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