In 99-cent fight with ‘Looney iTunes’ labels, Apple CEO Jobs will get whatever Jobs wants

“Record execs are clamoring for price flexibility in music downloads, but Steve Jobs is adamant that 99 cents per song is perfect,” Arik Hesseldahl writes for BusinessWeek. “…The iPod Nano has turned out to be Apple’s knockout punch. Having secured a large chunk of the supply of flash memory from Samsung and Toshiba and a price break from Samsung, Apple is going to constrain the supply for flash chips. That’s going to make it difficult for competitors making flash-memory-based players that work with other music services to get their products on the shelves this holiday season.”

“How bad will it be for Apple’s rivals in the music-player business? A research report by WR Hambrecht says manufacturers of flash memory will be experiencing an uncomfortably tight supply environment this quarter and into the first quarter of 2006. Samsung and Toshiba both have their second- and third-tier customers on allocation — which means lots of smaller companies will be told to get in line and wait for their flash chips,” Hesseldahl writes. “…Rumors are also buzzing that Apple may soon tie up even more flash supplies by cutting a deal with Hynix Semiconductor. That same research report suggests it’s going to be a Nano Christmas. UBS says Nanos could account for almost half the nearly 32 million iPods it thinks Apple will sell in its fiscal year 2006, which begins next month.”

Hesseldahl writes, “The more iPods sold, the more people will be patronizing the iTunes Music store. “The iPod drives people to iTunes, not the other way around,” observes analyst Michael Gartenberg of Jupiter Research. A strong quarter of iPod sales will only solidify iTunes’ position as the Microsoft of the digital-music industry, leaving RealNetworks, Napster, and others to bring up the very distant rear. That makes the path for record companies clear: Jobs will get what Jobs wants. In the end, that means download prices will stay right where they are. When asked earlier in the week at a press conference in Paris about the possibility of the music company raising prices, Jobs said: ‘If they want to raise the prices, it means that they are getting greedy.’ Greedy? Maybe. But right now, Steve Jobs is holding all the cards and can afford to talk tough. He knows this war of words is all but won.”

Full article here.
Warner’s Bronfman, never one to be accused of being the brightest bulb in the pack, ought to just seal up his pie hole now, shelve his “Looney iTunes” decapitation strategies, and just get in line with the other labels to sign on Apple’s dotted line to continue the ride aboard the profit train.

Related articles:
Warner music exec discusses decapitation strategy for Apple iTunes Music Store – September 28, 2005
Warner CEO Bronfman: Apple iTunes Music Store’s 99-cent-per-song model unfair – September 23, 2005
Analyst: Apple has upper hand in iTunes Music Store licensing negotiations with music labels – September 23, 2005
Steve Jobs plays high-stakes poker with greedy record labels – September 22, 2005
Record labels accuse Apple CEO Jobs of ‘double standard’ as they seek to force iTunes price increase – September 21, 2005
Apple CEO Steve Jobs to repel ‘greedy’ record companies’ demands for higher iTunes prices – September 21, 2005
Apple CEO Steve Jobs vows to stand firm in face of ‘greedy’ record companies – September 20, 2005
NYT’s Pogue to record companies: it’d be idiotic to mess with Apple iTunes Music Store prices – August 31, 2005
Apple CEO Steve Jobs prepares for pivotal fight on digital music prices – August 28, 2005
BusinessWeek: Apple unlikely to launch music subscription service – August 15, 2005
Record labels to push Apple for higher iTunes Music Store prices in 2006? – August 05, 2005
Study shows Apple iTunes Music Store pay-per-download model preferred over subscription service – April 11, 2005
Record labels look to raise iTunes wholesale prices, music industry fears Apple’s market domination – March 05, 2005
Report: Apple CEO Steve Jobs ‘angered’ as music labels try to raise prices for downloads – February 28, 2005
Report: Music labels delay Euro iTunes Music Store fearing Apple domination – May 05, 2004
Greedy Big Five music labels looking to jack up iTunes songs to $2.49 each? – April 22, 2004

36 Comments

  1. Agree with PT too, but for now…
    This is an opportunity for Apple and record labels to increase the equity of iTunes. Add better quality (lossless) files for a premium. It doesn’t “cost” anybody any more to produce, and everybody wins, including the consumer.
    Steve needs to appease the labels a little bit, iTunes is still a baby. He needs to be more flexible with his negotiating. It doesn’t have to be defined as “greed” (bad word), as long as they keep the .99¢ option people will be happy and iTunes will thrive.

    Play ball Steve, just play a strategically.

  2. I don’t think other companies will have a problem putting players on the shelves. I think the big problem for them will be getting them OFF the shelves. They are just gonna be gathering dust.

    With regards to the war being already won with the labels. I hope he is right but you should never underestimate their capacity for stupidity.

  3. This is a very good article, and points out some interesting bits of information about Flash Memory suppliers. My only quibble is with this quote…

    A strong quarter of iPod sales will only solidify iTunes’ position as the Microsoft of the digital-music industry, leaving RealNetworks, Napster, and others to bring up the very distant rear.

    “the Microsoft of the digital-music industry”? We already have a “Microsoft” involved in the Digital-Muisc Industry…and it sucks right now! There has to be a better comparison than comparing iTMS to Microsoft, right? Otherwise, that sentence is about as accurate as I’ve seen written about the Online Music War.

    MW: river – as in “Cry me an iRiver.”

  4. “to those clamoring for an iTunes label – the day Apple announces that is the day the Big Five pull their content from iTunes. That’s all they can do. Even if it is ten years from now and they have to use iTunes to sell music, they will partner with someone else. In the end, iTunes without a product to sell is just a webservice.”

    Not necessarily. In ten years (and probably less than that), the atom method of distributing music (i.e. CD’s) will probably be all but dead. When the InterNet becomes their cash cow, and if Apple is still the dominate player, the labels would be cutting their own throats by doing so.

    I think Apple will eventually make such a move. It’s all a question of timing. Already Sony artists in Japan want to jump ship and sign with Apple directly. The handwriting is on the wall already.

  5. Jayplus, why would anyone flame a guy for writing “[t]he more iPods sold, the more people will be patronizing the iTunes Music store.” That is a true statement. Many people buy an iPod and then discover the integrated advantages of the iTMS and iTunes. It’s the same logic as: “The iPod drives people to iTunes, not the other way around,” which follows the first quote. Both are true. I agree that “it’s the software, stupid” is a big driver of the relationship between the computer hardware and the user but it is not the same dynamic that is driving iTunes and iPods.

    MW: yes

  6. Why would the record labels leave iTunes if Apple (on an extremely unlikely, ill-advised whim) created their own record label?

    The other labels allow Sony’s download service to sell artists other than Sony artists. When it comes to making money, the labels are not picky about who they sleep with. And they’re so f’n lame-brained, they usually don’t remember who they slept with the night before.

    The labels never learn from history and they have no concept of the future.

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