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Music Execs Fear Apple’s Power

Tuesday, February 3rd, 2009 at 1:46 PM - by Bryan Chaffin

Music executives fear the power that Apple has garnered as the biggest game in music sales in the U.S., according to the New York Times. The industry apparently lives in perpetual fear that Apple might pull their music off of the iTunes Store, and most didn't want to give their names to the Times's reporter for "fear of angering Apple."

Music executives also confirmed that dropping DRM was demanded by Apple in exchange for the variable pricing on music downloads that Apple announced at January's Macworld, though one unnamed music exec told reporter Tim Arango that securing distribution for music on the iPhone was a second demand.

At the heart of the issue is the fact that Apple's iTunes Store has become one of the most important hubs for selling music, and the iTunes Store's landing page itself has become a key component of determining which songs become popular.

"Whether the industry likes it or not, the iTunes chart showing the most popular songs in America is a major influencer of how kids today discover and communicate with their friends what kind of music they like," Charlie Walk, a former president of Epic Records, told the Times. "It's a very powerful thing right now in American pop culture and immediately validates a hit song."

The labels, however, resent that power, and are looking for other players to rise up as music retailers. Chief among their targets is the market for renting music on cell phones, which the Times article said is where those execs think the future of the music industry lies.

Not noted by the Times, however, is the fact that those same labels said the same thing about music downloads in general -- that renting music is what people wanted. So far, that has not proven to be the case, and it seems unlikely at this juncture that it will be the case with cell phones.

Music rental services offer unlimited access to entire catalogs of music in exchange for a monthly subscription fee, with the catch that you lose that access when you drop the subscription. Moving to this model has long been a goal of the music industry, which sees it as a way of evening out their revenues and decoupling those revenues from the process of developing hit recording acts.

Then again, confusing their wishes with reality has long been a hallmark of the music industry. For instance, Mr. Arango drew the comparison between the iTunes Store and MTV. The music industry started off giving music videos to outlets like MTV for free in the belief that it would boost music sales, but then regretted that choice after MTV became the success it became.

According to Dave Goldberg, formerly general manager of Yahoo Music and now a venture capitalist at Benchmark Capital, "[Music industry executives] believe they created MTV, and will say they revived Apple."

David Card of Forrester Research, however, offered a very different opinion than what might be found at the labels, saying, "If it weren't for Apple, God knows how bad the music industry would be."

8 comments from the community.

You can post your own below.

Jay said:

February 3rd, 2009 at 1:52 PM

Ironically, I fear Music Execs.

   Quote

vasic said:

February 3rd, 2009 at 2:29 PM

Music executives are displaying the most symptomatic form of greed. They are panicking because they no longer fully control all aspects of the distribution of their own product. Ironically, what Apple has done was actually critical for the survival of their music business and themselves with it. Had there not been Apple and iTunes, it is extremely unlikely that anyone else would have figured it out. CD sales would have continue to decline rapidly and people would have continued to get their music illegally. Labels would have escalated their legal threats, turning even ordinary people into thieves, just for spite. Apple had to drag them kicking and screaming into a successful online distribution. It is difficult to imagine ANY half-intelligent business owner resisting so violently to be saved from his own demise. And Apple did exactly that - save the music industry as a whole.

What is most fascinating is the power of iTunes home page in today’s market. No longer does Wal-mart hold the key to success of a CD release. Today, it is iTunes.

From a consumers’ perspective, while Apple is still a business with its own agenda (making money by creating insanely great computing experiences), there is no doubt that their business model is sharply focused on listening to the consumer and giving him what he wants. Neither music labels, nor their (until last year) biggest distributor, Wal-Mart, were doing that; they were looking for ways to squeeze more out of a consumer for the same stuff. It’s great that the ballance of power has shifted.

   Quote

jbruni said:

February 3rd, 2009 at 2:32 PM

Monopolies and cartels built and established on controlling distribution (e.g. railroads, Standard Oil, Microsoft, newspapers, record labels) are populated by lazy executives who no longer know (or never knew) how to compete based on merits. Their true fear is that they will be found out and required to work for a living.

   Quote

Bryan Chaffin said:

February 3rd, 2009 at 2:37 PM

Great comments, folks, and I personally and completely agree.

Bryan
Editor
iPO

   Quote

vasic said:

February 3rd, 2009 at 2:42 PM

Why, thank you Brian! Not often do we get an editor so complled as to voice his agreement to our contributions. Nice to know that you guys actually read our discussions as well.

   Quote

Bryan Chaffin said:

February 3rd, 2009 at 2:51 PM

You’re most welcome, vasic. I tend to read every comment to every article I write, whether or not I reply.  I love reading anything insightful or poignant, and not just when it’s something I agree with. smile

I personally think this particular issue is an important one in the cultural realm. The homogenization of the artists by the labels, the idiotic pricing moves from the labels, and their complete inability to search for a new business model that works in today’s world…it drives me nuts.

And don’t get me started about how $.99 is highway robbery for a digital download.

Bah, I guess it’s time for a new editorial on the topic. smile

Bryan
Editor
iPO

   Quote

vasic said:

February 3rd, 2009 at 3:02 PM

As a musician (at one time, full-time pro), I totally agree. When you realise how more than half of those $0.99 ends up in label’s bank account, it really takes the wind out of your sails. If you look at profit breakdown of some major Hollywood releases, even there it is clear that creative talent accounts (collectively) for a lot more than half of all expenses on the production, and oftentimes, when the movie is done making significant money, it turns out that more than half of gross ended up with the talent, especially in productions where talent has profit-sharing agreement.

Music industry has so far been by far the worst when it comes to exploiting the foundation of their business. If you’re a fresh band that was just signed, you are still paying for everything out of your pocket. All expenses for the studio time, recording/production costs, pressing, advertising, tour booking, all of it will come straight out of your minuscule share of profits from sales of your CDs and tickets to your concerts. In other words, the label is completely protected from any major losses. As long as you sell at least some CDs and tickets, they’ve recovered their investment. In fact, since your share is usually no more than 5% of the retail price, you may need to sell 20 times as much in CDs and tickets before you begin getting your share.

The complete demise of music labels in favour of the self-publishing model cannot come to soon.

   Quote

Bryan Chaffin said:

February 3rd, 2009 at 3:29 PM

The thing is, though, that it doesn’t have to be that way.  The labels could transition into a service industry, whereby they offer much-needed services to acts.  To break down their problem into its barest form, the labels can’t get over the fact that the biggest piece of the puzzle will soon no longer be the production and distribution of physical media.

Control over that aspect of the business became the soul source of their power, rather than the ability to find, develop, and support talent, and they have tried like the dickens to keep it that way.  They have to get past that, or die.

I am in a band myself (The Atomic Love Bombs (look for us on FaceBook, Twitter, MySpace </advert>), and the reality is that there are things that new and established acts need that go beyond the ability to press, store, and distribute a CD. The majors that figure this out, or the indie labels that grow with this notion, will be the ones to survive the next 4-6 years.

Or so I rule from my Throne of Judgment? from On High!

Bryan
Editor
IPO

   Quote

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