“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
“Now, the success of Apple’s music store has prompted concern that digital download prices may be too low,” Morrison reports.”
So let’s wreck that success by raising the prices? Politicians must now be running the record cos.
To Ed: “One example is when then first started .mac and said its free for life. But after a year or so, users needed to pay a yearly subscription to keep their account.”
.mac was never free for life, iTools was. Apple said iTools was free for life and they kept true to that promise. When they renamed iTools to .mac in July 2002, they also introduced the new subscription model we have today. Apple was completely up front about the whole thing
iTools – Free.
.mac – $99/year
Henry,
War abuse?????? What the hell are you talking about ? Are you a terrorist or something? You must be, you commie!
Record companies just continue to look for ways to put themselves out of business. I’m at the point where I hope they do.
Why they think songs are worth more than 99 cents is beyond me. They have provided nothing physical, no distribution, etc – just a digital file and they want more money?
I am a strong believer that iTunes should be spun off into a kind of record label. Bypass these greedy bastards and let the artists connect directly to the listener.
These guys just don’t have a clue do they? Greed seems to be their sole motivation in anything. I don’t begrudge a company making money, that’s what they are supposed to do. But don’t keep shooting yourself in the foot.
Apple should buy EMI Group plc!
$4 billion gets you…
EMI, EMI America/Capitol, Parlophone, Harvest, Virgin, Chrysalis, Charisma, and other minority imprints like EG, Food, Hut, Innocent, [B]plus EMI Music Publishing and the related imprints.
So $4 billion gets you a variety of work from Pink Floyd, The Beatles, Sinatra, Beach Boys, Pet Shop Boys, Rolling Stones, Blondie, Genesis, Peter Gabriel, Bryan Ferry, King Crimson, Blur, The Verve not to mention thousands of other artists. And – whilst they’re the smallest major – it does give Apple a proxy seat at the record industry’s table.
The fact that it also gives them a stick with which to beat The Beatles is merely a happy coincidence.
I agree with MDN’s take. As long as Apple gets the same pricing as everyone else any increase in prices will kill all competition and only leave Apple standing if they keep the same 99 cent price anyway. (at least for downloads, subscriptions might be different).
If Apple raises the prices I think you are gonna see a LOT of people who will rebel by stopping buying and starting stealing or going to Allofmp3.com again. I might myself (or at least stop buying to show them it is screwed up). If the record labels raise prices enough and thus force Apple to raise prices too they are gonna kill the goose that lays the golden eggs.
I would have thought that there will be some anti-competitive problems is the labels raise prices for no apparent reason.
If they are worried about the strength of Apple’s position in the market, making moves against them may be illegal. The record labels already act as cartels – this could make them open to investgation if they try to oust Apple.
“…rates paid for mobile phone ringtones are roughly 10-15 per cent higher than digital downloads.”
Which is why I don’t download ringtones. Wow, talk about gouging your customers, and that’s only for a portion of a piece of music. Besides, other than musical notes being involved, what has downloading ringtones got to do with music download services like the iTunes or their competitors. They aren’t really the same thing.
“The music label execs must be on drugs…..”
That would explain a lot. And, I’m not referring to the artists.
“If the record labels raise prices enough and thus force Apple to raise prices too they are gonna kill the goose that lays the golden eggs.”
Finally…someone else who gets the music industry’s attitude about price increases. Since legal music downloads account for only a single digit percentage of total music sales, it would be more like killing the gosling before it had a chance to grow into the goose. Or better yet, making an omelet of the egg that will hatch the gosling that will become the goose that lays the golden eggs.
Shortsightedness rules, I guess.
BTW, who comes up with the “MDN magic word” for each article? They seem to be hysterically appropriate.
The record labels have no justification for raising wholesale prices because they are doing very little as it is NOW to deserve the 65-70 cents per song.
Apple’s doing all the work here, guys. It should be angry….
… unless king_alvarez’s POV is actually the scenario which plays out in the end.
That the record labels don’t get it. They didn’t get it for the longest time regarding downloads (their intial services were so donkey it was as if someone sat down to intentionally make them as consumer-repellant as possible). Now that someone has finally shown them a simple model works, they are afraid. They’re also trying to cash in way too early. Damn – at least let downloads account for 5-10% of sales before you start jacking up the prices, the fools. People are still way too willing to go back to P2P. Instead of raising prices on existing tracks, they should start thinking how to add value to their media, such as offering 190 kbps or better versions for more. Give people more reasons to use downloads – not less. What a bunch of muppets.
“Neither Apple’s music store nor its iPod player are compatible with other products and services”. And what services are compatible with Apples iPod. None. So what are they whining about? If Apple is so limited why is it the number one store and music player? If Apple is so closed format why can Windows users use the same software exactly like Mac users and buy and download music? Why can’t I go to Microsoft or Napster to buy music as a Mac user? You know why? As a Mac user I can’t get there from here.
Because they don’t allow Mac users to even visit there stores. So how is it that the industry sees Apples music store and player so incompatible? Try the other guys people!
Just Another Sign sez:
“that someone has finally shown them a simple model works, they are afraid. They’re also trying to cash in way too early. Damn – at least let downloads account for 5-10% of sales before you start jacking up the prices, the fools. People are still way too willing to go back to P2P”
And you took the words right out of my keyboard. After Jobs and Apple FINALLY unravel, and make successful, the legal download music market, the record companies jump to boost prices and hurt this still fragile market.
I am very disapppointed at this rush to the cash register.
As far as Apple joing the roster of record companies, remember that the record companies risk vast amounts of money and time discovering and promoting acts, with only a 10% chance of seeing the money come back. For every artist you see on ITMS there are HUNDREDS of acts trying to break into the business. It’s not easy looking for the next big thing, so don’t sell it short.
That being said, I think that it is a foolish move on the part of the record companies to do this, unless it happens slowly over a longer period of time. They have a right to control the price of their product. But if they move too fast and alienate the consumer, well, they will reap the wind.
david vesey
That time Apple was reportedly considering buying Universal seems to make sense these days
Apple will lisence Fairplay, when they decide it’s needed…
They’ve said this already..
In other words.. don’t hold your breath.. Apple would have to have less than a 60 percent marketshare before they got worried about lisencing (in terms of downloads) and their download share is looking better and better.. as more companies back out of the market (napster)
This isn’t about price, format, openess, etc. It is about the threat to the big five labels’ monopoly on the music business.
The big labels got where they are today because technology of the time made it impractical for indie artists to make and distribute music on their own. Records couldn’t be pressed in their basement, they had no contacts to promote their work, and no access to distributors or sellers. All an aspiring artist could do was hope some record exec would “discover” them, give them a contract that amounted to slavery, with potential financial ruin if they weren’t among the most lucky superstars.
Along came the internet. The potential for online distribution and promotion threatened the labels, far more than the much ballyhooed internet “pirates”. But the internet was an untapped source of easy money as well, and a clever Steve Jobs talked them into participating in the iTunes music store, with as little DRM as he could talk them into (Steve Jobs is not a DRM fan – quite the opposite.)
iTunes was also opened to the indie artists. In fact, it actually “made” the careers of a couple of unknown, but very talented, bands. The store’s browsing and search features put unknown indie artists with talent on equal footing with big label superstars that can’t sing on key. Result: end of the big five label cartel’s monopoly, and free artists profiting from their own work. To artists, Apple is one of the best friends they ever had.
By becoming extremely popular and powerful in the music world, Apple has turned into an extreme threat to the big five labels. This is but their first attempts to deal with that threat.
I wouldn’t worry about them much though. The five old sharks are a bit toothless these days. How, for instance, is Sony going to get tough with Steve Jobs when their president is getting all choked up and teary eyed about working with him on video? And what are they going to do if Steve says “Okay, I’ll raise the prices on your music, but that doesn’t affect my deals with the indies.”? Having more indie music sell because it is a better deal was hardly their intention.
” width=”19″ height=”19″ alt=”wink” style=”border:0;” />
MDN is assuming that the music industry will raise prices for ALL vendors, and equally, not just Apple.
Anyway, 99 cents is pretty high for an inferior-sounding AAC/MP3 to begin with. If it were offered in a lossless format, it wouldn’t be so bad (assuming the original wasn’t recorded with a clipped-out super-loud intent to begin with).
the record labels are only going to raise the price for apple nobody else!