Get ready to see the iTunes Music Store (iTMS) become obsolete in short order if Apple does not respond quickly. Two competing download sites, MP3Search and AllOfMP3, provide extremely cheap prices, no digital rights management (DRM), and the kicker is that it looks legal. Also, AllOfMP3 transcodes and/or provides downloads in almost any format including MP3, AAC, WMA, OGG, and lossless full CD quality encodings. AllOfMP3 even offers videos. The downside, if any, is that the sites are both in Russia. At least AllOfMP3 is reported to have cleared rights from the Russian Multimedia and Internet Society, apparently the RIAA's equivalent in Russia. But worries of sending your credit card to a shady Russian organization are largely allayed in that you may use PayPal as an intermediary.

Is it too good to be true, or is everyone used to paying too much their music? Well, AllOfMP3 has a "legal info" link responding to this question:

Is it legally to download music from site AllOFMP3.com?
All the materials in the MediaServices projects are available for distribution through Internet according to license # LS-3?-03-79 of the Russian Multimedia and Internet Society. Under the license terms, MediaServices pays license fees for all the materials subject to the Law of the Russian Federation "On Copyright and Related Rights". All the materials are available solely for personal use and must not be used for further distribution, resale or broadcasting.

Users are held liable for the use and distribution of the MediaServices site information materials according to local legislation.

Also, the RIAA sued companies re-distributing music from AllOfMP3, but so far has left AllOfMP3 itself alone.

While such sites exist, what does it spell for the iTMS? My prediction: doom or change. The pure allure of easy-to-find, high-quality, well-labeled, legal music for low prices absolutely will move iTMS customers away. Don't believe it? Look at the numbers for Wal-mart in March; 2.7 Million downloaders for Wal-mart and 4.7 Million for the iTMS. Wal-mart has grown its user base to over 50% of the iTMS in relatively short order. And that's only with an $0.11 markdown on DRM-protected, lossy-quality audio. Price matters for market share. If you don't think price matters, try and resist Guns N' Roses greatest hits for $0.80. Or try and resist the notion of downloading audio or video at the following prices:

What's the price for the music downloading on AllOFMP3.com?
The price for any media-files (music and video clips) downloaded in the AllOFMP3.com Internet-store is determined by quantity of the information transferred to the user. In other words, payment is estimated by the traffic.

The price of the 1 Megabyte of the traffic for the media-materials marked as VIP or Online Encoding is 0.01 USD.

The price of the 1 Megabyte of the traffic for the media-materials marked as Online Encoding Exclusive is 0.02 USD.

Note: All media materials marked as Online Encoding Exclusive are available for downloading also in regular Online Encoding format.

The user is not charged for:
songs pre-listening (in underestimated quality)
using the Online Encoding service.

At AllOfMP3, $0.35 buys you a lossless FLAC encoded (i.e., full CD quality) track of "Don't know why" by Norah Jones. Five dollars gets you 500MBs of music in almost any format you might like.

The transfer rates were good, too. iTMS downloads come in at about 250KB/sec while AllOfMP3 tracks come across at about 55KB/sec; not bad considering the files are coming from Russia and its servers were slammed by Slashdot. And yes, you can use it all on your iPod or any other player for that matter. Basically, they are charging a premium on the bandwidth--- an exceptionally good deal. The lure of such easy-to-acquire, high-quality, DRM-free music will cause a tidal wave of customers moving their purchases across the Atlantic.

Those that wish to use downloaded music on varied platforms are particularly susceptible to the lure of these Russian sites. Currently, iTMS music will work only on iPods, and on computers, in iTunes. People that prefer other music jukeboxes, other portable players, or other platforms are unable to easily use iTMS music (without resorting to time consuming burns to CDs and lossy re-ripping). Apple's latest release of iTunes 4.5 continues the cat-and-mouse copy-protection game. It apparently fixed the recently introduced PlayFair and other DRM cracks, but it was quickly out-moused. Another crack appeared less than 24 hours later allowing stream sharing. PlayFair has not yet been updated, but one suspects it's just a matter of time. But for those that are weary of cat-and-mouse games, that are loathe of DRM, or simply want to use music on alternative platforms like Linux, they have little option but to look elsewhere.

Actually, the iTMS' market share has been declining. It was first at 80% in November of 2003, then it went down to 70% by January of 2004. Currently, USA Today reports that the iTMS' market share has moved down to the 50% mark; what forms the basis of their report is anyone's guess. Apple is still claiming a 70% market share. Of interest, CNet reported Wal-mart downloader numbers for March, (i.e., 2.7 Million downloaders to Apple's 4.7 Million), which suggest that Apple has 63.5% market share; and that's assuming there were no other download competitors. Napster 2.0, MusicMatch, Real and others are reported to have significant numbers for March as well.

However, the downloader numbers reported by CNet do not necessarily equate to downloads. In March, Wal-mart might have 2.7 Million downloaders that all only downloaded one track each, while iTMS downloaders may have downloaded ten tracks each. Also complicating things is Real . Real is supplying 1.8 Million streams per day--an impressive number--but it's not clear how to factor that in to market share. Do streams count? Do expiring downloads count? How about user base numbers? Or should permanent downloads be the only basis? Clearly download subscriptions do factor into the market share puzzle, but it's not exactly clear how and if they are being factored into Apple's numbers. Nevertheless, the March numbers show growing interest in other services. Also, it seems that the Russian sites have largely been unaccounted in market share measurements while they have been used widely around the world and in the US. So is Apple's marketshare holding steady from January at 70%? Is it down to 50% like USA Today reports, or is it somewhere in between?

Regardless, Apple did have a 10% slide in market share from November 2003 to January 2004. One wonders how much market share loss it will take to convince Apple to support DRM-WMA formats for iTunes and iPods, or to license FairPlay to other MP3 makers. Its recent and garish import "support" of non-DRM-WMA through quality-clubbing transcoding suggests things are going to stay closed for quite a bit longer.

If there is any silver-lining for Apple, it is this: the Russian sites may give Apple the leverage it needs to re-negotiate with the majors labels. If the labels will not budge, I suppose Apple could just negotiate with the Russian services to produce a joint-venture of sorts and move its operations there if need be. If these Russian services are legit and here to stay, Apple needs to re-negotiate and fast. Because the big fat sucking sound you're hearing is mass downloading. And people are defecting to Russia--now there's an unlikely phrase--for their music purchases. For any venture to survive, US-based or otherwise, it needs global parity on Internet download pricing. My guess is that the AllOfMP3's licensing arrangement, if legitimate, may be some kind of anomaly. Assuming the licensing arrangement is solid with the Russians, this will force the rest of the world's prices and controls to become more liberal. Otherwise the Russians will own downloading.