Analyst: Apple in driver’s seat when it comes to renegotiating with music labels

“Three years ago, Apple Computer Inc. chief executive Steve Jobs persuaded major recording companies to buy into his vision of a simple, one-price-fits-all online music store. As Apple’s iTunes grew into the undisputed king of digital music sales, recording companies welcomed the revenues to cushion a five-year decline in CD sales,” The Associated Press reports. “Now, however, some labels feel hamstrung by Jobs’ insistence on pricing all tracks at 99 cents. With the labels expected to enter into music licensing discussions with Apple this year, any moves by Apple to abandon uniform pricing will test whether music fans are willing to pay more to download music that many only a few years ago acquired for free.”

“Recording labels make about 70 cents per download but could pocket significantly more by increasing retail prices by just a few cents,” AP reports. “Last fall, Warner Music Group Corp. CEO Edgar Bronfman Jr. suggested Apple should allow different download prices for songs and even give the labels a cut of iPod sales. EMI Group PLC CEO Alain Levy agreed that songs by top-selling bands should be priced higher while tracks by lesser-known artists should be discounted — essentially the same approach to wholesale pricing in place for CDs and most consumer goods of varying quality. Jobs has argued that recording companies already make more profit by selling a song through iTunes than on a CD, which carries extra marketing and manufacturing costs. ‘So if they want to raise the prices, it just means they’re getting a little greedy,’ Jobs said at the Apple Expo in Paris in September.”

“Today, according to Apple, iTunes has roughly 80 percent of the U.S. music download market, running well ahead of rivals like Napster Inc. and RealNetworks Inc.’s Rhapsody, both of which remain focused on subscriptions,” AP reports. “Apple does sell albums at different prices. And some online music retailers offer song downloads as low as 79 cents. But the bulk of single download sales remain at 99 cents, a price seen as a key threshold for music fans… As the labels and Apple hash out their differences, Apple’s market dominance likely puts it in the best position to dictate terms, analysts said. ‘The power balance at this point is probably still going to be on the side of Steve Jobs and Apple,’ Kleinschmit said. ‘Can the record labels really afford to pull their catalog from iTunes?'”

Full article here.

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24 Comments

  1. So the record labels make 70% on each song sold, while Apple pays for advertising, software development, support, and hardware (storing all the songs and delivering them over the Net). I can see how the labels are getting robbed.

    Maybe that’s why Apple Records is suing Apple Computer – they’re not making any money on iTunes, and just wants to join the profit slopfest!

  2. let’s see…… 1 billion songs sold divided by apple’s take of 29 cents per track makes apples take 290 million. Minus servers and paying the team that develops the software and maintains the site.

    A nice profit, but not anything like what the record companies are getting for their effort.

    They want variable pricing because now you can buy just the one song from a cd that you want, and don’t have to purchase the 9 other filler songs. Their profit is down because their market strategy has been get one or two good songs on a cd, add in 8 – 10 fillers, and charge 15 bucks. Of course they are upset, now they have to work harder to get the customers $$.

    I haven’t bought a CD since the itms opened, doubt that I will ever do so again. Unless they change the price structure. Then maybe… but only for the CD’s that have a ton of good cuts on them.

  3. The CD era was the only time in recorded music starting 100 years before that the labels were able to force the general public away from singles. In the beginning any recorded music was only available as singles, first on wax cylinders, then on single-sided wax disks. Until the late 1950s, and the birth of LPs, music saw only available on two sided wax disks carrying only two songs, the famous side A and side B. With the advent of LPs, popular music was still marketed on two song singles called 45s Certainly, any top hit from the Sixties or Seventies was available on a 45. The murder of the 45 by the music industry was the beginning of the decline in sales of the CD as many people refiused to pay all that money for one or two great/good songs.

    I thank Steve for returning us to the era of the single and the ability to buy just the music you want.

    Happy 30th Birthday, Apple!

  4. The more the record industry fat cats complain the more likely they are to get a very detailed proctology examination from a very butch nurse with very BIG rough hands (Eliot Spitzer) with regards to their pricing structure.

    Are we grimacing yet ” width=”19″ height=”19″ alt=”wink” style=”border:0;” />

  5. Jim said; “cptnkirk… uh… didn’t the 45 die because of the album, and was already long dead before the invention of the CD?”

    No. The LP album and the 45 were co-temporal. You could by Beatles LPs or 45s at the same time. The single often presold the LP. I have 45s from the 1980s and early 1990s just at the dawn of the CD era. CDs LPs and 45s all were on the market at the same time as the labels tried to edge us toward the new technology. Much like will happen soon with the new DVD format.

    Interestingly, for a short time, CD singles were also available. But he labels killed them as quikly as they could to force us to buy the full CD.

  6. Dirty secrets the labels don’t want to talk about.

    1) the labels look at all illegal downloading and immediately translate that into lost sales regardless of the fact that people who steal music wouldnt necessarily buy it even if they had the money to do it. People are psychologically inclined to take something that is free even if they don’t like it or need it.

    2) most people who pirate music can justify it in their own minds because they know the labels are blatantly ripping off the artists. Perhaps if the artists got the lion’s share of the money made from their hard work people would be more inclined to pay since it would be a bigger punishment to teh artist, not the coke snorting leeches who currently make most of the profit.

    3) the labels want variable pricing so they can use it as a bargaining chip against artists. Sign our deal or be exiled to the 79cent download pile instead of the premium $1.99 download elite.

  7. “Apple should allow different download prices for songs and even give the labels a cut of iPod sales”

    ????????????????????????

    A cut of the sales for IPods hahahah seriously did they just say that?????
    That is the best thing I have read yet about this situation.

    Steve Jobs – Yeah right…… let me go and do that lol

  8. Yea, a few of the record label execs mentioned they deserve a cut of the iPod sales. What a fricken joke! Let me see now, Apple designed them, built them, markets them, created the software for them, and sells them. So what contribution did the record labels make to the iPod. A big fat ZERO!!!
    And that’s what they’ll get from Apple. Not to mention the fact that Apple markets the ITMS, serves up all the record labels songs and albums and takes care of all the sales. What do the record companies do? They take in 70% of the profit. That’s all. Apple does everything and makes them fricken rich. So do they deserve to raise the rates of music downloads? NO! I totally agree with Steve Jobs. There CD sales keep dropping because people don’t trust them anymore. Sony pulling a fast one with there spyware ridden, copy protected crap they marketed as a CD. The more they try and protect there stuff the more people are turning away from it. Maybe one of these days they’ll open there eyes and see how stupid there copy protection is and how it is turning people away from buying CD’s which are over priced as well.

  9. Since when has the CD single been killed off? In the UK all major singles are released on CD for about $3.

    You can also get all the back catalogue singles from various shops for as little as .50c. I have built up a collection of decent rare live recordings and other b-sides from these singles and payed less than on iTunes in the process.

    Tim Coughlin
    http://timcoughlin.typepad.com

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