Print 25 comment(s) - last by Wizard Prang.. on Jul 4 at 9:59 AM

Experts say going up against Steve Jobs isn't a wise move

With the release of the iPhone on June 29th, Apple took a bold step into an industry it has never before been in. Facing stiff competition is something that Apple's been use to doing for a long time now. This week however, Apple faces a surprise turnaround from one of its partners in the online music industry, an area where Apple is the dominant force.

Universal Music Group of Vivendi last week sent notification to Apple indicating that it would not renew its contract to sell music on Apple's iTunes store.  The move comes after much negotiation between UMG and Apple. Unfortunately, music industry experts say that the grip that Apple holds on online music sales is what's discouraging UMG.

UMG has a long list of artists including notable names such as Akon, Rhinna and U2. However, Apple itself packs a punch in the amount of revenue that it brings to UMG. In the first quarter of 2007, Apple's sales on the iTunes store brought in more than 15-percent of UMG's worldwide revenue -- that's more than $200 million USD.

According to unnamed executives, UMG is looking into other sources for revenue, either through other channels or possibly a store of its own. Apple's long time control over what devices can play its music has troubled a lot of music lovers as well as publishers. Just recently however, the iTunes store began selling DRM-free music.

Ken Hertz, an entertainment lawyer representing such artists as Beyonce and Black Eyed Peas warned against going up against Apple directly.

"When your customers are iPod addicts, who are you striking back against? The record companies now have to figure out how to stimulate competition without alienating Steve Jobs, and they to do that while Steve Jobs still has an incentive to keep them at the table," said Hertz.

Since the launch of iTunes, Apple has controlled prices of music on its store. This is one area of concerns for music publishers who either want more revenue or are looking into other areas for revenue. The iTunes model has proven itself to be a success formula for music sales however. Before the advent of online music stores, consumers were forced to buy whole CDs and often times received only one to two favorable tracks while the rest were throw-ins.

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End of the 99 cent music download?
By Kuroyama on 7/2/2007 5:02:39 PM , Rating: 2
In Japan iTunes has a limited selection and song prices vary depending on the company who's music you are buying, because the record labels all had different demands. Could this mark the beginning of the end of the flat price music download in the US? Also, maybe it seems to make sense for the record companies to charge more for hit songs and less for the less popular songs? After all, shouldn't they charge what the market will bear? Universal will probably back down in the end, but it will be interesting if things turn out otherwise.

RE: End of the 99 cent music download?
By ninjit on 7/2/2007 5:58:29 PM , Rating: 3
I don't understand how that sort of market thinking applies to digital media.

Normally with free market products, if the demand is high, prices should go up, because of limited supply - hence all the people buying and reselling Wiis and PS3s at launch.

But with digital media, there is no limit on supply - anyone who wants a song, can buy it - and after the initial few purchases everything else is then all profit.

You might argue that hosting/bandwidth costs would scale with demand, but I think that would be pretty negligible.

RE: End of the 99 cent music download?
By alifbaa on 7/2/2007 7:33:06 PM , Rating: 3
Although the barriers to creating more supply are extremely low in the case of digital media, there is nothing preventing firms from charging more for specific titles than they do for others. In fact, smart business would say they should. If 100 people want a song at price x, and 75 people want a song at price 2x, it makes sense to price your item at 2x. The trick is in setting the price at an appropriate point to maximize your return.

The music industry has been on the side of raising prices above .99/song. Apple has long been fighting the music industry to reduce their royalties in order to bring the price down below .99/song. In an article written about a year ago, DT sighted an iTunes person saying the overwhelming majority of the .99/song went to the recording industry regardless of how popular the song is.

To me, I think allofmp3's business model is the way iTunes and all online music should go. They allowed (they just got closed down) you to pick your bitrate and format and charged you based on file size. It would be simple to add in an individualized royalty fee based on a classification of songs. The result would be a much better system.

RE: End of the 99 cent music download?
By therealnickdanger on 7/3/2007 8:48:04 AM , Rating: 2
By SilthDraeth on 7/3/2007 9:27:52 AM , Rating: 2
To me, I think allofmp3's business model is the way iTunes and all online music should go. They allowed (they just got closed down) you to pick your bitrate

I am pretty sure he is aware of that.

By Kuroyama on 7/2/2007 9:28:12 PM , Rating: 3
The market is profit maximizing. Cost of producing the item is irrelevant, other than to the extent that producers will drop out of the market if the price goes below their costs, thereby reducing supply until cost and price are comparable. But when there are not alternate producers who can produce a product when price > cost then there need be no connection between cost and price, and restricting supply or raising prices can increase profits. For instance, oil prices have little to do with cost. During the California electricity crisis the electric prices had little to do with cost. Likewise with music; if I want the hit song from band xxx then I am not willing to buy the hit song from band yyy even if it is cheaper.

RE: End of the 99 cent music download?
By AlexWade on 7/2/2007 7:15:34 PM , Rating: 3
Let me get this straight, record labels. You have a way of getting legal music into the consumer hands were most of the costs is not passed onto you, at a price all consumers are happy with, and yet you want more money?

Record labels aren't losing money because of piracy, they are losing money because they treat the consumers like dirt. In any other business, except movies, the record labels would have gone under a long time ago because of the terrible customer service.

RE: End of the 99 cent music download?
By AntiM on 7/3/2007 8:43:34 AM , Rating: 3
I say let them charge what they want. They can charge $5.00 per song if they want to, that doesn't mean I have to purchase it. I think UMG is gong to quickly find out at $.99 is about the maximum anyone is willing to pay for a song before they pirate it; Steve Jobs knows this. Piracy isn't killing the music industry, it's greed.

By h0kiez on 7/3/2007 10:29:01 AM , Rating: 3
Totally agree...except that $.99 is above my threshold at which I will pirate the music. AllofMP3 was cheap enough to get me to pay for it though.

Seems Clear to Me
By UppityMatt on 7/3/2007 6:58:57 AM , Rating: 2
I think you can point this to one reason. Music Companies are used to selling an entire CD at 10-20 dollars. Now instead of buying that album people choose to just buy the one or two songs that are actually good. So now they make 2-4 dollars and im sure iTunes takes a percentage for selling the music also. Its all about money again with Music Companies.

I hope to god that they continue to loose money and go under, there is no single group in the world that i despise more than the music companies.

RE: Seems Clear to Me
By MobileZone on 7/3/2007 8:33:56 AM , Rating: 2
And who will project artists in global dimension, paying for their expensive studio hours, videoclips, media relations, promotion and so on? Somebody must pay for all this expenses and somebody must get this money back after.

It's like, Oh, I hate Universal and Sony Pictures, they're evil, let's get indy everybody!

RE: Seems Clear to Me
By Wizard Prang on 7/3/2007 9:11:30 AM , Rating: 2
And who will project artists in global dimension, paying for their expensive studio hours, videoclips, media relations, promotion and so on?

You do know that most of these expenses are bourne by the artist and/or recouped from royalties, don't you?

RE: Seems Clear to Me
By MobileZone on 7/3/2007 10:52:59 AM , Rating: 2
Initially, NO. The record company invests in the artist. Royalties pays all parts later.

Famous/good recording studios costs thousands of dollars per hour. A good producer costs as much as a good movie director. A good mastering company costs A LOT. No to mention videoclips and marketing.

Of course, anyone can go "indy", but those will never reach a worldwide level without a large support.

RE: Seems Clear to Me
By Wizard Prang on 7/4/2007 9:56:34 AM , Rating: 2
My original comment stands. As I understand it, the label LENDS the band the money for production. If the record is a hit, the label gets their money back.

RE: Seems Clear to Me
By Wizard Prang on 7/4/2007 9:59:48 AM , Rating: 2
Of course, anyone can go "indy", but those will never reach a worldwide level without a large support.

go apple
By rockyct on 7/2/2007 10:40:24 PM , Rating: 4
I hope Apple calls their bluff. Apple does have arguably too much control over protected formats on the ipod, but I'd rather them have too much control than UMG having too much.

For once I find myself on the side of Apple. I have a feeling UMG will come up with some compromise because they will lose $4 million in revenue a week. I just hope that UMG tries their own music store just to watch it tank, unless they go crazy and sold actually mp3s. That might actually work.

RE: go apple
By Samus on 7/3/2007 4:57:54 AM , Rating: 2
these money hungry record label jackasses probably aren't making enough in royalties. if apple holds out, they'll just renew the contract, they have no choice in the long run.

RE: go apple
By MobileZone on 7/3/2007 8:26:34 AM , Rating: 2
Oh, and Apple is not money hungry at all? The labels are just finding ways to get away from the monopoly of electronic music distribution. Or everybody in this planet should like, buy and have an ipod/itunes (even better if it's a mac) to be able to listen to music?

RE: go apple
By fic2 on 7/3/2007 1:23:48 PM , Rating: 2
I think it would be great when UMG comes begging Apple to take them back in the iTunes store if Apple played hard ball with them. We'll take you back, but now we are going to sell your songs for $0.75/each with DRM and $0.99/without DRM. Take it or leave it.

What Experts?
By UserDoesNotExist on 7/2/2007 6:27:26 PM , Rating: 3
"Experts say going up against Steve Jobs isn't a wise move"

Funny, Billy Gates and Michael Dell have been doing it for a while now, and I don't see them doing poorly. How is not letting Apple sell your music "going up against Steve Jobs?" When I go into Best Buy and decided not to buy an iPod, am I going up against Steve Jobs? This must be that reality distortion field I've been hearing about lately. Apple is the one that's really screwed here, pure and simple. I'm amazed I even need to say this, if the title of the article was "Nintendo pulls all Wii stock from Best Buy" I doubt people would think that Nintendo's screwed. Although Universal might be making a stupid business move, they always have other avenues of profit to fall back on. Apple has iTunes + iPod + iPhone, right now that's where the bulk of their profit is. Their computer business is not making that much of a profit right now. Knock iTunes out of the equation, and the iPod is just another pricy MP3 player. Even Apple admits that iTunes is key to their success.

RE: What Experts?
By therealnickdanger on 7/3/2007 12:09:24 PM , Rating: 2
Shhhhh! Stop it! You're making Steve angry!

RE: What Experts?
By aliasfox on 7/4/2007 4:06:13 AM , Rating: 2
It should probably read something more along the lines of "going against Steve Jobs in the music industry isn't a wise move."

Microsoft is doing well, but Dell isn't particularly hot right now - their market cap is about $50 billion at the moment, down from about $80 billion a year ago. Apple is at $110 billion, up from about $80 billion a year ago. Dell sells a lot of stuff, but a well run business is generally about profit and return to investors, not simply market share.

Also, as has been stated many times on DT, the iTunes Music Store makes up a miniscule part of Apple's revenue, and an even smaller percentage of its profits - we're talking single digit percentages. Also, while the iPod may currently have bring in more money than the Mac, that has only happened the past few quarters (less than a year if I recall). Even now, Macs still bring in over 40% of both revenue and profit for the company - 44 or 45%, i think. This means that Apple would collapse if they decided to stop producing or developing either the Mac or the iPod.

And lastly, Universal tries to break free just as EMI starts to sell DRM-free legal music. It might be interesting to see which camp is more successful. Universal will probably collapse, considering iTMS is still only in 3rd place, and as far as I know Universal hasn't pulled out of Wal-Mart yet.

Hooray for record labels!
By MonkeyPaw on 7/2/2007 5:55:02 PM , Rating: 4
But some music executives have been chafing at the flat rate that Apple has insisted upon in its contracts with the big record labels, and they have been pressing publicly or privately for the right to charge Apple more for popular songs to capitalize on demand or, in the event of special promotions, to charge less.

Sounds like your typical bad tax policy. Sell an idea that promises a potential benefit (discounts during special promotions), but only if everyone is willing to incur a real penalty everyday (paying more for the good songs). The penalty is guaranteed, the benefits are a promise from your favorite record label. Oh, how can Jobs refuse such a generous offer?

Besides I'm sure the discounts will only show up on the filler tracks and for the sub-par artists:


Edgar Bronfman Jr., the chairman of Warner Music Group, reinforced that idea at a recent investor conference, saying “we believe that not every song, not every artist, not every album, is created equal.”

Run through the Business translator: "We want to charge people more for what they really want (even though it doesn't cost anymore to supply the extra demand on iTMS), and the same or occasionally less for what we've discovered that they don't want."

Nevermind that before iTMS, record labels charged darn near the same price for every album in hard copy, be it good or bad, or mediocre. Economics would suggest that the price on garbage doesn't go down until sales slow and it is necessary to clear the inventory.

By jeromekwok on 7/2/2007 10:56:34 PM , Rating: 2
I am not surprised to see some artists flee to other record companies. A big reason to blame pulling out from iTune for declined record sales, though the songs may not be good. Also can't buy his own songs in his favorite iTune.

Why bother to sell music anyway?
By JAB on 7/2/07, Rating: 0
"Spreading the rumors, it's very easy because the people who write about Apple want that story, and you can claim its credible because you spoke to someone at Apple." -- Investment guru Jim Cramer
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