Apple's relationship with the record labels starting to sour?
posted Apr 15th 2005 12:19PM
Everyone usually gushes about how brilliant Apple was in being able to corral all the major labels together for the
iTunes Music Store, but
is Stevie J.'s insistence on everything being his way or the highway putting Apple's relationship with the labels at
risk? Doesn't look like anyone is going to be pulling their catalog from the iTunes Music Store any time soon, but CNET
does have a story today about the growing tension between the record labels and Apple. Nothing particular
surprising—it's mainly that the record labels want more flexibility in being able to charge more for new hit songs and
(supposedly) a little less for older titles and that they'd like Apple to open up its FairPlay DRM to other MP3 player
manufacturers because they think it would help them sell more songs (they shouldn't get their hopes up)—but the twist
here is that these dissatisfied labels are taking a good long look at the wireless carriers as alternative partners to
Apple.
From the perspective of the record labels, the carriers offer a more secure retail environment (they can DRM all this
stuff like crazy), and since the carriers are also dying to start selling wireless downloads, are probably more likely
to give the labels the pricing flexibility they crave (they think they can get more than 99 cents per song for wireless
downloads, which is probably wishful thinking on their part). Cutting a deal directly with the wireless carriers would
also take advantage of their growing reluctance to carry
handsets like Motorola's forthcoming iTunes phone, which they're not particularly stoked about because it
encourages customers to load up their phone with music by syncing it with their PC rather than by downloading it
directly over wireless networks (the carriers are counting on wireless downloads as an additional revenue
stream).
So is Apple going to be knocked off its perch? They currently dominate the legal online download market, so it's hard
to imagine any of the major labels refusing to let Apple sell their music via the iTMS, but it's also not inconceivable
that they'd use partnerships with wireless carriers (as well as other online stores) to try and gain a little leverage
in their dealings with Apple.
Buying music over your cell phone instead of your iPod? Hmmmmmm..... that's a stretch. Not that many people have the phones for this.
Psychologically, Apple has hit upon the complete sweet spot for digital music. 99 cents, no more, no less... Buy it, download it, no membership. It's working great because it works great.
The record companies could try everything mentioned in this article... won't make a dent, and they'll come back to Steve.
They currently dominate the market in the US. If I'm any example, not in Canada.
Yes, they opened iTMS.ca. But have you seen the selection? Its more dismal than a Columbia House catalogue. Compare to the US store and you'll fall off your chair laughing.
I have yet to meet anyone who can explain to me why this is. I bought an iPod under the impression that we'd be getting the iTunes Music Store that I'd been observing from afar, not an empty Canadian version. I'm two steps away from eBaying the thing for this reason alone. Too bad, I really love the thing.
It's because of Canada's restrictions on music downloads and the licensing of songs in general ... it's your country's (and label lobby) fault ... not Apple's.
You do realize you can load Mp3s right?
A lot of people are going to hope apple gets knocked down. I personally would prefer this current setup of $.99 songs to $2.50 for music I have to buy over my freakin' cell phone and can't get OFF of my cell phone because its so heavy with DRM.
Adam, I would bet the problems with the iTMS Canada has something to do with distribution issues/rights with the record labels and not Apple. Why would Apple purpsosfully not offer all the songs? It would only hurt their business.
I think it's obvious the problem is with the record lables. We are already paying almost as much for music if we get it from iTunes, and you are more limited than with what you can do with a ripped CD, yet still they want more more more money, more more more DRM.
Someone, maybe it will be Apple, maybe it will be someone else, has to blow the model up and send the record companies packing.
So basically, the record companies are complaing that Apple won't let them charge exorbitant amounts of money for a song.
Gee. So instead, they're going to partner with carriers and corner the lucrative ringtone market?
Get real. If I could, I'd load my phone up with music. It's smaller & more convenient than my iPod. But I'd never buy music through my phone. On-phone services cost too much as it is. Why would I buy overpriced music through my carrier?
What the record companies are worried about is that Apple may have won the online store battle, which would seriously reduce their pricing leverage even more down the road. Nobody wants to cede pricing power to someone else.
The record companies really don't have a lot of options. Maybe they can buy the iPod and iTMS from Apple for $20b, and call it even?
#2: Really? (/sarcasm) The whole point in me buying the thing was to make CDs go the way of the typewriter. I don't want to deal with physical media anymore! (I'm a TV Engineer, so I know all the tech behind this stuff)
#2/3 (re: Labels): But, for the most part, these are the same labels/artists as south of the border! Why would they release less of their content for online sale/distribution in one country than another?
And as for govn't intervention, you're telling me there's a law that says John Mayer (Random example) can sell his old album on itms.ca but not his new one?
It just doesn't make sense. I may be oversimplifying, but I look at things with a wide lens. I think I'm going to stir the pot and start calling around. I'll claim I'm doing a story. This is starting to get under my skin - I want to know what's behing this random act of idiocy.
To Apple: Make it easy for artists you release their own music and promote themselves through the iTunes store. Steal them away from the labels.
To the "publishers": Bite down on your cyanide capsule.
Is it really still possible to make money while being totally
antagonistic to your customers & brutalizing the very technology you
purport to sell?
So the cel carriers don't want us to play music we download over the
computer on our phones because they want to charge us to download it over the air. Can I count on this sort of stupidity being reflected
in the market? I could use the extra cash.
Let's get it straight: I love web surfing & getting email on my phone.
But, it's far far (^infinity) slower, worse, buggy, painful, miserable
than just using the "normal" internet. So the obvious plan is to use it when it's justified, like reading your email on the road etc, but use the
old-fashioned internet to download 50 megabyte music albums.
It is clear that cel carriers see both their customers AND doing their
job merely as necessary evils required to bill people every month.
Rus,
Canada's laws on music downloads are much more relaxed than the United States. The Supreme Court ruled in it's favour a year ago.
otakucode - excellent idea.
Apple should make it easier for artists to sell directly thru them. Split revenues down the middle - more money for apple and more money for the artist.
Music licensing rules/agreements in your country/territory has all to do with why you may or may not see the same catalog from iTunes store to store. It's not Apple's fault.
Also you can rest assure that the majority of iPod owners did NOT buy them because of the catalog listings on iTMS. They mostly own cds, vinyl, mp3s, etc. that they'd like to have in a easy-to-use, portable format.
What other way(s) is easier, more portable, more gratifying than ripping your cds through iTunes and dumping them to your iPod? It's applesauce. Easy 1-2-3 and Apple's song and hardware sales reflect this.
Please share with us the other ways that are easier.
Music licensing rules/agreements in your country/territory has all to do with why you may or may not see the same catalog from iTunes store to store. It's not Apple's fault.
Also you can rest assure that the majority of iPod owners did NOT buy them because of the catalog listings on iTMS. They mostly own cds, vinyl, mp3s, etc. that they'd like to have in a easy-to-use, portable format.
What other way(s) is easier, more portable, more gratifying than ripping your cds through iTunes and dumping them to your iPod? It's applesauce. Easy 1-2-3 and Apple's song and hardware sales reflect this.
Please share with us the other ways that are easier.
Unfortunately, Apple does not have enough leverage to assuage the record labels for very long. Think about it: The recording industry is big. Real big. Apple is big, but it's not an island. Apple's incredible profit increase over the past year was based almost soley over the capitalization of the iPod and digital music. Apple NEEDS the record labels to sell music, and by extension, merchandise (iPods, accessories, etc).
The recording industries don't NEED Apple. They have dozens of companies falling all over themselves trying to get into bed with them. So Stevie J says 'No way, we're .99/track or nothing!'. 'Okay', says the labels, 'have fun selling indie lable products!', as they stroll over to MSN. Or Wal-Mart. Or MusicMatch. Or Napster. Or Sony. Or freaking 7-11!
Apple is dependant on the record labels, not the other way around. In fact there is practically no leverage on their part. The only selling point they have is the fact that they have been extremely successful marketing not only their own product, but the product of the record labels as well. But don't think for a second that the labels don't know Microsoft can do just as good, if not better, at selling digital music than Apple if given the preference.
I have a point somewhere in there, I just started ranting (bad day).
Well trust me, Apple's exit strategy and leverage comes from the fact that RIGHT NOW anyway they can always say, "well, OK you labels want to charge more for less to offer the consumer OK. Our next great idea is to make it so that ANYONE can publish their album on iTunes. Via iChat (spoken word), GarageBand, or Logic. Mix your album on iTunes, publish your album. We're even throwing in a shopping cart feature to .Mac homepage accounts, so you can open your online store selling merchandise and physical media"
The cell networks will eventually get into this, but most folks today still have crappy phones and view them as disposable. Wait 5 or 6 years, when the model changes.
#11
Well, the record companies need Apple, because it's the only really successful music store out there. Without iTMS, they'd lose a a chunk of revenue...and they wouldn't want to do that. The whole point is they want more, not less, revenue. And the record companies aren't about to take a loss to make a gain.
The iTunes Music Store is dependent on the record companies, but the iPod and Apple are not. People would buy iPods w/o iTunes. Instead of possibly buying music, they'd just steal it and fill their pods (which is probably what's happening now).
The thing is, Apple is the only game in town. MS has done a terrible job marketing music. It's partners suck at it just as much as MS does.
As long as Apple delivers, the record companies will stay in line. The record companies will try to prop up rivals, but they haven't been successful thus far.
The only way the record companies could win, is if they allowed DRM-free sales of their music. Then they could sell into the iPod market. But that's a step they're unwilling to do.
The record companies could also BUY a redistributable FairPlay license. But that would require a cash outlay, which they are unwilling to do also. Licensing FairPlay is obviously possible (Moto's phone), but apparently the price is more than others are willing to pay?
All the arguments about the music biz not needing Apple make me laugh. Sure Apple is a small(ish) player in the computer business, sure most of us geeks don't have any idea why the iPod is so popular, and most of us realize that iTunes isn't the only way to get music on your iPod. Apple doesn't care. No one cares what we think. If you work with kids (I volunteer with middle school and high school aged kids 3 times a week) you will realize how quickly we are aging and what direction the future is moving. Kids want iPods. High School kids have them and spend tons of money on iTunes music store. Middle school kids are jealous of the older kids' iPods and want one of their own. It doesn't have to make sense. They don't care what Creative is offering and they don't care what Sony is offering. If (and I'm generalizing of course...there are geeks in HS just like us) you don't have an iPod you just don't matter. Don't underestimate Apple's hold on these kids. The only (positive?) consideration is that fads come and go so quickly with teen agers (moreso than I even remember) that if you're in your 20's you can't even hope to stay caught up. We just have to deal with it.
Chris
Perhaps I'm looking at this a little too shallow, but it sounds like the record companies want to shoot themselves in the foot. Apple has proven that you can get people to buy a song for 99 cents. In fact, the idea has been widly successful. But now they want to risk that success by charging more and/or selling songs on less convenient technology?
Not sure why'd they do that... oh yeah money.
I agree with #13 and am hoping for vonage-type service for cell phones in the near future.
Seriously, does anyone actually LIVE in Canada anyway?
Plus, who would actually want to have songs on their cell phone? I guess this would be fine for the top-40 crowd, but I can't see a cell phone replacing an mp3 player.
Fishes,
narco.
#16: Just the 10 of us huddled in our igloo.
Yeesh. Any more thoroughly idiotic questions?
I see all this talk about iTMS opening up and selling music directly from artists, but lets not forget they have a contract with Britain's Apple Recording that specifically forbids them from doing that under the "Apple" name. They've already been sued once over iTMS, although Steve's probably got enough lawyers to handle them.
You'd think the record labels would be loving this apple deal, they're selling songs for the same price as on CD, without the costs of cutting and distributing those CD's. Unfortunately, it looks like they won't be happy until people are paying $30-40 for a single CD's worth of music.
"Yeesh. Any more thoroughly idiotic questions?"
It may have been a bit offensive in its phrasing, but I don't consider the premise idiotic. The New York City metro area - just one US city and its surrounding suburbs - has a population almost as large as the entire *nation* of Canada. So, I think it's a valid point to say Apple and the record labels probably would just like to focus their attention on larger markets. I am sure that is one reason why iTunes Canada has such a poor selection.
That said, can't you just change the country in iTunes and buy music from a different store? I've never actually tried this (I don't buy music from iTunes), but I've browsed through the application and I've looked at the different countries' stores and it sure seemed like you could just buy from anywhere. Maybe not, though, maybe if you actually try it just says "sorry, bub, you're obviously not from around these parts." Anyone know the deal with this? I'm just curious.
re: Jeff
I believe you require a billing address in the country that you're trying to buy your songs from. i.e. I live in Canada, but if I have an American mailing address then I can buy from iTunes US. If I don't I'm out of luck.
Yes, yes there's not as many people in Canada as in the States so who cares about us. That's the way the computer world treats Mac users in general...there's not enough so who cares if we're compatible with them. Nice attitude.
And to Adam, it is the labels that keep us from having more selection on iTunes. I'm not sure of all the legal mumbo jumbo, and no it doesn't make sense, but it's about Cdn law and record labels...not Apple. If you love music you must have a large CD collection (I've got around 600 of them). Rip them, organize them with iTunes...it's heaven man.
Finally, not that I like all these artists particularly but my Canuck pride gets a little angered by boastful Americans sometimes. Did you all know that Alanis Morissette, Avril Lavigne, Sarah McLachlan, Joni Mitchell, Neil Young, Bryan Adams, Rush, Barenaked Ladies, Nickelback and the Guess Who all of whom have been pretty popular in the States are Canadians (just to name a few)
If you read the article it says that record companies are encourage because they rip people off by selling snipets of songs for $2.50 as ringtones. Therefore assumedly they belive they can charge this much (or god forbid even more) when selling songs on your cell phone. I think those record company executives need to go back to Econ 101 and learn about something called supply and demand.
I mean of course some people pay 2.50 for ringtones but thats only because they're forced by the cell phone companies to do that. They have no other option. Besides most people that I know either don't buy any or just a few. Personally I was shocked at the 2.50 price and have never bought one. If they were .99 like the itunes music store I probably would. Anyway the point is the consumer has no choice in ringtones so they pay ridiculous prices.
I'll let you decide.
Choice A:
Getting a music playing cell phone with like 512mb or maybe even 1GB phone that knowing the carriers will cost like 500 bucks. And then filling the phone up not with music from the computer that you already own, but from 2.50 songs you purchase on your phone that are DRM'd to hell so you can't listen to them in your cars or on your stereo at home. Also this will waist your phones battery life so it could run out when you really need to make a call.
Choice B)
Some kind of iPod and of course the iTunes music store.
Which one do you think consumers are going to choose? Now if the cell phone companies let you put mp3s on your phone, let you transfer the music you buy from your phone to the computer and burn on to cds, and charge one dollar (maybe even a bit more) then I'm sure it would be sucessful. But otherwise good luck...
Also is anyone else tired of hearing the cell phone companies whine about new revenue streams? Back in the day these companies could charge ridiculous prices for minutes and then if you went over a little bit they would totally screw you over. But now thanks to increased competition they had to lower their prices and are now looking for new ways to make money.
The Japanese cell phone companies make lots of money but they do it by offering extra services instead of just trying to rip you off. I mean the American companies are just now testing high-speed services that have been in Korea (a third world country!) for like 3 years! All phones there are camera phones and you don't have to pay an extra service charge every month to use them. Instead the cell phone companies have come up with creative ways (like using the camera phone to scan a bar code in a magazine advertisment for example and be able to buy the product over the phone). There also making it so that you can buy train tickets or stuff out of your vending machine with you phone. You can also get directions over GPS on your phone. They also have reasonably priced services like news, weather, stocks etc that kick the ass of our efforts here. Anyway if the cell phone companies want to make more money then there are plenty of americans willing to give it to them, but they want to pay for extra services and not because they went over their minutes and now have a $300 bill.
I have to disagree with the statement that "Microsoft could do it just as well as Apple".
If this were true, then why the f#$#ck aren't they already? It is plainly true to all but the most complete idiots that only Apple has "figured it out" and that this involves offering consumers true VALUE and not salivating over the wet DRM dreams of the lawyers and accountants ... Apple has struck a balance that just barely favors consumers, and as long as they can hold this balance, everyone wins. Once the greedy record industry thinks they can use technology to extort more money out of consumer's pockets, everyone loses, but most of all record labels. Consumers are perfecty happy of going right around record labels -- remember the original Napster? -- and the labels are scared sh&^tless that this will happen again. They will come to appreciate Apple more and more and appreciate the miracle that Apple has helped accomplish in stuffing the file-sharing genie (mostly) back in it's bottle.
Has anyone been paying attention to what's happening at Borders and Amazon? These are two companies that sell books - who are now getting into the book publishing business. Borders has been doing it for about a year now and doing it up right. Amazon appears to be starting small, with short stories and essays. But what an amazing idea here - bypass the middleman and sell from writer to reader directly.
Why do I mention this? Because this could be the next step for Apple. I know three artists who have had it with their label and have decided to go it alone once their contracts are up. All Apple has to do is encourage artists like these to take a good look at the iTunes store.
Bottom line: the music industry seems intent on killing itself off. I'm content to help them.
The record companies absolutely don't need Apple. What I think many of you fail to realize is that the entire digital music business makes up a small percantage point of the record companies total revenues, so even if their entire online store music business went away overnight, it would have a negligible effect on their bottom line.
But if the itunes music store went away, it would definitely have a major effect on Apple, in that they use it as a major selling point to sell ipods. Would people still buy ipods? Sure, but Apple would have to make a painful adjustment to their marketing, and the plain fact is that their business would suffer far more than the record companies would.
Oh and all of you people that are talking about apple cutting out the record companies and promoting artists itself, you have no grasp on reality. Sure some indies might take on this "opportunity", but most artists would not be able to survive on .46c a song.
The fact is that although forcing Apple to charge higher prices would certainly not be advantageous, if the labels forced apple to open up fairplay, it would definitely be the best thing for the customer.
#26
Sure Apple needs the record companies to fill the music store. However, Apple makes almost no money on the music it sells. People don't buy iPods to buy music on the Apple Store (at least normal people). If you look at the numbers it's obvious that the majority of the iPod users do not buy music on the music store, however some do.
Apple doesn't need the store, the record companies do because no one else has been able to sell music online. If the store were closed iPod users are not going to say "oh well I guess I should go buy anotehr MP3 player" they're going to want to keep using their iPod by going back to the way they used to get music, which is probably mostly p2p.
#23: South Korea is most definitely NOT a Third World country. Not anymore, at least.
"The New York City metro area - just one US city and its surrounding suburbs - has a population almost as large as the entire *nation* of Canada."
Hmm. Last time I checked the population of the entire *states* of New York, New Jersey and Connecticut combined was still a bit less than Canada's. A better comparison would be California (or just think 11% of the US).
I suspect iTMS has a poorer selection (and was later setting up shop) in Canada because the government there has yet to make p2p downloading illegal (despite assurances to the music industry).
Apple used the deal and first-mover advantage to create an attractive ecosystem for ipod sales. Now that online music is maturing it's unlikely that Apple maintains a leading market position, and I think they know it. Nevertheless, they have a serious installed base and people won't throw away their ipods to buy a worse player. They'll just be quite happy with what they've got, get some extra tracks via P2P or buying CDs (or copying them from their friends - if you've got 4 friends who want to buy a CD with you and none of you need the actual item, CDs become a pretty good deal). As other commenters have pointed out, if the labels decide to pull, Apple's future is through providing a platform based on "long tail" demand (i.e. it won't matter that much if they don't have the latest hit) and indie/user contributed content. On the other hand, consumer electronics manufacturers like Apple are the ones getting most of the customers' money because they provide something people want, and the labels haven't really worked out how to do that yet.
Actually, the records labels have an excellent track record of shooting themselves in the foot, with the best example being Canada. They actually supported the copyright legislation that made downloading in the Canada legal. How? Well, Canada's copyright laws until the late 90's had no provision for "fair use", unlike the US. When parliament attempted to address this, the recording industry fought hard to avoid losing any rights. In the end, to buy off the recording industry, the government introduced a levy on all blank media, so that even if you're buying CD-R's to backup data, a little bit of money goes on to the recording industry. They were quite smug that they had managed to extort money from Canadians doing data backup in return for "private use".
The problem was, they didn't really look into what "private use" entailed (or the foresight of what it might become). Now we have a situation where downloading has become legal, and those who do it feel entitled because of the money they've sent to the recording industry over the years through the levy! And I wouldn't expect that copyright law will be high on the Canadian agenda, because a minority government is running the show, and when a government's situation is that tenuous, controversial issues never arise!
So, now I'm just dying to see how the recording industry will allow their greed to screw things up this time!
Ok, so what have we got so far:
neither the record companies(who make 10x more from advertising/brainwashing and investment) nor apple(who makes money from being just so dam cool) need itms but they like it, because it earns them a little money on the side, right?
its like if someone gave you a hundred bucks every month, its not enought to live off, but you wouldn't want them to stop would you?
That said, almost every one knows that the future of music is digital, heck the future of everything is digital. It may not be the way it is now, with itms and all this drm nonsence, but in 20years time, no-one is going to go to a store to buy music, or video for that matter
so getting in there now helps, but the inevitable is the inevitable, its comming, see it/like it or not
The fact of the matter is, corprate structures will change(like Intel with AMD, and Voodoo, to Nvidia, to ATI), the record compaines will loby legislation that will hurt them in the future(ala Batamax laws paving the way for p2p), and nothing we say here counts :P