“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
“Other models”
There is only one other model to-date – subscription services which have already prooven to be a niche market at best.
When spin is being played, you will see “other models” terminology being used. This is also another code word for “In the RIAA’s pockets.”
Fader is simply a spin doctor for the sleezy record industry. Don’t think it’s sleezy and just business? Look at the hores that they shove in front of a mic in attempts to try and sell lame music. Yeah, sleezy.
Scotty,
The “lock in” comes _after_ a consumer has purchased a bunch of music from iTMS, not before. But even then, it’s not true lock-in.
“[…] 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.”
That’s not entirely true. In fact it is “pay for play” or micropayments, if you will.
How subscriptions work is that it keeps track of how many times you play a song over a given period. It sends this information back to the subscription reseller who, in turn, writes a check to the various rightsholders based upon how many times you play a song.
So, as an example with made up numbers, if you play a Beyoncé song 50 times in a month, the subscription reseller writes a check to Sony for 50 cents. If you also play Ashlee Simpson a hundred times, they write Geffen a check for $1.
The reason it’s sold as a subscription is that it’s easier for consumers to deal with the “all you can eat” method than the “pay for play.” But the record companies are only getting money if you play the songs. If you don’t, they get bupkus. The subscription companies, of course, get paid no matter what. So it works out pretty well for them.
This is also another reason why you have to “dock” a portable player every month–so the info can be pulled off of it and sent to the subscription company.
“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.'”
First of all subscriptions are a cheap way for pirates to load up music for free.
There is software for PC’s, just like Mac’s, that will record the analog input. So all a person has to do is merely play through all the music (which they intend to do anyway listening to it) and the software will automatically record the song, save the file, search online for metadata and place it in their favorite MP3 organizing software, even iTunes.
How does this method, endorsed by the Labels, supposed to make any money?
Napster2 is dying, subscription based models are doomed to eventual failure. Why rent when one can buy it and own it forever?
Why buy it when one can subscribe to as much as possible and pernamently save the music?
Why rent when for penies a song it can be had from the russian web site? Or from Pirate bay for free?
Apple knows subscriptions won’t work, Apple is interested in appealing to artists to get their content on iTMS and any sane artist has to hate subscriptions.
Now about the flexible prices. When you go to a theater and see a bunch of movie listings, do you see variable prices for each movie?
No of course you don’t. You might see a cheaper price for all movies at a certain time of the day, but hardly different prices between movies near the same time. Why is this?
Because people base price upon quality. They see a cheap price and they think “oh that’s a crappy movie, I’m not going to waste 2 1/2 hours, I’m here to enjoy myself”. Even though they might actually like it, they think because of the price it’s not as good as one with a higher price. It’s called “price as a signal” and that’s why movie houses don’t have flexible prices.
The same thing works with iTunes. To Apple as a content deleiver, all music is good music. They don’t judge, they let the customer decide and don’t tell the customer what they think of a artists music by lowering the price.
The record labels do judge artists music constantly, as lots of people try to see if their music will be successful based upon what labels think of them. Also labels like control, and if they don’t particularly like a artist or wish to trap a artist into producing more music by manipulating their song prices they will.
Apple want’s none of that BS manipulation, they set one price, set one signal to all. With this “one price” mentality there is no favortism, “price wars” and “favortism” to one particular label or artist doesn’t occur. Everybody is the same at Apple’s table, this is the mature way and the best way to keep everybody involved.
Apple has to cater to all Labels and artists.
Unfortunatly a lot of Labels think they are the only one in the game.
I find it hard to believe that the artist would want to support subscriptions… How would the get their cut? they would have to share with all other artist. iTunes helps keep artist making good music.. If the music is good it sells if it sucks it doesn’t
“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 WHO? Almost certainly for the big record labels (hence, why they want it).
MAYBE better for a small percentage of consumers who get the full value out of a subscription (i.e they use it a LOT).
As for the artists — you know, the ones who actually CREATE the music and whom without there would be no music –the subscription model SUCKS.
“Woo hoo, we just made a fraction of a cent!! Man, I sure love the new subscription services!”
I don’t get the subscription business…
Just because I have access to 2 million songs doesn’t mean I’m listening to 2 million songs. I’d say that there are less than 175 songs per year that I want to hear more often than when they play on the radio. So I buy only the songs I want at $.99. In the last two years on iTunes, I have bought 327 songs – all of which I still enjoy today. That’s 164 songs or $164 per year, which is less than most music subscriptions. Plus, I can burn CDs for my car, listen to songs on my iPod and I own them forever. At the rate of Yahoo’s Unlimited To Go service, I’ll spend $720 in 5 years and when I quit the service – I own nothing. With iTunes, Yahoo’s or any $.99/song program, I’ll own 720 songs for the same price. If I buy albums, I’ll own even more!
I also believe that if everyone switched to subscriptions, the music industry would realize that they are limiting themselves to the equivalent income of 1 CD/subscriber/month. I won’t subscribe for that price and buy songs individually.
When it comes to listening to music before buying, I will say that Apple needs to quit automating the process. I have listened to a few 30 sec samples that were very poor representations of the song. I’d pay $2.99/month to listen to full samples of any song – just to cover Apples bandwidth costs.
——————————————-
Urge All Access: $9.95/mo
Urge All Access To Go: $14.95/mo
Yahoo Unlimited: $6.99/mo
Yahoo Unlimited To Go: $11.99/mo = $144/yr
Napster: $9.95/mo
Napster To Go: $14.95/mo
Rhapsody: $9.99/mo
Rhapsody To Go: $14.99/mo = $175/yr
Whatch this then tell me more BS about the Record Industry & RIAA sock puppets!!!
The Way The Music Died:
http://www.pbs.org/wgbh/pages/frontline/shows/music/view/
Musicians, record industry insiders and journalists examine the forces that have emerged over the last 20 years that have helped push the music industry to the verge of collapse.
Apple saved the music business from it’s own stupidity, by devising a way to make paid downloads appeal to ordinary people, as an alternative to pirating music. As a result, the music business has received a billion dollars that wasn’t previously being spent, single sales ( including downloads ) have completely turned around.
Now you might think that the music business would be smart enough to realise that Apple has done them a big favour and the present arrangements are batter than anything that’s gone before, but the labels are so stupid that they are intent on wrecking the best thing that’s happened to them in years.
The public simply don’t ask for subscription services, all the noise comes from the people wanting to sell subscriptions, but the public are wary of committing another regular payment each month on top of all the others.
Personally I want subscriptions to be launched. I want a huge amount of money spent on the promotion of them and I want the public to refuse to have anything to do with them. Finally, when the whole enterprise crashes around them, the labels will learn who it is who understands the music business.
Apple is of course a foe to the lables. A very dangerous bedfellow for them. As digital content becomes the standard (and it will, just like you can’t buy a 45 single and it’s hard to find casette tapes these days) over the next decade, what is to stop Apple from splitting off iTunes, and iTunes from becoming the label? Why would an artist sign on with a label to get a nickle per song when Apple might give them 60 cents? That’s quite a multiple, and that, more than anything is what must scare the labels.
Apple is a danger to a lot of entertainment companies right now- ranging from hardware (stereo, phone, dvd player, pc box maker, et al) to software (integration, photo editting, ect) to content (movie, music). Apple is forging one ring to rule them all. And lucky for Apple, the competition is too eclectic/ diverse to put up a unified front. And I think some industries really don’t see it coming. . .
I know how things will play out. Microsoft will build a PC only player that only works with IE 6 or IE 7 and media player 11 which Mac users are totally locked out of as always and there rental skeem will fail just like all the rest because they just don’t get it. Charging more will just bring more customers to iTunes so Microsoft, go for it and charge 1.99 a song and see how many customers you won’t get. And if the music industry forces the issue they will lose more customers and they will go back to pirating which is why Apple started iTunes in the first place to stop or at least slow down the pirating and it has worked. But if you listen to this guy who thinks raising prices will oppease the record labels he and the record labels are in for a big shock as the people will stop online music shopping and go back to online pirating.
bravo to macbones, I was wondering when someone was going to see it. The last obstacle before they can become a music label is the fight with Apple recording. If they can ever make a deal or buy them outright, the majors will have a sht fit. Once Apple can sign the artists directly, what’s the use of having the middle man who rips off all the profit.
Consumers have spoken with their wallets and chosen the purchase model over the subscription model.
Apple didn’t make the choice, their customers did.
The subscription model is only good for the people cashing the monthly payments. Consumers are tired of monthly payments. We’ve got monthly payments up the ying yang.
…As digital content becomes the standard…
Oh bullsheet, unless you have been living in a cave, only a small percentage of the population uses computers. A lot of computer users still buy cds!!
what is to stop Apple from splitting off iTunes, and iTunes from becoming the label? Why would an artist sign on with a label to get a nickel per song when Apple might give them 60 cents? That’s quite a multiple, and that, more than anything is what must scare the labels.
Apple is already selling independent artists music online, there is CD Baby and other services that will put your music on all the online services and only take a few cents per song sold. It’s already done.
BUT! The Record Labels have far more reaching influence, they can get your music heard on radio stations around the world. They can finance concerts, they can do more than any online store because they can deal with everyone, not just computer users.
Apple is a danger to a lot of entertainment companies right now- ranging from hardware (stereo, phone, dvd player, pc box maker, et al) to software (integration, photo editing, etc) to content (movie, music). Apple is forging one ring to rule them all. And lucky for Apple, the competition is too eclectic/ diverse to put up a unified front. And I think some industries really don’t see it coming. .
With less than 5% computer market share?
With only 70% market share for music devices?
No, Apple will maintain a lead for some time, and as the market diversifies there will be other players/options. It’s all who is making a profit and can remain in business.
I think the fear should be of what moneybags Microsoft can do than little o’ Apple.
Look here!!
Just look how much the Music Labels are taking in per SONG!!
72 1/2 ¢
http://news.com.com/2061-10802_3-6098935.html?part=rss&tag=6098935&subj=news
Apple is doing the labels a favor by staying away from subscriptions and locking iTunes to iPods.
But the labels want variable prices and subscriptions to shoot themselves in their very own foot.
Steve Jobs is the world’s best salesman.
iTunes Model: YOU own the music!
Subscription Model: The music industry owns YOU!
Subscriptions are good for DJ’s and pirates.
Since most iTMS users have only purchased under 200 songs, it’s a scam to pay $12 a month for nothing they own.
Buying cd’s is stupid as well, because once one has a sizable collection of several thousand songs, the “filler” immediatly becomes apparant.
I could have saved thousands of dollars if I started my music collection with iTunes.
Subscriptions are good for DJ’s and pirates.
Since most iTMS users have only purchased under 200 songs, it’s a scam to pay $12 a month for nothing they own.
Buying cd’s is stupid as well, because once one has a sizable collection of several thousand songs, the “filler” immediatly becomes apparant.
I could have saved thousands of dollars if I started my music collection with iTunes.
think of the subscription model as making car and house payments for you and your wife, but not getting any hot meals or putang.
if you subscribe with the record labels, they no longer have to produce, good music at least, because you won’t want to end the subscription and lose the few great older songs you have. The labels could create a new pop bimbo every month, and even start new groups using their pop bimbos sisters and cousins and even neighbors, because everyone knows that teenage girls are very smart consumers and they understand that if your on the radio, you must be fantastic, and anyone remotely related to you must be fantastic too, so they should follow everyone else and buy it too. Meanwhile, the labels raise the prices on the subscriptions because all other types of music are commercial ‘failures’ and must support the million dollar videos of the pop bimbos who are so good, you don’t actually get to even own the music, but Jenny and Mindy don’t care because they’re having a slumber party friday night and will pillow fight to pop tunes streamed through Urge, at least until they can get a Zune and have their little brother connect it to his xbox 360, so then they can play music throughout the house, when they’re not watching the new 8 million dollar video.
But the real men won’t buy into it.
The FREE MARKET has spoken.
Apple didn’t get big by selling things people don’t want.
Do the music companies want to sell music or not? There are plenty of subsciption-based sites out there to buy from. Why don’t they get bigger than iTunes? Because the buyers don’t want to buy that.
Bottom-up always works better. Free Market. Let the buyers decide. Don’t let the sellers decide. That’s what screwed up our medical system! And our schools!
it’s easier to cheat artists off their royalties under a subscription model
I think that Apple should try to get them to offer a Subscription service in addition to the pay-per-download on the condition you can burn CDs with your subscription. I download tons of music each month and would certainly benefit from a subscription-based service as opposed to song or disc downloads. (Just today for example I purchased 2 complete albums and a couple files from another). This would certainly benefit mega-music-consumers.
It would also serve as a test to see how many people actually would use this service. While I know I would, I realize most people wouldn’t.
QUOTE: “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.”
As Steve used to say, “consumers have plenty of choice, some people just don’t like the choices consumers are making.”
Apple isn’t dominating anything, consumer are!!
“There is software for PC’s, just like Mac’s, that will record the analog input. So all a person has to do is merely play through all the music (which they intend to do anyway listening to it) and the software will automatically record the song, save the file, search online for metadata and place it in their favorite MP3 organizing software, even iTunes.”
That software sonunds amazing. So you’re saying there is software that can (a) record whatever is playing on the computer, (b) recognize when a song starts and ends (c) use the Internet to determine the correct id3 tags for that
song (based on i’m guessing some sort of audio spectrum analysis combined with song link) (c) import those tracks into iTunes converted to my favorite format (say, mp3)?
I call bullshit. Here are the steps I take to record an LP. (a) real time record (b) use an auto track define, but go through and manuanlly adjust (it is almost never right) (c) add song and album name information (d) import to itunes (e) clean up tags in itunes (f) burn a backup full quality CD (g) convert to a more compressed format (if its not too important).
Let me know when software can do all of this for me. I am interested.
This guy’s on crack – period. Any sentence that has “…should help Microfsoft become competitive…”, in it, indicates a real need for a reality check.
The only thing that the world needs to help MS with, is to reduce their market share so that we can have real competition in all aspects of of personal computing rather than this dismal monotechnocracy that we live in now.
Articles like this honestly want to make me hurl.
The writer of this article is obviously in MS’s back pocket – NEXT!