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When will the music industry finally give in to iTunes?

updated 06:45 pm EDT, Wed May 26, 2010

Editorial: music labels can't change reality

(Editorial) A new NPD report was released this week, and to no one's surprise, Apple has increased its market share. According to the market-research firm, 28 percent of all music is being purchased on iTunes. Apple's store easily bested Amazon's MP3 marketplace, which accounted for 12 percent of all US music sales. Walmart also captured 12 percent of the market. Out of the entire digital-music market, NPD claims, Apple controls a whopping 70 percent.

NPD's findings should make Steve Jobs rest easily tonight. And if the music industry had any sense, it would make executives at all the top labels embrace Apple much more than they have in the past. But unfortunately, the battle between Apple and the record labels continues. And the only companies that are being hurt are the record labels.

For years now, record labels have had trouble accepting Apple as the world's go-to music retailer. Back in 2007, Universal Music Group's chief Doug Morris said that his company, along with other record labels, would have loved to get out of Apple's grips and work with another partner. But because iTunes generated so much income for the record labels, they were wearing "golden handcuffs." In essence, the labels were making too much money to leave iTunes. And Steve Jobs, knowing all too well that they needed iTunes, had leverage that made the record labels uneasy -- and possibly rightly so, as Apple is now being investigated for denying exclusives to Amazon.

Fast-forward to today and little has changed. In fact, the only major difference between now and then is that back in 2007, when Morris made those comments, Apple's iTunes store accounted for a much smaller percentage of all music sales. Today, it's enjoying 28 percent. And that number is growing by the day.

But for most record labels, Apple's growth is worrisome. That's precisely why the record labels have spent the last few years doing everything they can to fight Apple.

First, they worked with Amazon to help it open the first major DRM-free store. They also allowed Amazon to offer its songs for a cheaper price than those available on iTunes. Since then, the labels have applied similar pressure on Apple competitors, including Microsoft, which a few years ago, reportedly agreed to pay $1 per Zune sold to Universal Music Group just to get its songs in its marketplace. Just last year, two labels said that Apple should start paying them royalties for every sample a user plays before buying a song.

And all that fails to mention that the labels applied pressure on all music retailers to institute a variable-pricing model to increase sales revenue. Rather than offer songs at a standard price, consumers are forced to pay a different fee based on the desirability of a track.

That's just a sampling of the issues the labels have had with Apple. But they all call into question the labels' motives. Yes, they're running a business, and as variable pricing has become the norm, their revenues have still fallen. But why do they continue to fight Steve Jobs and Company? Evidently, they believe that Apple will cause their demise, rather than their success. But that could be a faulty belief. At this point, it's mostly iTunes that is keeping record labels afloat. And until Amazon or Walmart start acquiring the kind of market share only Apple enjoys -- which Amazon may be slowly achieving -- the labels have to play by Steve Jobs' rules.

Most executives at record labels might not like to hear that. They ostensibly believe that they've been playing by Jobs' rules for too long. But they have no choice. And to be quite honest, it's better to be friendly with the company that's saving your business than to be its enemy. Whether they like it or not, Steve Jobs still has all the leverage.

So, get over it, record labels. We're in favor of competition in the future, but you must start realizing that, without iTunes, you're in trouble right now.

By Don Reisinger






by MacNN Staff

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Comments

  1. afaby

    Joined: Dec 1969

    +14

    comment title

    I'm confused. If they are already making a lot of money off iTunes, what exactly is their complaint?

    The real problem is that iTunes allows independent artists to exist and flourish without the record labels. That's what they are afraid of.

  1. Omek

    Joined: Dec 1969

    +4

    More Money

    @afaby Because they want more money. Welcome to the free market. Expect them not to leave without a drag-out fight.

  1. MyRightEye

    Joined: Dec 1969

    -7

    I just bought my first 2 albums from...

    Amazon. They were on iTUnes, but for $2 more. iTunes also embeds personal info into each track of their "DRM-free" tracks. Since I like to be able to introduce others to the very unknown artist who's albums I bought, I chose Amazon. Even though I prefer the AAC format. So maybe Amazon has some potential.

  1. JulesLt

    Joined: Dec 1969

    -1

    Variable pricing

    There's nothing wrong with variable pricing - Apple went with it for Apps, for instance - and it exists in almost every market - including physical music (most older albums other than those by Beatles, Stones, etc, tend to be available cheaper).

    Afaby - unfortunately, not true. The majors get a better deal than independents, and iTunes held back on it's UK launch because Apple refused to negotiate with the independent trade body (instead insisting they would negotiate - and squeeze - each label independently).

    People don't sign with majors for their manufacturing and distribution (independent distribution has long been able to get hits into the same shops).

    What they sign for is investment capital and sales and marketing experience - the things that you don't have working on your own (and regular investment channels - like banks and venture capitalists - will just not touch musicians trying to set themselves up as a business).

  1. bobolicious

    Joined: Dec 1969

    +3

    Buy CDs?

    Sound quality is still an issue - all convenience aside compressed music is, well just that...

    I actually find it ironic that a company that seems to strive for design excellence in so many areas would limit audio quality...

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