. It's a DRM technology used by iTunes and QuickTime at the system level.

Q: So if I burn a disk off iTunes 4, will there be some kind of identification marker so that if I place it on KaZaA it will be traceable to me?

A: If you're talking about burning a regular music CD, no.

Q: Any plans for video down the road?

A: No, right now we just want to make the world's best music store. But I want to point out that iTunes includes particular music videos in the store. You can view some amazing music videos for free.

Q: How will the iTunes Music Store help solve the piracy problem?

A: Our position, as it was with the iPod, is that the solution to music piracy is not a technological one. No one can make the perfect safe to put things in. And it won't be a legislative solution of someone passing a magic law that stops all piracy.

In the end, the solution will be a behavioral one. Many people will choose the legal and fair route. That's what we hope we've done here -- create something that's in many ways better than the free services. Salkever, Technology editor for BusinessWeek Online, is filling in while regular Byte of the Apple columnist Charles Haddad is on leave

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