Apple friend or foe to music industry?

“As new models develop for the music industry, it could increasingly find itself at odds with Apple, which arguably brought the RIAA and its members into the digital age, says Wharton marketing professor Peter Fader Indeed, the music industry’s relationship with Apple gets more curious as the music industry branches out,” Knowledge@Wharton reports.

Knowledge@Wharton reports, “The paradox: Currently Apple doesn’t buy into the subscription music model, which would provide the industry recurring revenue. In that light, Apple, whose main goal is to sell iPods, could hamper the industry. While RIAA CEO Mitch Bainwol says the RIAA is ‘thankful for the vision of [Apple CEO Steve] Jobs,’ other analysts have doubts. Kendall Whitehouse, senior director of information technology at Wharton, for example, notes that the industry’s failed efforts to get Apple to change its iTunes pricing to reflect different levels based on demand illustrates the tension between the two parties. Then again, the music industry has little choice, says Whitehouse, who notes that Apple controls pricing power because the industry failed to create its own digital distribution effort earlier. ‘Apple helped start legitimate music distribution with its simple 99 cent-per-song model. While the industry has pushed for variable pricing (say $1.99 for a hit song and 50 cents for an older tune), the fact that Apple hasn’t budged shows who has the upper hand.'”

“Others, including former musician Jeffrey Babin, India global country manager for the Wharton Global Consulting Practicum, Inside Digital Media senior analyst Phil Leigh and Wharton business and public policy professor Joel Waldfogel, downplay any tension between Apple and the music industry. While acknowledging an ‘interesting symbiosis’ with Apple and the music industry, they claim it’s in both parties’ interest to maintain long-term ties,” Knowledge@Wharton reports.

“Fader, however, doesn’t buy it. He maintains that Apple is a foe — or at least will become one. Apple’s dominance in the music industry means that one model — downloading music — rules the roost when there may be better options, such as subscription-based businesses. ‘Apple gave the industry a wake up call, but it has taken away the flexibility on pricing and promotion,’ says Fader. ‘The iPod is a killer device in more ways than one,'” Knowledge@Wharton reports.

“Leigh says that if the music industry is truly worried about Apple, it should help Microsoft become a stronger competitor. Microsoft could offer a counterbalance to Apple and boost alternative business models. That day may be coming. On July 21, Microsoft confirmed that it had plans to develop a new digital music and entertainment brand, called Zune, that could compete with the iPod,” Knowledge@Wharton reports. “Given that it’s not clear what online music formula ultimately wins, it only makes sense for all involved with the music industry to try a little bit of everything, says Waldfogel. ‘Since we don’t know how [things] will play out, this is a good time to experiment.'”

Full article here.

Related articles:
Consultant: Apple iPod dominance holding back subscription services – April 17, 2006
Napster to shift focus from subscriptions to ad-based business model – March 27, 2006
EMI Music Chairman: Music subscription services like Napster and Rhapsody haven’t beeen huge – January 23, 2006
Study shows Apple iTunes Music Store pay-per-download model preferred over subscription service – April 11, 2005

50 Comments

  1. The desire for a subscription model is sheer greed and laziness on behalf of the record companies. They want to charge us the same amount of money every month regardless of how much new music comes down the pike every month. It’s an inverse of the old “pay for play”; here they want us to pay every month no matter how much play there is. What a slap in the face.

    As for iTMS taking away variable pricing, oh boo hoo. If the record companies had their poop together, then there would have been no iTMS in the first place. It’s the incompetence of the record industry that landed them where they are. But it’s easier to blame Apple than it is to admit that they had no answer to losing millions of dollars a year (or whatever they said they were losing) to piracy.

    Besides all that, not every band is on iTMS. No-one says they have to be on there, so what’s the big deal anyways? If you want to sell your music that way, do it. If you don’t, then don’t. So what?

  2. Because they know that the average person spends less than $20 a month on music, and spends sporadically. With subscription you have a constant income from people, effectively making more money from them.

    It doesn’t matter how much the public doesn’t want it, the music industry does and will do anything to force it upon you.

  3. Apple’s dominance in the music industry means that one model — downloading music — rules the roost when there may be better options, such as subscription-based businesses.

    Better for them. Not better for the consumers.

    Pity the poor record companies. They want to be able to shove subscription services down the consumers throats, but they can’t, because that nasty Apple is so obsessed with giving them what they actually want!

  4. I like what BustingTheSkullsOfIdiots said: “Besides all that, not every band is on iTMS. No-one says they have to be on there, so what’s the big deal anyways? If you want to sell your music that way, do it. If you don’t, then don’t. So what?”

    It’s free market and it’s right on!

    MW: “develop” If you don’t like it — then develop your own distribution system and compete with Apple and the smaller players! It’s called free enterprise for a reason!

  5. I think the folks at Wharton have too much starch in their shirts.

    Their (and other’s) obsession with the subscription “business model” for music distribution is a joke and shows how out of touch they really are.
    All of these “subscription model” dweebs tend to treat music consumers en masse like we have no capability to think for ourselves. I believe that the majority of music consumers have weighed the options, thought things thru, and have voted with their pocketbooks, against the subscription model.

    Afaik, the last thing consumers want is one more hand in their pocket, especially if Microsoft is any part of it.

  6. I wonder if any of the suits at Wharton — who sit around all day in their Ivory Towers — and then try to teach business to the students — have actually ever, in their whole lives, created a business of their own?

    Those who can — do. Those who can’t — teach.

  7. Apple is a foe to the old model, a foe to the subscription model, and a foe to the variable pricing model.

    Apple is a friend to legal downloads, to a new model where consumers have greater choice (hey, I can buy 10 tracks from 10 different acts instead of 1 CD! – yes, I too think the quality of the encoding is still a problem here), and the ability of consumers to have a greater voice in pricing (by Apple holds the line on 99 cent/track because they believe it is the cutoff point for consumers).

    The old model has made cookie cutter pop music the leader in the industry.
    The subscription model is good for the labels, but bad for consumers.
    The variable pricing model – ever hear the labels say they will charge less than 99 cents a track in this scheme? If they are selling tracks at 99 cents, what is their motivation to lower the price for anything that has sold at all? There is none. Only tracks that rarely, if ever, sell will be less than 99 cents. The price of everything else will go up. The median track price will go up. Good for labels. Bad for consumers. Not only because of the cost, but because it is their way to stick to the current model of promotion and pay for airplay that have given us the current music by the numbers crap that dominates music today.

    The only thing Apple is hampering is the ability of the music industry to keep their shaft out of the consumers ass. They may replace the current CDs for $16 shaft for a subscription shaft, but it will be just as big and there will still be no lube.

  8. Is it just me, or has anyone else noticed that in advance of the Microsoft Zune launch, that a growing number of articles are appearing in the media critical of Apple, the iPod and iTMS?

    Consider this: each day, an army of over 1,000 public relations professionals, either directly employed by Microsoft, or indirectly via its PR firms (led by Waggner Edstrom), marches in lockstep to position Microsoft and its products, and help sow fear, uncertainty and doubt (FUD) and its competition. That is a quite formidable indeed.

    In the early 1990s, in the depths of Apple’s then-beleagured status, I wrote Guy Kawasaki, who was at the time the company’s chief product evangelist, about this. At the time, Apple was getting slammed in the media on a daily basis. Every negative article took the company down another notch, in sales, per-share price of its stock and public confidence. Although the company had obvious problems, I also saw promise, and sensed that another force was at work, one hidden behind the negative, eviscerating chorus from the business and IT media against Apple. When I wrote Guy to wonder if the negative press was more orchestrated that would meet the eye, Guy was very affirmative. He said that he knew a coordinated campaign of negative press was being directed at Apple, but that was as much as he dared to say. I never forgot that.

    It’s amazing what the power of influence can do. PR professionals on a daily basis call their media contacts, pitch their positions, and do many things to win the affection of a journalist. Access to high-placed executives for an exclusive interview in return for an article pushing your point of view. Free flights to lavish, all-expenses paid meetings. Free goodies, like the first of a software and hardware product. You get the idea. Influence peddling can be pretty powerful.

    In the next few months, watch the media heat up with stories about Zune, and don’t be surprised if you see an increasingly negative press about Apple, the iPod and iTMS. If you do, remember this posting. Journalists can be bought off like anyone else. And a company with incredibly deep pockets can do much to help an opportunistic journalist’s career.

    Behind the headlines, an ugly battle is taking place.

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