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Apple and music label have high hopes that new music offerings will yield big profits.

There's some moving and shaking going on between Apple and the major music labels.  Preceding the release of the new 3G iPhone, Apple is looking for new ways to cash in on its growing popularity.  And music labels are hoping to get perks of their own, by haggling with Apple to loosen some of its long time policies which have irked the labels.

First, Apple and the labels are in talks for possible over-the-air downloads.  Previously, the iPhone could not directly download songs via its cellular broadband network.  However, thanks to faster speeds from the 3G networks, it should be possible at last to download songs on the go. 

Standing in the way are the music labels who are arguing that Apple needs to pay a higher price for over-the-air downloads, as opposed to standard downloads.  The labels current sell standard downloads wholesale for 70 cents, which Apple in turn resells on its iTunes store for 99 cents.

Both Apple and the labels are eager to cut a deal, though.  Apple's recent deals have grown the total number of users reached by its carrier networks from 153 million to 575 million.  Even if just a scant fraction of these users purchase the iPhone, it will represent an even more significant market to the labels as time goes on. 

And Apple has concerns of its own.  Many phone manufacturers are moving aggressively to push music compatible phones, many of which come with music packages.  If Apple falls behind in its quality of offerings, it will likely pay the price in market share.  Having already struggled with poor sales in the European market, Apple is eager to safeguard its back against competitors such as Nokia and Sony Ericsson.

Both Apple and the labels are also eager to expand their offerings for ringtones, a particularly lucrative market.  Currently Apple offers a limited selection of ringtones via a 99-cent ringtone upgrade to various tracks on its iTunes store. 

Apple also looks to expand its ringback selection.  Ringbacks are like ringtones, except they play for the person calling your phone, in place of the standard "ring ring" noise.  Ringbacks may command an even higher premium wholesale price than ringtones, raising the possibility of ring backs in the range of $2.49 or more.  Some complain about the recording industry's creative pricing tactics for ringtones and ringbacks, but they keep selling relatively well.

The labels say that Apple is very eager to work towards a deal.  Says one label executive involved in the talks, "They want a big launch in June."

Labels are taking the chance to use the negotiations as an opportunity to try to push Apple to let them adopt a more flexible price structure, as opposed to the current model, a flat price of 99 cents per song.  Some fear this would lead to price gouging, but the major labels insist they would only charge more for new hit tracks, and would charge less than 99 cents for older tracks.

Apple does currently allow the labels to set their own prices for full album downloads.  This allows the labels to employ a favored tactic, throwing in art, bonus tracks, and other content, in order to raise the price a few more dollars.

There is some evidence that Apple may consider loosening its price structure.  It has allowed HBO to charge $2.99 for its TV episode downloads.  All other TV downloads are priced at $1.99.

In a more unlikely side of talks, it is reported that Universal Music Group is pushing Apple to offer subscription music services.  Such a plan could allow iPhone users with unlimited music from the labels for a one or two-year subscription period.  Sources familiar with the talks say that the labels think the service is worth much more than Apple does, and they're unlikely to reach a compromise.  However, if they did it could provide a competitor to the similar Nokia "Comes With Music" service that offers unlimited free downloads to keep.  Apple will likely eye the success of this risky program, which has been criticized as unprofitable, before it makes any big moves.



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RE: Apple has a runaway hit for now...
By Brandon Hill (blog) on 5/20/2008 1:23:03 PM , Rating: 2
Yes, I purchased all of my iPods -- and I purchase ALL of my electronics, computers, printers, mice, keyboards, etc. I didn't know that I had to preface my posts with every item that I purchase, but there it is for you in writing.

And yes, my 32GB iPod touch is my sole music player. I take it with me in my car and hook it up to my audio system via an AUX cable. And I use it around the house (or wherever I'm at) to check email, browse the internet, play games, chat on AIM/MSN via Meebo, and post in the DailyTech comments section ;)


RE: Apple has a runaway hit for now...
By xsilver on 5/20/2008 1:51:30 PM , Rating: 1
Are you saying the benefits of the touch come from the WiFi and not the UI?

My phone has WiFi and I do exactly the same things you mention doing on your touch albeit with a smaller screen. Also only has 8gb, but I can swap over unlimited sd cards if I want.
Basically I'm trying to understand why small media devices arent dying off and being taken over by phone + ipod type devices. Everyone has a cell phone these days so carrying too many devices isnt really nessesary.

Also just to re-iterate about the cash for comment quip. I dont think the DT staffers need to preface any comment they make about a product with an obligatory disclaimer but you did mention 3 ipod products in a single sentence and ending in super praise. Knowing the apple haters, they would probably attack anything they can.


By Brandon Hill (blog) on 5/20/2008 2:03:23 PM , Rating: 2
The UI is the key, not the WiFi. The UI is what makes the iPhone and the iPod touch superior to similar devices IMHO.

Everything is so simple and intuitive that a beginner could jump in and feel right at home. I thought that typing would be a chore on the device, but I find it to be very easy and I actually prefer it to typing on my Eee PC most of the time.

The implementation of email and the Safari browser also get big thumbs up from me.


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