Recent news hot of the press sees Amazon discounting individual hit tracks for a retail price of $0.69 USD. TMV asks what does this mean for labels and artists? Will it devalue music in the eyes of the consumer – this despite Apple already lowering the album and individual song margins with the launch of iTunes in 2004? Digital Music sales since 2004 have been doing reasonably well and so it would be reasonable to state that a fair and equitable price that both the labels and retailers are happy with is $0.99 to $1.29 USD per track with full albums between $7.99 – $9.99 per album.
However, heritage albums and tracks on the iTunes store have not been discounted whatsoever, so whilst new single and album release prices have dropped from the CD era, old heritage catalogues have no doubt probably witnessed an increase in margins (as they used to be sold as budget priced records). In the digital music retail world, there seems to be no such category of ‘budget’ priced albums and singles.
In terms of what artists are happy with TMV is sure is a different thing. Firstly, we would state that artists are probably not happy with receiving between 4 – 16% of the wholesale price (before packaging deductions for digital downloads). And that’s before their manager’s commission of 20% of whatever the artist receives.
However, the point I’m trying to make here is that while Amazon is cutting their price as a loss leader to drive consumer uptake, the labels are stilling being paid the full wholesale price. So that cannot be bad for labels. Whilst there may be some cries that this move by Amazon is devaluing recorded music in the eyes of the consumer, it is clear that it was devalued many years ago.
Yet, Amazon’s discounting may actually impact negatively on other smaller competitors in the digital music retailing space globally. Apple and Amazon between them have about 85% of the global market in al-la-carte music download sales. On last count there were around 500 other players fighting for the remaining 15% of the market. We all know they never managed to receive viable deals with the labels and their margins are nowhere near the 30% of retail that Apple makes.
The issue at hand is will Apple be attempting to price match Amazon? Apple makes enough out of its hardware devices to subsidize iTunes. In fact, it would hardly make a dent in its revenues. However, in TMV’s view, if Apple were to compete with Amazon on price it would twist the arms of the labels to enable it to drop prices by demanding the labels take less. So, with Apple it would not be a loss leader it would be a discount that would have to be taken as a hit for both labels and artist’s income alike.
Going on previous actions, its clear labels would probably submit, as they are weak idiots who continually do Apple’s bidding when it comes to competitor services entering the market. The irony being that every time they submit like obedient dogs, they make themselves weaker and Apple stronger. Apple has previously threatened labels with taking down their promotional spots on iTunes if they allow Amazon to heavily discount new releases in their ‘deals of the day’ promotions.
It is also very, very clear that the labels have been holding off on enabling Spotify to launch stateside because of Apple’s bidding. TMV know for a fact that one Major spent a year negotiating a contract and then agreeing and it has been sitting on their desk since January this year awaiting signature. If the agreement was agreed, then what other reason is there to hold off on signing?
Getting back on track, its clear the $0.99 – $1.29 USD price point is what consumers have stated is the value they place on purchasing legal tracks online. So why push it down even further? Well, the labels never throw any bones to anyone but iTunes, and as such competitors have no choice but to purposely lose money in a desperate attempt to drive uptake and market share. Yet the sad truth is that if labels continue to act as Apple’s lapdog, the circle will continue and the labels will become weaker and weaker, whilst competitor services are left to drown slowly. Because we all know that when Apple beats the labels into submission, to make themselves feel good the labels beat up on Apple’s competitors.
Subsequently, it is imperative that, the current price point at which consumers seem happy to pay is held steadfast. As labels and artists alike cannot afford for any further devaluation of music as art. It’s high time labels stand up to apple and state “enough is enough”, you’ve helped the industry to some extent, but that does not give you the right to illegally stifle competition. The recorded music business should not be held to ransom by one company that has a global monopoly on retailing digital music.
