Wednesday, May 03, 2006
apple vs the music industry
How long can Steve Jobs hold the line on 99-cent downloads?
Apple Computer Inc. this week renewed deals with the four largest record companies to sell digital songs for 99 cents a track, but there is little harmony between the labels and their biggest online retailer. Under Jobs, Apple has kept song prices uniformly under a dollar since the online iTunes Music Store opened three years ago. Low prices, the Apple chief executive has argued, reduce piracy. They also help move Apple's most popular product, the iPod.
Some music executives long have wanted to charge more for their most popular tracks. Their hope: to recover some of the profits lost as CD sales slide. But because iTunes accounts for about 80% of the nation's legal music downloads, labels are in the unfamiliar position of having little bargaining power. Apple's market power keeps a lid on prices at all online outlets. "The labels say they want to charge more, but they've never proven that they're offering consumers any new value in exchange for the higher cost," said entertainment analyst Mike McGuire of research firm GartnerG2. "And because there's no online retailers that rival Apple, the labels lose both the moral grounds and the leverage to demand price increases."
Digital downloads have become an increasingly important part of the music industry. Although sales of physical music albums continued to decline in 2005, worldwide digital music sales more than doubled to $1.1 billion, accounting for about 5% of the industry's revenue. As sales increase, some labels want more control over pricing. Warner Music Group Corp. Chief Executive Edgar Bronfman Jr., for instance, said last year that having "only one price point is not fair to our artists." But the industry is far from united — and Jobs and Cupertino, Calif.-based Apple have leveraged those divisions to keep prices flat. The company declined to comment on specifics of the negotiations, but Apple spokeswoman Natalie Kerris confirmed that "we've renewed the agreements with the major music companies to continue to offer music at 99 cents per song from a library of over 3 million songs."
"If they want to raise the prices," Jobs said at a news conference last year before negotiations began, "it means they are getting greedy." [...]
I wonder if the labels' desire to weaken Apple's barganing position explains the following?
San Jose Mercury-News, Associated Press
LOS ANGELES - Napster Inc. launched a revamped music Web site Monday that allows limited free, on-demand access to more than two million songs.
Visitors to the site can listen to many songs five times before having to buy a copy for 99 cents or subscribe to Napster's premium service.
The free service is supported by advertising on the Napster player. Songs purchased individually or as part of a subscription can be downloaded and transferred to portable devices.
As part of the move, Napster will add two new services.
NapsterLinks will allow users to attach song links to e-mails, instant messages, blogs and Web sites.
The other service is Narchive, a partly user-generated feature that includes personal stories, photos and other items contributed by listeners. Also offered are music history and material from music writers.
"Napster was born of the idea of eliminating all barriers to discovering, enjoying and sharing music and of putting the power in the hands of fans," Napster chairman and CEO Chris Gorog said in a statement.
Shares of Napster fell 2 cents to $4.61 at the end of regular trading on the Nasdaq Stock Market but gained 4 cents in after-hours trading.
Analysts viewed the offering favorably but said the key will be how many new members the service can add.
(Disclosure: I subscribe to Napster. Not so much because I think it's all that superior to iTunes by default, but because by the time I had a portable player, I also had a substantial library of WMA files that the iPod couldn't touch, and it was also easier to get a player with more disk capacity for less money than the iPod. It may be bigger -- about the size of a cigarette pack -- but it does what I need. And frankly, if there's something in iTunes that I desperately want, I just burn it to a CD, rip it to high quality MP3 and go. But I digress.)
Napster being a wholly owned subsidiary of several mainline music companies these days, it's not difficult to see that they're trying to acquire some sort of leverage. It's hard to see how this is going to help, though.
I'm also guessing that this means that the subscription "Napster to Go" idea, wherein people essentially rent songs rather than purchase, isn't working the way they'd like. I know I strongly prefer to actually own them, so that if someday I'm no longer a Napster subscriber but I've still got the music around, I can play them. (Mind, that depends on Napster's good will and on its abiding by the terms of the agreement, but we'll see how well that works. If push comes to shove, one can always remain a member of Napster long enough to rip and burn that music as well.
Ultimately, while it may get people to try Napster, I can't see this sort of program getting them to actually hang around and pay money. It's just going to irritate current subscribers. And, of course, people with Macs and iPods are still screwed, unless they do the rip and burn thing.
Posted by iain at 02:39 PM in category audiovox
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