August 27, 2005
Apple & Record Labels Square Off
NY Times (reg required): It's well known that many record labels aren't happy with the 'one price fits all' approach to digital music sales taken by iTunes, and there is speculation that when the contracts come up for renewal early next year some labels may not renew them unless Apple changes its pricing strategy. Of course, Apple controls 75-80% of the digital download market, so it will be a gamble whether that situation will see people changing where they buy their music or simply not buying from labels that aren't available at the iTunes store.
iTunes Japan launched without songs from two major labels -- Sony BMG Music Entertainment and Warner Music Group -- but that didn't stop it outpacing the monthly sales of its competitors within the first few days of launching the service.
Some record lables (Universal Music Group and EMI Group were mentioned in the article) recognize that they will probably lose a pricing battle with Apple and are instead "counting the months until the major wireless phone carriers enter the business of selling songs to mobile phone customers. <strong>Since there are many more mobile phones in use than there are iPods, the industry thinking goes, the arrival of a broad mobile music market will erode the leverage Mr. Jobs now holds</strong>".
The problem with that thinking is that it's a dead-set certainty that the record labels are going to want a higher proportion of the profits from song sales than Apple. iTunes reportedly makes about 4c from from every 99c song download, while the lowest percentage for mobile content in the west is currently the 14% taken by o2 UK...most are a lot higher, although whether that can be sustained is another matter. The upshot is that the price of mobile music will have to be significantly higher than the iTunes store just for the record companies to get the same amount of money for each song. Of course, that's what the record labels want...but there's a general consensus that it's not what the consumer wants.
The article also mentions another sore point for music execs is "the fact that Apple generates much more money selling iPod players than it does as a digital music retailer, leading to complaints that Mr. Jobs is profiting more from tracks downloaded to fill the 21 million iPods sold so far than are the labels that produced the recordings", <strong>which is a fairly silly complaint to have, kind of like saying that Nokia is profiting more from mobile content than all the mobile content companies</strong>, so therefore the price of mobile content should go up. Besides which, the same argument will apply to the mobile phone industry, so a change of device isn't going to help anything...
And in closing, a great quote from Gartner:
"As I recall, three years ago these guys were wandering around with their hands out looking for someone to save them," said Mike McGuire, an analyst at Gartner G2. "It'd be rather silly to try to destabilize him because iTunes is one of the few bright spots in the industry right now. He's got something that's working."
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The major labels are showing they're true colors as usual. Greedy Green! They wouldn't have even had a digital music success story were it not for Apple leading the way. From the dot com boom till the times the iTunes Music Store launched, the labels were in a losing battle with the P2P networks. The iTunes store legitmized legal downloads and did so at a price most see as fair.
Now because there is actually money in downloads now (due in part to iTunes), the want to revert back to their old tactics and gauge the customer. But the digital consumer is used to paying a certain price for their downloads and if the labels don't realize that, they'll be sending more people back to the P2P networks.
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