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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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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.


"We are going to continue to work with them to make sure they understand the reality of the Internet.  A lot of these people don't have Ph.Ds, and they don't have a degree in computer science." -- RIM co-CEO Michael Lazaridis

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