“After finally discovering that money (lots of it) can be made from music downloads, the RIAA and some of its members are rethinking the entire concept, and the iTunes deal in particular. At least a few RIAA members think that Apple is double-dipping, because it makes most of its money selling the iPod and, well, that’s not fair! So the music companies are rethinking—uh, complaining about—the whole downloading model,” John C. Dvorak writes for PC Magazine.
“Let me make it clear. Apple sells a song on iTunes for 99 cents. Apple pays for the Net connection and the costs of running a huge server farm. It also pays for development costs and the design and maintenance of the Web site. Then it pays the record companies 70 cents for each song it sells for 99 cents. For their check, the record companies do not have to do any manufacturing, distribution, or pay any spiffs. And they don’t have to deal with returns. Piracy also seems beaten by the security measures built into the system. And they still complain. Now I’m getting suspicious,” Dvorak writes. “Let me tell you what I think they are up to. The goal is to kill iTunes and any online music service not directly owned by a label. The record companies don’t like these systems for a number of reasons, not the least of which is that they work, proving that downloading music was a good idea from the beginning. I’m sure that still irks them, since it represents a decade-old ‘I told you so!'”
Dvorak writes, “I’m not convinced that the record companies’ biggest concern is pride, though. I think it’s bookkeeping… When iTunes began, I doubt that more than a few record industry executives thought it would become a runaway success, dwarfing all other initiatives. It seemed like a lark, almost an afterthought. I’m certain that most were convinced it would be, at best, a middling, sketchy business they could point to and say, ‘Look, we tried that idea, and it’s not that big a deal.’ When it began to rock, the checks in the mail were great and everyone was surprised. Suddenly all sorts of other initiatives popped up, and someone woke up and noticed that all these middlemen with computerized numbers were surrounding the business. It wouldn’t be as easy to screw over artists with this independent accounting everywhere.”
Much more in Dvorak’s full article here.
Bravo, Mr. Dvorak! You don’t read that little exclamation around these parts much, but Dvorak’s written an excellent article this time out. Dvorak thinks we’re “going to see a slow shifting of the way music is downloaded, even if it means each label does it itself through some mechanism in which retail stores get a cut. They will do whatever they have to do to get those ‘numbers’ back in-house, where third parties can’t analyze them. In the meantime, expect more complaining.” An excellent article, very highly recommended.
Related articles:
Growth of UK ‘iTunes-style’ music services hobbled by ‘greedy’ record labels’ high prices – September 29, 2005
In 99-cent fight with ‘Looney iTunes’ labels, Apple CEO Jobs will get whatever Jobs wants – September 29, 2005
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
Pal of mine owns a music business and sells laser printouts of sheet music that he downloads from a legal wholesaler as and when a customer asks for it. Everyone seems happy with that, especially my friend as he needs zero stock.
Point is that the distribution chain’s pricing policy is unaffected — what the labels now want with iTMS.
Meantime iTMS has rekindled my interest in music, resulting in sales that would not have existed before.
Expect some ‘premium’ pricing sooner or later.
<< Then how would they pay the artists if they don’t keep track of the sales? >>
I think that’s the point. Until the iPod, iTunes and iTMS artists relied entirely on the labels honesty to pay them what they (the artists) are due. The ITMS represents an independent body that provides computer generated sales results. Now what if those results don’t match what the labels have been telling the artists?
I think the labels biggest concern (outside of the above) is that Apple will become a record label, where honest dealings and integrity are a given and not the exception. Apple won’t even have to buy a label to do it. They’ll just sign artists when their contracts expire. All of them will expire within the next five years.
If the labels are going to prevent this from happening, they have to stop Apple today. In two more years there will be nothing they can do, and then their fat, bejeweled asses will be found in the unemployment line (and ‘rap’ will be dead).
ok. My snit is over .. I chickened out on turning off my computers and canceling my ISP account. I only lasted a few hours without MDN before withdrawal set in and the clammy cold sweats of Mac newslessness were more than I could take. arrghhhh.
Anyways .. when broadly discussing wolrdwide recorded music sales, we should probably remember that approximately 90% of the planet is supposedly not yet online (and may never be). That circumstance having been acknowledged …
It’s a pleasure to have Mr. Dvorak speaking these truths. Thank you, sir!
Somebody explain better what a label maker does, exactly. Isn’t a label maker a gambler? Doesn’t a label maker learn how to put a certain amount of money into a potential star and pray that there will come a day of ample returns? Doesn’t a label maker make about 99% mistakes and 01% success with investments? Doesn’t a label maker spend too much time covering up the mistakes while over-hyping the rare success? Well, they’re brokers, aren’t they?
Why aren’t there any artists speaking up here? They’re intimidated, aren’t they? I smell the odor of oppression here, don’t you? Talk about civil rights…
Oh well, it’ll all fall under Federal regulation soon. It will be another Homeland Security problem and that Agency will issue a no bid contract for the delivery systems already demonstrated by Apple Computer via basic, applied, and operational research. Apple Computer won’t get a chance on the no bid bid. It will be deemed to be in the National interest to let Homeland Security regulate the artistic community. The term “cultural promotion” will be used within the enabling legislation in the place of the more exact term of “propaganda ministry.”
We can stop this regulatory effort in it’s tracks by electing Steve Jobs as the next president of the United States.
I’m not on pot. I don’t use ice. Sometimes I just have these nightmares…
The record companies are afraid of losing control, and they see it slipping away. But, if they fyck with Jobs, they may lose it all.
Maybe it’s just conjecture, but it seems to me that the labels signed the iTunes agreements in the first place because they were terrified that P2P was eating their lunch, not in terms of profit loss or opportunity cost, but in terms of distribution.
Now that it looks more and more likely that they’ll be able to litigate P2P out of existence, what incentive do they have to play nice with Apple?
None at all.
This is my response to the message of
” width=”19″ height=”19″ alt=”smile” style=”border:0;” /> [the 5th message above]
I think Apple can start thinking of making its own music label. Seriously! I have never think of this idea before. Maybe it is because I haven’t sensed the growing synergy Apple has had with the music artists during these years.
But now, reminded by
” width=”19″ height=”19″ alt=”smile” style=”border:0;” /> it seems not a unthinkable idea. Because it seems that the talents, the singers and musicians, snap right into Apple’s passionate endeavor to make computer a true and human-friendly digital companion in our life…
Walter
This is my response to the message of
” width=”19″ height=”19″ alt=”smile” style=”border:0;” /> [the 5th message above]
I think Apple can start thinking of making its own music label. Seriously! I have never think of this idea before. Maybe it is because I haven’t sensed the growing synergy Apple has had with the music artists during these years.
But now, reminded by
” width=”19″ height=”19″ alt=”smile” style=”border:0;” /> it seems not a unthinkable idea. Because it seems that the talents, the singers and musicians, snap right into Apple’s passionate endeavor to make computer a true and human-friendly digital companion in our life…
Walter
This is my response to the message of
” width=”19″ height=”19″ alt=”smile” style=”border:0;” /> [the 5th message above]
I think Apple can start thinking of making its own music label. Seriously! I have never think of this idea before. Maybe it is because I haven’t sensed the growing synergy Apple has had with the music artists during these years.
But now, reminded by
” width=”19″ height=”19″ alt=”smile” style=”border:0;” /> it seems not a unthinkable idea. Because it seems that the talents, the singers and musicians, snap right into Apple’s passionate endeavor to make computer a true and human-friendly digital companion in our life…
Walter
Maybe maybe, because the Record Companies also realise that Apple has great reasons to form their own record company… and Dvorak… I like your TWIT podcast show with Leo Laporte
Walter
Maybe maybe, because the Record Companies also realise that Apple has great reasons to form their own record company… and Dvorak… I like your TWIT podcast show with Leo Laporte
Walter
Maybe maybe, because the Record Companies also realise that Apple has great reasons to form their own record company… and Dvorak… I like your TWIT podcast show with Leo Laporte
Walter
TWiT Episode 24: “Dvorak predicts 20% market share for MacIntel – maybe more”
The guy has always been interesting to read. I remember him writing that the World Wide Web was overrated (this was when the Web was just taking off, and maybe he had something, given the dot com bubble burst). I also recall his belief that CD-ROMs would not catch on when they first arrived on the scene. Finally, I remember many “Mac is dead” themed articles.
Fortunately, he has participated in several TWiT podcasts, and listening to his comments reveals his healthy sense of humor. Not such a bad guy afterall. Here’s hoping his “MacIntel” prediction is right on.
Michael
Apple Computer most likely can NOT form its own record label as a result of a settlement it struck with Apple Records many years ago.
From http://www.legalzoom.com/articles/article_content/article11325.html
“For many years, but not in recent years, the name Apple was associated with the Beatles and their record company. Apple Records was founded in 1968 by the Beatles as a tax shelter. The label still releases compilations by the Beatles, such as The Beatles Anthology. The holding company, Apple Corps, Ltd., is still in existence.
Then along came Apple computers. In 1978, Apple Corps sued Apple Computer for trademark violations. In 1981, Apple Computer settled for $80,000 and a promise to stay out of the music business.
In 1991, Apple Corps sued Apple Computer again, alleging that by adding sound to computers, the computer company was in violation of the 1981 agreement. This time Apple Computer paid $26.5 million. The computer giant agreed that although it may be involved in digital music, it would not package, sell or distribute any physical music materials, such as CDs.
The third lawsuit was filed in July 2003. Apple Corps alleges that the iTunes online music store violates the 1991 agreement. The looming question up for courtroom debate is whether iTunes Music Store sells physical music materials, such as CDs.
iTunes sells songs in digital format that can only be played on an Apple iPod. The songs are downloaded, so the only physical material involved is the software. One legal analyst commented that the use of software to distribute music seems to be within Apple Computers’ rights under the 1991 agreement. After all, Apple is not selling CDs.”
Apple forming its record company… or to be more business-savvy, Steve forming its record company (in order not to create stock uncertainty that might affect Apple business)… why not? Steve already have its Pixar Studio doing film animation.
There is really something going on with our life-style… It’s really changing… smart technology is really truly blending in with our life… better models emerge, but only when business pay serious attention to the user-experience factor (or the life-style-experience factor)
El Payo, thank you for giving me the info. I am now more informed!
Walter
Apple Records already exists. Not that its stopped Apple Computer in the past, but we will find out next year…
MDN Magic word: Seemed
Seemed like a good idea to agree not to do anything with music…
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CT =====]————
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Let em raise the prices. Just as long as they still get $.70 per download.
” width=”19″ height=”19″ alt=”grin” style=”border:0;” />
I think that the real reason the record companies are so nervous has nothing to do with prices. They want out of the contract and they want to distroy iTunes as it is heading straight for their own businesses.
How difficult would it be for artists to sign exlusively to iTunes at the end of their contract?
And if they did, iTunes could offer their own rules for DRM which could allow high quality downloads, printable CD covers for archiving, new and intersting ways to promote artist with digital artwork etc. and best of all Apple could pay the artist 70c per download! How many artists are going to turn that down! Even if the artists lost 75% of their current sales the artist would still be making much more than they are now!
And the best thing is… it will happen and there is nothing anyone can do to stop it. Welcome to the new wave of business. Everything will go this way. Record industry is first. TV second. Publishing third. The whole ‘middle’ of business as we know it is D*E*A*D.
I agree with JCD, but another interesting point is that Apple is also roll reversing, kind of taking a Microsoft role, in the sense that focusing on the music is “Good Enough” compared to other digital media players that add FM tuning and recording. Style along with the unique PDA like features have placed the iPod in a class by itself. Podcasting has stifled the roar of the competition saying that their players are better because of FM. Podcasting in iTunes has added Tivo-like playback on iPods while extending the desktop experience to being able to find and play back video content on demand. You get the not knowing what’s next effect from Podcasting therefore eliminating the need for FM radio. One thing, I still think that Apple should start adding better games to the iPod color and Nano such as Tempest 3000, Centipede and other games that would be greatly enhanced by the scroll wheel. Stevie, get the LLamaMan on the job!
Lastly, there is a solution for the record companies, but they are sitting on it. It’s called DVD-Audio. Give use multichannel Super Hi Quality sound and you can stop selling CD’s. CD’s should have gone the way of the floppy years ago. Of course, with the advent of 3D hard drive recording techniques, it looks like future iPods will evolve to offering that quality of audio before the DVD-Audio disk become available. Perhaps the record industry should hire chess players for managers. They need some strategy experts. There are plenty of possibilities for both the digital online and digital offline music markets to flourish. Remember, video killed the radio star and the iPod killed the CD!
Second lastly. There are a bunch of budding recording artist that have been groomed into music creativity through Garageband. If Apple were to have listening contest to find who are the best of the best, perhaps a “New from the Garage” section in iTunes, we could have opportunities to vote for the best (perhaps on a weekly basis), mind you, these would be like podcast, the winner could be offered a free Logic system with training and a contract. This way, Apple can create a venue for new artist and create their own label for….
“The Rest of Us”
Oh, about the “Apple” music business label, wouldn’t it be simply a matter of spinning off a new company that would handle music contracts so there would be no strife over the Beatle’s company? Otherwise, Apple and the Beatles could go into business together on this venture which would be a really good thing. The Beatles would be ideal for helping out new and upcoming artist.
BTW, an advertisement showing the relatively inexpensive MacMini running Garageband, perhaps with Dosh or Kid-Beyond creating tracks and making music would be a good way to sell MacMini’s to future artist. The reward would be a new G5 system with Logic, a contract with Apple Records/Apple Computer, and grooming by the Beatles. It’s a win-win-win situation. Apple Records could even sell the HiDef 7 channel DVD Audio disks!