FT: Steve Jobs’ position in negotiating with music labels ‘undeniably getting stronger all the time’

“The Beatles’ company, Apple Corporation, may have hit him with a lawsuit following his entry into the music market, but elsewhere Steve Jobs, Apple Computer’s chief executive, is persona grata in the music industry,” Alan Cane and Adam Woods report for The Financial Tmes.

“Just as Mr Jobs’ iPod has provided a stylish vessel for storing music files digitally, so his iTunes Music Store has given Americans an easy way to buy downloads legally and handed the big labels proof that large numbers of people will pay for music online,” Cane and Woods report. “But with an estimated 50m downloads sold by iTunes Music Store in its first year, and with a still unspecified European launch planned, music executives have good reason to take another look at the direction Apple is taking the business in.”

[MacDailyNews Note: Apple is estimated to have 70-75 million or more songs song via iTunes Music Store in its first year which is marked on April 28, 2004. More info.]

Cane and Woods report, “Alarm bells rang in November when Mr Jobs told analysts that iTunes was ‘not a money-maker.’ Apple stresses that iTunes is out to make a long-term profit but is a volume business. Yet if Apple cannot make money on 50m sales, what hope is there for smaller web retailers?”

[MacDailyNews: Who cares? If they can’t compete, they can’t compete.]

“At the heart of the debate is the price consumers are charged for legal downloads and the subsequent share-out of revenues among record labels, rights owners and retailers. Apple does not discuss the share-out of iTunes revenue. But the consensus among music executives, who asked not to be named, is that on every 99-cent download bought from iTunes, Apple takes about 10 cents, after it has paid 65 cents in record company royalties and 25 cents in credit card fees and distribution costs,” Cane and Woods report. “Mark Mulligan, senior analyst at Jupiter Research, suggests Mr Jobs’ words should not necessarily be taken at face value. ‘It discredits his competitors’ chances of making money and strengthens his position in negotiating with the labels,’ he says.”

Cane and Woods report, “Mr Jobs’ position is undeniably getting stronger all the time… ‘Everybody in the software industry knows what Bill Gates did, which was to seize a key strategic choke point and milk it,’ says John Beezer, founder of the legitimate, Seattle-based file-swapping service Weedshare. ‘It looks like Jobs is making a strong bid to do that to the music business.'”

Full article here.

23 Comments

  1. It will be interesting to see the form of the competition. Unlike traditional brick and mortar operations that require deep pockets to finance their operations, digital content doesn’t have the same limitations. If you need 50 million downloads to make a profit, that will be the barrier. I doubt that anyone would be prompted to buy a track for $1.25 to make up for the difference in volume. It’s not like you are running a 7-11 where you can charge a premium just for the convenience you are offering.

    I wonder if this means that Apple has priced things right this time and not followed their premium pricing strategy of the past. It looks to me like Jobs has dumped that strategy altogether.

  2. I wonder if this means that Apple has priced things right this time and not followed their premium pricing strategy of the past. It looks to me like Jobs has dumped that strategy altogether.

    uhhh nope.. actually they haven’t really changed anything.. hardware components have come down, but still.. apple writes software to push it’s hardware. Dell sells commodity PC’s nearly at cost, Apple makes a profit on its PC’s.

    Joswiak has said that the low end.. the low low end ($600) does not interest apple and that those kinds of computers do not offer teh customer much computing power (duh)..in other words.. that weak of a machine would not really be much of an experience

  3. The purpose of itunes (and ipod) was to sell more Apple computers.
    Are more Apple computers being bought?
    Are all the Windows users who own ipods now buying new Apples?

    I’m guessing the answer is a big no, because if it was yes, Steve would be crowing very loudly about it.

  4. “Are all the Windows users who own ipods now buying new Apples?”

    think you will find it’s a future thing. i wouldn’t expect many will ditch their pc before end of life and switch over to mac. but when the time comes to get a new machine they might look at their ipod and think “hmmm apple”. hope so anyway.

  5. It is so nice when everybody thinks that you can start this kind of service just like that.
    Forget the few million $’s and marketing costs. Steve said that it is money losing .. what several months ago.. The brake even will be there. Though they have to open iTMS in Japan, Canada, Australia, Europe.. That is not cheap. It will cost loads of money to Apple. We are talking of millions. So the news is that marketing costs and opening a new store costs- what is the big deal?

  6. The labels are screwed, with the advent of online music downloads based in weak law countries like Russia, you can download everything for a penny per MB. All high quality bit-rate in your choice of format.

    It of course violates the US laws, but this hasn’t stopped P2P either.

    The online music sales is being used like Apple is using it, as a loss leader.

    And to the labels, a little is better than nothing.

    (Loss leader is something a store advertises dirt cheap or at cost to get people into the stores to buy other things and reinforce a return habit.)

    M$ doesn’t see the need for a online music store, their crap is installed on winblows boxes before they are even sold. Of course they dont want to loose WMA, so that’s why they are jumping in out of necessity, but they could have been up in a few short months, so perhaps Gates is delaying or letting Steve have his little music empire.

    Most people who buy Macs buy a Powerbook or a PowerMac, overwhelming so.

  7. “Are all the Windows users who own ipods now buying new Apples?

    Well i did. i thought, wow those shiny new iPods look good, lets buy one of those! So waiting for my iPod, i thought, wow that iTunes thingy looks rather nice, let download one of those too! So then after seeing how god-like Apple products are, i dumped my Compaq notebook on some unsuspecting eBayer, and went for the 15″ G4 Powerbook. So i was a windows user, and the iPod (and iTunes) did drive me to buy a Mac.

  8. “it wouldn’t be mixed if the choke point were an udder, would it?!”

    You’re probably correct in that a cows udder could be a “choke point” for milk in that controlling the udder would give you access to the milk.

    However, I think that’s a pretty far stretch. I’ve usually heard “choke point” used in a military context (ie, a place where troops and equipment will naturally tend to bunch up due to the surrounding terrain) or in a maritime context (the opening to a harbor is a choke point when only a few ships can enter at a time).

    But I wasn’t an english major. It just sounded really funny to my ear…

  9. Last summer I decided that my next laptop would be an IBM Thinkpad. Sometime after that, I received an iPod for Christmas (the Best Buys, etc. were sold out of iPods, so I ended getting mine at an Apple Store). This purchase at the very least made me aware of other Apple products. By the time I purchased a new laptop in March, I found myself with a new iBook instead. So, yes, the iPod did have some part in coaxing me towards an Apple computer (my first non-PC actually), but the iPod mostly just encouraged me to explore what Apple had to offer. I then made my decision based on what I thought was the best product for my needs.

    I happenly purchased a new computer shortly after purchasing an iPod, but I could have easily purchased a PC right before. In that case, my Apple purchase probably would have waited a few years instead. Wait a while, I’m sure the majority of switchers are just waiting for their machines to run their course before they go out and look for a new computer. And when they make a comparison between what Apple has to offer verses other PC manufacturers, I’m sure we’ll see some people going with Apple instead.

  10. I think PC users not wanting to move out of their comfort zone and learn something new has a lot to do with it. I hear a lot of newbie mac users getting frustrated during the day because “they cant do it on a Mac but they can do it in a flash on their PC at home” which actually just means that they havent worked it out yet. That alone can be enough to make some people think twice about getting a Mac, and then there is the price vs what they can actually afford….especially in NZ where Macs are significantly more expensive than a reasonably equivalent PC as they have to be puchased through Apple Australia who get them from Apple US.

    Another factor would be that many PC owners still dont realise that most of the basic packages they use come as a Mac version.

  11. Apple’s task is a hard one. It’s not at all like getting someone to buy a new BMW rather than their usual Ford (which makes that analogy misleading and unhelpful). It’s more akin to encouraging someone to uproot and emigrate to a new country. What Apple is really having to do is gain a foothold in ‘Windows territory’ by importing its products into it. Hopefully, those products will show how the sun is shining over in Apple-Land, how the infra-stucture works really well. Then Apple must put up a lot of sign posts and hope people decide to take the ENORMOUS decision throw most of their existing belongings in the trash and move.

  12. You know what confuses me? I am from Canada. Recently our Supreme Court ruled that it is legal and no copywrite laws are broken by users downloading from services like Kazza and Bearshare.

    This must piss Steve off, and you have to question how the iTMS will compete???? Will Steve even make it a priority to launch in Canada with our protectionist soverign laws?

    Any comments?

    -jason

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