Record labels look to raise iTunes wholesale prices, music industry fears Apple’s market domination

“Only recently Steve Jobs was seen as a saviour by the world’s largest music labels. Beset by internet piracy and slumping sales, the music industry was in need of salvation when Mr Jobs, Apple Computer’s chief executive, arrived with his iTunes online music store,” Scott Morrison reports for The Financial Times.

“The user-friendly service was an instant success, introducing millions of paying customers to the world of 99-cent digital downloads. Two years later, customers have bought more than 300m songs from Apple’s online store, giving Apple a 65-70 per cent share of the digital music market. Toss in 10m iPod music players and Apple has emerged as a giant in the marketplace,” Morrison reports. “But the world’s big music labels have mixed feelings about its success. They believe the computer-maker has become both so profitable and so powerful in this market that they should push to raise wholesale prices to capture a larger share of the spoils. Apple is understood to be angry at the move.”

“The record companies say introductory wholesale prices for digital downloads – thought to be 65-70 cents per track – were set low to stimulate demand for online music sales. Now, the success of Apple’s music store has prompted concern that digital download prices may be too low,” Morrison reports. “It is not yet clear by how much the labels hope to raise prices, but rates paid for mobile phone ringtones are roughly 10-15 per cent higher than digital downloads. Some executives would like to introduce variable pricing for online music sales so they can charge higher wholesale prices for top hits and other special tracks.”

“Increasing their cut may be only part of the reason why some labels would push for higher wholesale prices. There is also mounting worry in the industry over Apple’s growing clout in the digital music market,” Morrison reports. “Neither Apple’s music store nor its iPod player are compatible with other products and services and labels are concerned Apple will become too powerful if consumers continue to buy into its digital platform. ‘There is a real fear that Steve Jobs is the only one out there with any real traction,’ says one music industry official. ‘It’s got to a point where interoperability is vital.'”

Full article here.

MacDailyNews Take: Imagine a few years down the road with Apple still owning a dominating share of the download market and most people using iTunes on their computers and iPods in their pockets and vehicles. Who would need the labels then? Why wouldn’t artists go directly to Apple? Eliminate the needless middlemen, right?

As we said in our previous take on this subject: Raising wholesale prices for music downloads might anger Apple CEO Steve Jobs, but Apple is uniquely positioned to benefit should such an unfortunate increase happen. Such a price increase by the music labels (5-15% wholesale price increase) would serve to clean out the also-rans from the online music business and Apple could continue to keep iTunes Music Store prices at 99-cents while still profiting handsomely from iPod sales. The other online music services have no such hardware component upon which to rely. And the hardware makers that sell players that don’t work with Apple’s iTunes will end up with also-rans players that only work with financially-strapped music services that are struggling even more than they are today.

Related MacDailyNews articles:
Report: Apple CEO Steve Jobs ‘angered’ as music labels try to raise prices for downloads – February 28, 2005

43 Comments

  1. MDN wrote: “Who would need the labels then? Why wouldn’t artists go directly to Apple?”

    The record labels aren’t needless, but they aren’t necessary either. The record labels do provide a valuable function in marketing and promoting music and ensuring that artists get radio airplay.

    Then again traditional radio will probably be better off without the record labels dictating playlists to them.

    MDN Magic Word: “cent” as in what I’d like to pay for one downloaded track.

  2. for apple’s sake, i hope digital whole share prices go up… no no. hear me out. this theory has been introduced last time they thought about raising prices but what the heck, i’ll say it anyways…

    if the labels raise the wholesale prices, i think apple would keep the .99c/track model. taking the hit internally. They are the only ‘complete solution’ and are the only company who has hardware to fall back on. if apple takes the hit and either just breaks even with music or even loses money, they will for sure make up for it in player sales. then when the rest of the market has gone to $#!t they can raise their prices to a more profitable level.

    brilliance. sheer brilliance… i just hope apple sees it my way.

  3. “There is also mounting worry in the industry over Apple’s growing clout in the digital music market,” Morrison reports. “Neither Apple’s music store nor its iPod player are compatible with other products and services and labels are concerned Apple will become too powerful if consumers continue to buy into its digital platform. ‘There is a real fear that Steve Jobs is the only one out there with any real traction,’ says one music industry official.”

    Hmmmm. Works for me.

    Tera Patricks
    Mac360

  4. Right now I wont download from any service because of the 128 bitrate. Sorry but 128 just isnt good enough for me. I have checked out all the services (web sites) and agree that the iPod iTMS combo is tops (I love my iPod), I just aint willing to pay for something at 128

  5. The first time I read about the fsking cartel wanting to raise prices, I picked up a couple of free tracks in protest. Off I go again.

    My MDN MW is family, as in my family will share music before paying more for digital downloads than CD’s.

  6. Ok, so the labels raise the prices…Apple doesn’t raise its prices and takes a loss on each download…other companies can’t compete and go out of business…Apple increases market dominance…labels raise prices…Apple becomes the only download service because of strong iPod sales…labels raise prices…

    “history” as in history always goes in cycles

  7. If the music labels raise wholesale prices for Apple, wouldn’t they have to raise them for all the services? If they focus strictly on Apple, I’m sure there’d be some sort of anti-trust issue. The entire pay for download model would be crushed.

    Even the two or three PC users who actually pay for their digital music would resort to P2P. The music label execs must be on drugs if they believe they could get away with it. I just wonder where they buy their hallucinogens. It must be some good stuff.

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