It’s a well know fact that the major labels missed a massive opportunity when originally negotiating with Apple for the first iTunes music licenses back in 2002/2003. That opportunity was to ensure that an album could be sold in it’s entirety and not sold song-by-song if the artist so chose. The fact the labels capitulated to Apple’s demands was what has most significantly led to a decline in album sales revenue for both artists and labels alike over the last 9 years.
Furthermore, the fact the label’s neglected to negotiate a royalty for every iPod sold by apple – much akin to the royalty labels were paid on blank CD’s is a seriously miss-calculation which has had a negative effect on label coffers as well. Laughable as it is UMG via Doug Morris did manage to negotiate a measly $1 per sale for the flop that was the Microsoft Zune MP3 player. The key issue labels forgot to leverage was the fact that without music there would be no iTunes and subsequently for Apple no music playing hardware device sales. What has in effect happened is that music has become the loss leader to drive Apple hardware product sales (iPod, iPhone etc). And the recorded music business is losing hand over fist in this scenario.
Moving on to the present day Apple has already been proved to use morally repugnant anti-competitive business practices when dealing with labels – prime example being when iTunes directly threatened to pull labels iTunes promotions if they continued to allow Amazon’s deal’s of the day promotions. TMV is in possession of an email forwarded from one major label digital head, which is clear evidence of Apple’s illegal anti-competitive behaviour in respect of this particular event.
As the majority of the major labels have knowingly colluded in allowing Apple to launch it’s own streaming and cloud-based service before Amazon and Google little own Spotify – it is clear these labels are addicted to the iTunes monopoly of their industry. This monopoly alone where Apple has a minimum of 65% market share in legal download sales is surprising in the fact that competition authorities on both sides of the Atlantic have not acted to break up this monopoly.
Both Amazon and Google were pretty much left with no choice but to launch their music locker services without licenses from the major labels. It obviously became crystal clear that these same labels were giving Apple Inc more favourable business terms than those offered to Amazon and Google.
TMV asks what does such law breaking reliance on Apple (worse than the days of payola) actually do for the long-term benefit of the recorded music industry? If anything it just continually makes them weaker and even more reliant on one retailer for more than 70% of its digital income whilst its physical retail product income continues to decline. Obviously, that is not good for the industry as a whole, artists or labels alike. Monopolies serve no industries long-term interests other than the actual monopolist itself.
The global digital music retail market is divided up as follows Apple/iTunes 70% (average global market share), Amazon 10%, and eMusic/Spotify about 5% with the remaining 15% left to over 500 different retailers fighting for peanuts! Whilst the major labels continue to prop up Apple/iTunes all they are in effect achieving is to become even more reliant on a monopoly. TMV believe some of the label digital heads have enough intelligence to understand that. So surely it is in these same labels interest’s to give services like Amazon and Google a level playing field to compete within?
In reality, no service competing with iTunes has been given viable terms to build a sustainable digital music retail business. No other business is provided with a 70/30 split in the labels favour – it’s more commonly 90/10. This in itself is quite frankly a market condition that needs to be urgently rectified. $0.99 is a fair price the music consumer is prepared to pay per downloaded track. However no business can survive on $0.09 per track before costs and marketing. Apple has previously stated it loses money on $0.27 per track that it makes. But as well know that is a small price to play to ensure its mountainous profits from hardware sales.
It is sad to see the recorded music business continually making itself weaker due to inept decision-making at the top. If the labels were to do some real research they would realise that consumers don’t just want platform such as iTunes in fact many consumers actually detest iTunes.
