July 5th, 2007
Revenge of the record labels: Is it Apple's turn to knuckle-under?
Apple CEO Steve Jobs has had a knack for getting entire industries to knuckle under to his demands. It was just over a year ago that the four major record labels — all of whom wanted more control over the pricing of downloaded songs from their artists — knuckled under to Jobs’ one price (99 cents) fits all policy. With more decision making control over song pricing, record labels could have charged more than the standard 99 cent fare for songs from their current chart toppers and less (as little as 10 cents) to boost sales of older or less popular music. For music fans like me, I’d be buying a lot more music from the 70’s if I could get it at a lower price. But it’s not so important to me that I’d be willing to pay 99 cent per song for it. That archive of music represents a potentially great revenue source for the record labels who can use any new source of revenue they can find these days, particularly given how piracy has taken a bite out of their profits.
But when they knuckled under, it was basically an admission that Apple’s iTunes Music Store (iTMS) as a channel was so important to their future that they had to give Jobs complete control over song prices. It was a stunning concession and a sign that the popularity of Apple’s iPods along with the company’s digital rights management technology (DRM) that makes iTunes-purchased music unplayable on anything but Apple’s technology was the source of Jobs’ control.
Since then, barring the movie studios who, unlike the record industry, know they have what Apple needs (and not the other way around), not much has changed in terms of Jobs ability to getting people and industries to bow to his will. Knowing full-well that the major record labels wanted the copy protection assurances that go with DRM (what I call CRAP), Jobs issued a red herring of a clarion call to eliminate DRM (see Jobs drowning in his own Kupertino Kool-Aid). One of the major record labels — EMI — has since bitten on the DRM-free idea, now having done deals with Apple, Amazon, and Microsoft but others have yet to follow. The supposedly DRM-free music being sold by the iTMS has turned out to be not so DRM-free. The iTMS, now the third largest retailer of music in the US, has only grown in size and might:
For the first quarter of 2007, the iTunes Store had 9.8 percent of all music sales, behind Wal-Mart’s 15.8 percent and Best Buy’s 13.8 percent. Amazon.com trails iTunes, at 6.7 percent.
And now, for the first time in another industry’s (wireless carriers) history, a handset manufacturer (Apple with its iPhone) is calling the shots instead of the other way around.
But as of last Sunday, as Apple’s mojo finally begins to ooze across the telecommunications industry, there’s a new stick in the mud: Vivendi’s Universal Music Group. Formerly one of the “majors” to knuckle-under to Apple, the record label is on the verge of doing an about face. According to the NYT’s Jeff Leeds:
The Universal Music Group of Vivendi, the world’s biggest music corporation, last week notified Apple that it will not renew its annual contract to sell music through iTunes, according to executives briefed on the issue who asked for anonymity because negotiations between the companies are confidential.
Instead, Universal said that it would market music to Apple at will, a move that could allow Universal to remove its songs from the iTunes service on short notice if the two sides do not agree on pricing or other terms in the future, these executives said.
Hallelujah. It’s about time. That’s all I can say. And the sooner the other majors follow suit (actually, Sony-BMG just re-upped a one year contract with Apple) the better. Apple may now be the #3 music retailer, but it won’t be there for long if iPod owners can’t get access to artists like U2, Akon and Amy Winehouse. Emboldened by a record label rebellion, Wal-Mart, Best Buy and the usurped Amazon (the latter of which is clearly gearing up to take on the iTMS) might have the collective muscle to bring Jobs, Apple, and the iTMS down to earth — a competitive prospect that can only yield positive results for consumers who deserve to have record labels, music stores, and device manufacturers battling hard for their money.
All this said, if Universal’s move is the bluff that some are saying it is, then the music industry’s back will end up permanently broken. At this point, the other record labels need to join in and join in now.
