“Nobody said it was easy for EMI, the world’s third-largest record company and the home of Coldplay, as the music industry has weathered six straight years of falling sales,” Adam Pasick reports for Reuters. “Yet EMI Chairman Eric Nicoli and others in the industry are seeing signs of hope coming from the very source of many of the industry’s woes — the Internet. Downloaded music sales on online services such as Apple Computer’s iTunes Music Store are surging, and made up 6 percent of industry revenues in 2005. Nicoli said digital revenues are now expected to offset flagging CD sales within a few years. ‘We’ve seen a tripling in the last year and we’ve hardly gotten started,’ he said this weekend in an interview with Reuters at the music industry’s annual conference in Cannes, where he also delivered the keynote address. Digital music sales topped the $1 billion mark last year, according to the International Federation of the Phonographic Industry, compared with $380 million in 2004.”
Pasick reports, “He acknowledged that in a complex and rapidly changing sector, predictions and projections are an inexact science. ‘We thought subscriptions (services such as Napster and Rhapsody that offer unlimited music for a monthly fee) would be huge — it hasn’t been,’ he said. Mobile music, apart from phone ringtunes, has also developed more slowly than many had hoped. ‘We’re at year zero — if that — with mobile,’ Nicoli said.”
Full article here.
Advertisements:
• MacBook Pro. The first Mac notebook built upon Intel Core Duo with iLife ’06, Front Row and built-in iSight. Starting at $1999. Free shipping.
• iMac. Twice as amazing — Intel Core Duo, iLife ’06, Front Row media experience, Apple Remote, built-in iSight. Starting at $1299. Free shipping.
• iMac and MacBook Pro owners: Apple USB Modem. Easily connect to the Internet using dial-up service. $49.00.
• iPod Radio Remote. Listen to FM radio on your iPod and control everything with a convenient wired remote. Just $49.
• iPod. 15,000 songs. 25,000 photos. 150 hours of video. The new iPod. 30GB and 60GB models start at just $299. Free shipping.
• Connect iPod to your television set with the iPod AV Cable. Just $19.
Related articles:
Study shows Apple iTunes Music Store pay-per-download model preferred over subscription service – April 11, 2005
itune, your only digital music to the future.
iTunes, your digital music to the future.
Others, resistance is futile.
Come and join us, for your don’t know the power of the bright side.
It takes the music companies a long time to get it.. If it wasn’t for their monopolies methinks they would have gone out of business a long time ago.
iPod and iTunes are safe for some time.. time for Applle to focus on the other nice products we are looking forward to like my iSlate – all in one phone and OSX – solar powered. Unbreakable, scratch resistant glass front with an Apple logo engraved into one corner and solar cell on the back…
I’m dreaming but I really hope the Apple labs are hard at work on it for me!
“…For years, we enjoyed repeatedly gang-raping the public with overpriced formats and lackluster offerings, but they don’t seem to want to roll over and bite the pillow for subscriptions services or ring tones. Go figure…”
Wow, I’m sooo impressed w/ the Chairman of EMI… He said that music subscription services have not been a success… WOW… What a revelation!
Why wasn’t anyone impressed when Steve J said that people didn’t want to rent their music a year ago? It’s taken the heads of the record companies this long to figure it out?
Record companies = Dinosaurs
It’s probably no surprise that the subscription market hasn’t taken off, but probably more because the service is incompatible with the iTunes/iPod platform than the fact that subscriptions are – in and of themselves – an undesirable model for the consumer.
The simple truth now is that iPod – with over 14m units sold in the most recent quarter, effectively comprising one third of every iPod ever shipped – has become every bit as much a de facto platform as WIndows or TCP/IP. Operability with iPod is no longer an option, it has become a robust de rigueur requirement: can’t use it on or with my iPod, I’m not buying it.
The potential commercial collapse of Napster won’t help much: the Windows Media subscription model will suddenly take on the unattractive aura of failure which actually may damage Microsoft’s aspirations in the whole entertainment content sector, including video.
Another interesting opportunity is presented in the article, and it’s one that I’ve been banging on about for some time: the merger/acquisition opportunity that is EMI Group plc as the smallest of the four major music companies.
Whilst Apple could leverage its market capitalisation to acquire Universal Music Group through a takeover of Vivendi-Universal, the sad truth is that it would take eighteen months to two years to unravel Vivendi’s cable and telephony interests and sell them on to interested parties such as Spain’s Telefonica – France’s broadcasting regulations, which demand a specific level of content originated in the French language, won’t help.
However, EMI and Warner Music present a different scale of opportunity and a much easier sell to both Apple’s shareholders and those of the target.
Purchasing EMI and Warner would cost around $7-$8 billion, however Apple could then bring some much needed vision to both businesses, combined with some reasonable pruning of duplicated functions, before re-listing the new combined operation as a majority shareholder, by selling off 30-35%, possibly recovering some $3.5 billion of the original acquisition cost.
In my vision, Apple would benefit by becoming the controlling shareholder in a major music industry player, with interests in both recorded music distribution and music publishing, which may become attractive in distributing MIDI files for GarageBand and Apple’s other music recording products. Apple would also benefit by holding on ot a greater slice of the pie created by the growth of the digital music industry as well as being able to guide the growth of that industry.
MCCFR,
Apple can’t even get their own developers to get off their buts and produce universal binaries for their Mac software.
What makes you think they will be able to talk the rival labels into doing something sensible.
Big Al,
As far as I know the only apple apps which are not universal binaries are the pro-apps. Apps which will be Universal shortly after the first pro-esque machine is available: the MacBook. The only people who would use an iMac for those kind of apps on a pro basis and need to upgrade to a similar machine right now are people who, no doubt would be better served by getting a Power Mac anyway.
You guys should also check out eMusic.com. It is a music download service entirely focused on serving the needs of independent music fans and independent labels. It works on a different sort of subscription model…for example I have the least expensive option $9.99 per month for 40 downloads. I own these songs/albums & they are in high quality mp3 format with no DRM!
The reason subscription methods don’t work is because it gives the music away too cheaply and there isn’t enough market in online sales to cover the expenses of making music.
Artists need to make a little money and get rewarded for their efforts, most people are willing to pay a little bit more to keep the supply coming.
The subscription method doesn’t reward the artists, it rewards the cheapster who wants everything for free.
Supply and demand works both ways and the record labels are so greedy, busy punishing their customers with rootkits and lawsuits, they should look at starting a education campaign about personal lives of artists, what goes into making the music, all the effort involved, all the concert people, the costs involved and motivate people to do the right thing through empathy.
But of course the RIAA and their jackbooted thug ways will just have to learn the hard way.
I noticed yesterday that EMI-music has been added the Dutch iTunes Music Store (and probably to more European countries)
Pasick said ‘We thought subscriptions …… would be huge — it hasn’t been,’
Now don’t overlook the fact that he’s almost certainly reporting this from Eric Nicoli’s point of view, as a chairman if EMI. Nicoli will be looking at how much income has been earned from subscriptions and it isn’t going to be very much at all.
The subscription operators are usually very coy about just what proportion of their revenue gets passed on to the content creators and distributors. Some say that the figure is about 5%, estimated from what satellite radio services pay. Until I see an unambiguous alternative figure, I’ll assume that 5% is about right. Perhaps we’ll hear something about that when Napster’s announce their results in a couple of weeks.
So from the record labels perspective, there are two games in town. One is subscription, with the labels getting a 5% share of a very small pie, the other is downloads, where they get 70% of an immense pie.
I’m not much of a businessman, but I know which deal would appeal to me.
AlanAudio:
If the percentage you quote for the payment to the labels is correct, why are the Labels pushing subscription over direct download?
They receive from the subscription service $1.00 a month per subscriber ($20 x 0.05) vs. $1.39 per song on iTunes ($1.99 x 0.70).
The labels are limited to the flat rate from the consumer with the subscription service (unless they figure they can raise the rates after they have you hooked, liked the cable operators).
Versus the $0.39 advantage per song out of the box, plus they have the upside potential of multiple downloads per person with iTunes.
It seems to me that the Labels should be embracing iTunes over subscription services.
Did the labels get a con job when they were being sold the concept of subscription services?
What gives??
Yeah, right.
“Nobody said it was easy for EMI, the world’s third-largest record company and the home of Coldplay, as the music industry has weathered six straight years of falling sales”
Oh, poor record companies! How ever shall they feed their babies?
Good analysis there MCCF – I like your grand vision, even if it seems unlikely.
Alan, this is what’s been bugging me all along about the subscription model. It’s amazing to me that the record companies thought that people would flock to this and create a market for something that clearly doesn’t have much more than a niche appeal. And for less profit. And with no potential upside except more subscribers.
With Apple’s model, you reward the record companies (and eventually a little trickles to the artist) directly for each purchase. Every record label (and artist) has a fair chance at direct revenue (AH… maybe that’s a problem for the big 4… ya think?) and consumers get a chance to purchase in their own manner – singles, hits, genre, albums. (AH… another problem. Consumer choice is not a favorite of the big 4 either.)
In addition, Apple’s upside is obvious – the more people download, the more they spend, the more everyone makes! Wow. Genius.
But no, the music industry looks to the Cable and Cell industries and sees the “subscription” model and thinks “well if we can just rope everyone in then we’ll have steady guaranteed income FOREVER! We’ll never have to work hard for individual artists again!”
As an observer of the consumer society in America, I happen to think we are approaching the point of “monthly fee overload” – wherein people begin to look at every one of these $40 – $50 – $60 monthly bills (cable/satellite, cell phone, DSL, home phone, gym membership…. the list goes on) and start to wonder if they need to pay every month for this stuff. Many are already disconnecting their home phones.
Consumers move in waves, tides of ebb and flow. I think we have reached the zenith of the subscription model, and I think people are going to become more and more wary of adding yet another monthly expense to their tab.
Good analysis there MCCF – I like your grand vision, even if it seems unlikely.
Alan, this is what’s been bugging me all along about the subscription model. It’s amazing to me that the record companies thought that people would flock to this and create a market for something that clearly doesn’t have much more than a niche appeal. And for less profit. And with no potential upside except more subscribers.
With Apple’s model, you reward the record companies (and eventually a little trickles to the artist) directly for each purchase. Every record label (and artist) has a fair chance at direct revenue (AH… maybe that’s a problem for the big 4… ya think?) and consumers get a chance to purchase in their own manner – singles, hits, genre, albums. (AH… another problem. Consumer choice is not a favorite of the big 4 either.)
In addition, Apple’s upside is obvious – the more people download, the more they spend, the more everyone makes! Wow. Genius.
But no, the music industry looks to the Cable and Cell industries and sees the “subscription” model and thinks “well if we can just rope everyone in then we’ll have steady guaranteed income FOREVER! We’ll never have to work hard for individual artists again!”
As an observer of the consumer society in America, I happen to think we are approaching the point of “monthly fee overload” – wherein people begin to look at every one of these $40 – $50 – $60 monthly bills (cable/satellite, cell phone, DSL, home phone, gym membership…. the list goes on) and start to wonder if they need to pay every month for this stuff. Many are already disconnecting their home phones.
Consumers move in waves, tides of ebb and flow. I think we have reached the zenith of the subscription model, and I think people are going to become more and more wary of adding yet another monthly expense to their tab.
Good analysis there MCCF – I like your grand vision, even if it seems unlikely.
Alan, this is what’s been bugging me all along about the subscription model. It’s amazing to me that the record companies thought that people would flock to this and create a market for something that clearly doesn’t have much more than a niche appeal. And for less profit. And with no potential upside except more subscribers.
With Apple’s model, you reward the record companies (and eventually a little trickles to the artist) directly for each purchase. Every record label (and artist) has a fair chance at direct revenue (AH… maybe that’s a problem for the big 4… ya think?) and consumers get a chance to purchase in their own manner – singles, hits, genre, albums. (AH… another problem. Consumer choice is not a favorite of the big 4 either.)
In addition, Apple’s upside is obvious – the more people download, the more they spend, the more everyone makes! Wow. Genius.
But no, the music industry looks to the Cable and Cell industries and sees the “subscription” model and thinks “well if we can just rope everyone in then we’ll have steady guaranteed income FOREVER! We’ll never have to work hard for individual artists again!”
As an observer of the consumer society in America, I happen to think we are approaching the point of “monthly fee overload” – wherein people begin to look at every one of these $40 – $50 – $60 monthly bills (cable/satellite, cell phone, DSL, home phone, gym membership…. the list goes on) and start to wonder if they need to pay every month for this stuff. Many are already disconnecting their home phones.
Consumers move in waves, tides of ebb and flow. I think we have reached the zenith of the subscription model, and I think people are going to become more and more wary of adding yet another monthly expense to their tab.
Good analysis there MCCF – I like your grand vision, even if it seems unlikely.
Alan, this is what’s been bugging me all along about the subscription model. It’s amazing to me that the record companies thought that people would flock to this and create a market for something that clearly doesn’t have much more than a niche appeal. And for less profit. And with no potential upside except more subscribers.
With Apple’s model, you reward the record companies (and eventually a little trickles to the artist) directly for each purchase. Every record label (and artist) has a fair chance at direct revenue (AH… maybe that’s a problem for the big 4… ya think?) and consumers get a chance to purchase in their own manner – singles, hits, genre, albums. (AH… another problem. Consumer choice is not a favorite of the big 4 either.)
In addition, Apple’s upside is obvious – the more people download, the more they spend, the more everyone makes! Wow. Genius.
But no, the music industry looks to the Cable and Cell industries and sees the “subscription” model and thinks “well if we can just rope everyone in then we’ll have steady guaranteed income FOREVER! We’ll never have to work hard for individual artists again!”
As an observer of the consumer society in America, I happen to think we are approaching the point of “monthly fee overload” – wherein people begin to look at every one of these $40 – $50 – $60 monthly bills (cable/satellite, cell phone, DSL, home phone, gym membership…. the list goes on) and start to wonder if they need to pay every month for this stuff. Many are already disconnecting their home phones.
Consumers move in waves, tides of ebb and flow. I think we have reached the zenith of the subscription model, and I think people are going to become more and more wary of adding yet another monthly expense to their tab.
I always misread ‘phonographic’.
matrix3, don’t forget that what the labels get from every $20 of subscriptions is $1 to share between them all. At least with the iTunes model, 70% of the cash goes to the artists and labels.
I was hoping that somebody would have by now been able to say that I was wrong and give a more accurate figure than the 5% that I’ve long believed to be true. To be quite honest, I can’t even remember where I saw that figure mentioned, so I would suggest to people that they take it with a pinch of salt until somebody can confirm it.
I can see one reason why the labels hoped that subscription would work. If iTMS remains dominant, then the distribution of on-line music is in the hands of somebody else. The labels didn’t like it when MTV managed a similar feat and although the labels are completely unable to look forward, they are very good at looking backward and remembering situations that they didn’t like from the past.
If there were a profitable alternative to iTMS, Apple wouldn’t have anything like so much power. As it is, there is only one company that makes money from running an on-line music download service and it’s no coincidence that it’s the company that makes the whole operation easy to use, offers a fair deal with regard to DRM and sells the music at a price that people are willing to pay, which also offers a better deal to content owners than selling CDs.
The more I think about it – the reason why the labels are embracing the subscription model is that they assume 1 year from now the subscribers are in deep with collections they have “borrowed” and when it comes time to re-new the subscribers are locked in and have to pay the 10-20% yearly increase just to keep their songs.
The labels have a sure way of having (in their mind) a build in increase of revenue ever year, just like the cable operators.
Those rat B*@tards!
AlanAudio: I believe the subscription amounts going to the labels were higher, closer to $5/month for non-portable subscriptions and $7-8 for portable subscriptions.
That’s why everyone concluded that Yahoo was losing money on the deal when you included in the cost of maintaining the store (but of course, any loss is turned into a profit by advertising and other cross-functional benefits of drawing people to Yahoo.)
‘We thought subscriptions (services such as Napster and Rhapsody that offer unlimited music for a monthly fee) would be huge — it hasn’t been,’ he said.
Just as Steve said it would not be. I wonder where Apple gets its information from on things like this.
‘We’re at year zero — if that — with mobile,’ Nicoli said.
I can almost hear him begging for Apple to enter mobile, so they can get to year one. O what, o what is Mobile Me!?!?! Although Steve did also say that buying over the phone wasn’t a big market, either… (But we don’t if SJ’s comment only applied when referring to those inflated prices.)