Independent label addresses the Apple iTunes 99c question

“This issue has been in the news for the last couple of weeks. Since I run an independent label and we are selling on iTunes, I wanted to give an opinion on this matter, as obviously, it will have an impact not only the major labels, but many independent labels as well as on digital & mobile downloads market- place in general,” David Faiman, Odessa Mama Records’ Managing Director explained to MacDailyNews/iPodDailyNews.

By David Faiman

With a showdown approaching between the major labels and Apple over 99c price for the downloads and now UK’s Music Managers Forum also unhappy with iTunes pricing, I wanted to give an independent label’s view on this subject, given that there are over 1000 independent labels on iTunes. With almost 15 years experience of running one, I think that the majority of my peers will agree with my views. Of course, I doubt very much that the majors will actually remove their catalogues from iTunes store, nevertheless I’m very concerned about the developing situation.

Let’s come straight to the point, forget about “variable pricing” issues, you can already set variable album pricing on iTunes, you can sell albums from $5.99 and up. The majors want to raise the prices for the new releases. They simply want to make more money now, which they are not denying and it’s fine with me. After all, music business is business and they have to answer to their shareholders.

What worries me, is that music industry is not out of doldrums yet. Yes, there are reasons to be optimistic – legal digital and mobile downloads taking off, phenomenal success of ringtones, expansion of digital radio etc., but in the last five years many independents have closed their doors. I’m not talking about small 1-2 person operations, but companies who in mid-to-late 90s sold millions of albums per year. What forced them to close, wasn’t so much the internet downloads, but cd piracy. I remember talking to one of our partners in SE Asia and within two weeks of a release, they would see bootleg cds of their compilations selling on the street. Physical sales are still going down every quarter and vast majority of downloads are still not legitimate. P2P traffic is still growing. Pirates can set up a “cd/dvd
plant” in a spare bedroom. How many majors we’ve had just a few years ago, and how many do we have today? How many records get released, say today vs. end of 90’s? It’s not that there is a shortage of good artists or material to release. Record sales are not what they used to be, so it makes many releases not commercially viable. Today, even “big hits” sell fewer numbers.

To force Apple to raise prices now will only benefit Apple’s competitors, but again only in the short term. Apple is not the only online distributor currently selling tracks at 99c, in fact, many are selling for less, so I presume that if Apple succumbs and raises prices, other online stores will be also asked by the record companies to raise their prices. How is going to help them to stay in business, if many just started to turn profit or still in the red? I think that the issue is that majors are mostly concerned with Apple’s dominance in the market (after all, revenue from digital downloads is still insignificant.) and that they have lost “control”. I’m almost certain, that having ‘variable pricing’ on individual downloads, will only lead to actual price reduction down the road. Some labels will reduce prices for the new releases, in effect , to “buy” their way into the charts and others will have to follow. So, instead of selling tracks for 99c, we’ll be selling them for 79c or whatever the bottom-range price will be.

Majors are complaining that Apple makes money from iPods and not from downloads. Sure, they are making little money from music, but that’s because of how much they pay us, the record companies. Frankly, I don’t care if Apple makes money on iPods or music. All I care is that we get 70c from every download, we have no manufacturing cost, distribution costs or returned stock. Because of this, we can pay artists (who supply finished masters) 50% of the revenue. If UK managers are complaining, that their artists are getting only 4.5p on every 79p track, why blame Apple?! They should be blaming themselves for negotiating these type of contracts for their artists! If Apple increases their prices, would they be happy with say 6p from a download? I don’t think so.

Most importantly, I like the fact that Apple maintains “editorial independence” on what records get featured on iTunes (and I hope it stays
this way), so independent labels, too, have a chance for success. If you look at the main Top100 chart on iTunes, you will see mostly big name acts, as major labels will always dominate with their marketing muscle – fans buy what they hear on the radio and see on TV. However, if you look at the genre-specific charts, you’ll see a large number of independent releases. Earlier this year, we’ve had 3 albums, at the same time, in Top 100 Dance Albums on iTunes US, and a few more Top 100 positions since. I could never imagine, even a year ago, that this could ever happen. It just goes to show that with online distribution, given a much wider choice, music funs buy what they like, rather than what has been forced upon them previously.

Increasing prices now, obviously isn’t going to increase number of downloads and, in fact, might stall the whole market and this is my main concern. At US 99c, (actually more in UK, Europe and Japan) it seems that many fans are reasonably happy with the price, so why ‘rock the boat’ now and just alienate them. We need to remove the incentive to steal/copy/buy bootlegs and create a “culture” of paying for music, which has unfortunately eroded in the last few years.. There is actually a significant proportion of fans that are paying, not because they can’t get it for free, but because they want to do the “right thing”. Some, simply can’t be bothered to search for free music, when they can easily find it and buy online. Of course, if you raise the price, this “proportion” will decrease – everyone has a price. (Perhaps major’s executives should read a few posts on forums and see what fans are saying.)

Yes, sales are rapidly increasing as more people buying ipods, mp3 players, Sony PSPs and music phones, but relatively speaking, few people are actually buying downloads. It’s “common sense” that increasing prices will only drive some people, who are already “payers”, away from legitimate online stores.

Finally, with or without Apple, digital distribution would have “happened” sooner or later. There are many other great companies who are
involved in the digital music distribution, but as a matter of fact, without Apple, it would taken a few years longer to hit the “mainstream”. By then, it would have been too late for many of us in the music business.

Related articles:
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Apple’s iTunes Music Store dominates as digital music sales more than triple – October 03, 2005
Dvorak: record companies’ biggest concern about Apple’s iTunes is clear and accountable bookkeeping – 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
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BusinessWeek: Apple unlikely to launch music subscription service – August 15, 2005
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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

37 Comments

  1. Really great to read from an industry insider’s POV. I think he’s 100% right. It’s clear that the big boys are merely scrambling to try to save their crumbling empire. My advise, take what you can and get out, the building is coming down.

  2. Great article and good to hear an honest opinion from someone in the business. Cudos to MDN for publishing this.

    Here’s my take:
    1. The current pricing for iTMS is too high for me. Given that I can often buy a CD for equivalent price, buying songs at 128 bps makes no sense to me. $0.50 seems a fairer price, especially for legacy material. I’m currently replacing all my vinyl stuff where I can find CD replacements. CDs give me the ability to rip at higher rates. I currently rip at 192 bps and in the future want to go lossless once I get a higher capaciity ipod. For me the convenience of digital music is the ipod, not downloading music.

    2. What the industry needs to address is how to market new music and prevent piracy. I agree with the author that CD piracy is more prevalent. Who hasn’t received a CD copy from a friend? Granted the artwork isn’t there, but the music, unlike with taped recordings, is as high quality as the orginal. Increasing the prices of that music will surely cut into online sales. For individual tracks like that, $0.99 seems a fair price. Whilst the bit rate is low, it can give you a good taste of what the band has to offer.

    3. Most consumers would probably want the musicians to get a better deal. Whether online music will cause the major labels to offer better compensation is debateble.
    I highly doubt it. Still I hope Indie labels can thrive in this new environment.

    4. The author touched on the marketing of music. One thing that stops me from listening to radio (and thereby hearing new music) is that the same set of songs are played continuously. I think Maroon 5 are great but should their songs be played every hour! The use of computer generated songlists and marketing pressure is killing innovation in the industry. Online music will certainly help that – whether by legal or illegal distribution.

  3. This article is well-balanced and thoughful. Wish the major record companies would see sense and follow this advice. The legal downloads (eg iTunes music store) is the best thing yet…. I know tons of people who buy music now, whereas they used to just download it from p2p. We need to encourage people to do this more, not just try and rip them off with ever higher prices

  4. Apparently you haven’t been listening to music. There is a real shortage of good music for the past 10 years. Why is it that in 90’s rock, and alternative radio stations are playing the beastie boys on a regular basis? It is because music from 15 years ago is better than anything out there today.

    I don’t buy music cd’s anymore. I have only bought a handful of downloads(and they were pepsi freebies). The selection of new music is horrible. For every real talented artist I find, there are dozens of talentless hacks who are more ‘popular’. Britiney Spears is a good example of someone who can’t sing, who can’t write, but can dance and looks good in almost no clothes.

  5. FINALLY someone with someone speaks up for the “little people”. I really hope the record companies listen. It’s SO clear too all of us what the deal is, but some how the major labels seem to think that we’re all too dumb to understand what they’re actually trying to do. That’s really insulting to the very people that pay their bills… bitting the hand that feeds you!

    Apple has been the only “insider” that’s been on our side with this issue, but since they have a vested interest in being on our side, their words of course get tossed aside by most others that feel the need to “comment” on this. Forget the fact that they’re CORRECT!

    We’re really in a different generation of music buyers. My generation (older) didn’t even know how to send an email 5 years ago, much less would hunt around for illegal music downloads. It’s much easier for us to simply buy on iTunes. But the newer generation grew up with Napster (rev. 1), and has NO problem with stealing what they want in the way of music. Not saying that only the young steal, just that the major labels are “bitting the hand” and the folks attached to those hands have other options for getting music and don’t mind exercising those options.

    Don’t blame Apple’s iTunes if the artists go broke or the labels go under. Seems to me to STILL be a problem with how the majors operate. They still refuse to change with the times.

  6. I want to know if Apple would allow independent labels to not require DRM on their catalogs. I think some labels wouldn’t be hung up on DRM. After all, I think it should be the labels requirement, not Apple’s. Unless of course, Apple is using it to lock you in.

  7. I agree. I have no real sympathy for the artists who complain they don’t get a fair share. They should not have entered into those contracts.

    On the other hand I don’t really want to see the big labels succeed either. They are greedy, they add very little value to the market place and don’t deserve the huge amounts they earn.

    I think the 99 cent price is fair, but I want to see prices go lower not higher. If a bigger share of that money goes towards artists that is fine, but if they enter into a contract that says they are due 6%, that is their problem not mine as the consumer.

  8. Neil, the piracy that the author is talking about is not the small-scale “mixed tape” gifting amongst friends. It is the third world vendor piracy. The author release a CD and two weeks later some plant in China had already started MASS-producing perfect copies with all the disc and cover art. Since those copies don’t pay the artist, songwriter, or publisher their royalties, yet benefit from that label’s own marketing efforts, they are sold for a fraction of the retail of the genuine CD.

  9. The fact of the matter is the music industry is on it’s knees, iTunes provides a way for honest people to play the system, but that’s all.

    If the majors upset the apple cart, there will be millions of honest people looking for a alternative.

    Apple doesn’t need the music anymore, iPods sell themselves and play Mp3’s just fine.

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