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Over Christmas there was some intense negotiations between the various record companies and Apple over the removal of Digital Rights Management and Variable Pricing for music. The primary issue was that Apple wanted to get music distribution onto the iPhone because they felt that impulse buying on the iPhone was an important component to growth. They had offered variable pricing in return for these terms but over Christmas Sony was the only hold out, which resulted in Steve Jobs intervening.
In interviews, several high-level music executives, who spoke on the condition that they not be named to avoid angering Apple, said they operated in fear of Apple’s removing a label’s products from the iTunes store over a disagreement, even though that has never happened. The labels do not have much leverage in negotiating with Apple.
Overall the music industry fears the growing power of iTunes and Apple particularly the front page:
One chit the company holds is the power of the iTunes home page, where it promotes music………“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,” said Charlie Walk, the former president of Epic Records, a unit of Sony Music. “It’s a very powerful thing right now in American pop culture and immediately validates a hit song.”
What music industry executives are worried about is the growing power of the front page (and recommendation engine) of iTunes and the ability of iTunes to influence consumers. Couple that with a retailer that has enormous market power in the only growing sector of their market and you have a potential perfect storm for the executives of the music industry.
In the past the system worked on the concept of finite shelf space and fragmented music retailers. The music distribution companies were the distribution choke point and they decided what ends up on the front shelf at your music store and they got to kick around the music retailers. They were the ones that controlled what consumers got to hear on the radio, and they were the ones that decided how to price and promote an artist. (We all remember where we transitioned from Albums and Tapes to CDs). We could not understand why it was more expensive when the cost of manufacturing was lower. The transition of technology had traditionally always been good for the music executives, but this time the rules changed because they knocked straight into the network effect, the effect that creates natural monopolies because of their accumulate effects that benefit customers.
But today market power is shifting back to one large online retailer who continues to grow in substance and power each day. However what the music executives lose sleep over and could threaten their Gulfstream G650s is the ability for Apple to get into the music distribution game and sign artists directly.
Those with market power already, for example Madonna, already control all of the rights to their music. It would not be fantasy to suggest that the next album that Madonna releases will be an iTunes only album. What this means to the artist is a far greater share of the revenue stream as well as more control over how it is marketed. This is not that far away. After all the objective is to get their share of iPod hard disk space.
However the one thing that really kills them(music execs) is the potential that Apple will have the ability (soon) to market new artists. Currently how the system works is much like American Idol. Hundreds of talentless and semi talented people get in front of a small group of “experts” who decide who gets to make an album and who gets shown the door. Even before the walk through the door for the first time, they have to submit to an oneous contract and are stripped of all rights to their own talent. (That is not to stay this is how it happens in the normal course of recording companies because there is usually lawyers on both sides involved, but that controlling a really talented person like Kelly Clarkson is indeed mining gold). However the market power of the record companies is controlling the distribution and access to that distribution. Currently if you are seriously talented you must deal with these people in order to participate in the channel. It is important for them to make sure that the artists know you cannot participate in this market without them. What they don’t need is the front page (and recommendation engine) of iTunes to create an alternative outlet where a talented artist can work the process and create exposure independently of the labels.
With the front page (and recommendation engine) of iTunes you potentially have the potential to create the next Pop Idol through simple exposure.
This is not to say that music industry system as we know it today will disappear anytime soon. This is because there is a hugh system in place already to vet and process artists employing millions of people as we speak. The hard work behind the scenes still has to be done. Writing songs, the studio work, production and marketing as well as road time. A potential deal on iTunes does not preclude the hard work building the infrastructure behind your career as many people that you have never heard of already have done. What it means is that it is feasible for an artist to be a major success without having to deal with the major labels and that is what keeps music execs quaking in their G650s. Those cliche scenes where the young band working out of a garage gets the call from a record producer from Atlantic or Sony, will be replaced with the call from Apple one day.
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28 responses so far ↓
1 nerdd.net | news and opinion // Feb 8, 2009 at 5:51 pm
iTunes to Sign Artists Directly and Go Around Music Execs | nerdd.net…
\r\nApple has put the fear of god into music execs and this year is no different. Apple is on the pa…
2 …Makes Me Furious » Blog Archive » Itunes To Sign Artists Directly and Go Around Music Execs // Feb 8, 2009 at 8:46 pm
[...] However what the music executives lose sleep over and could threaten their Gulfstream G650s is the ability for Apple to get into the music distribution game and sign artists directly. Those with market power already, …Continue Reading… [...]
3 iTunes to Sign Artists Directly and Go Around Music Execs // Feb 9, 2009 at 9:01 am
[...] READ THE FULL STORY [...]
4 iGlad // Feb 13, 2009 at 8:20 pm
Sorry but that won’t fly as that clearly put them in the music business and they’d be back in court arguing the toss with Apple Records.
5 admin // Feb 13, 2009 at 9:48 pm
Actually a deal was struck last year that permanently solved that problem. Apple Inc purchased the name “Apple” in an out of court settlement with Apple Records. Apple Records then licensed back the Apple name from Apple Inc. Apple (Computers) is the legal owner of the name “Apple”.
6 Jonny from Music Blog // May 2, 2009 at 1:45 am
I find the whole concept of the “music industry” to be laughably outdated. I personally couldn’t care less what nonsense gets turned out by those folks anymore. All the real music is being made without their involvement. I dig that ITunes is cutting out the middle man anyway, good stuff.
7 whitey from camaros // May 17, 2009 at 2:45 pm
madonna is smoking hot for an older woman.. she’s still got the dance moves too
8 Insurance-guy // Jun 17, 2009 at 3:40 am
And that’s the power of the innovation and technology people. Good job. The more money the artists make the better!
9 Simon from Leadership // Jul 8, 2009 at 12:31 pm
Its such a funny story. Labels are normally the ones with all the power, crushing smaller people – but they’ve finally come up against someone who’s bigger. Muahaha, payback time.
Simon@Leadership´s last blog ..Leadership Development Training
10 Aliceka // Jul 11, 2009 at 11:49 am
This story is very interesting. Thanks.
11 Waq // Aug 18, 2009 at 2:57 pm
How can a freelance artist get played on itunes?
Is it possible?
5530 Express Music´s last blog ..Nokia 5530 Potential – Things you can do with your Symbian S60 Smartphone
12 Voice Lessons // Aug 26, 2009 at 6:11 am
Interesting. Do I understand every artist or label or catalog would have their own iphone app? If so I don’t see it replacing iTunes any time soon. It might work well for established artists but new comers would have a hard time.
13 Rock Music Video // Sep 1, 2009 at 7:23 am
This is really very good for listeners and musicians. But for new uupcoming artist, it is really gonna give very bad pain.
14 Giochi // Sep 5, 2009 at 5:26 pm
No matter what, Apple wins…
15 Chris Thomas from Free iPhone3GS // Sep 6, 2009 at 6:21 pm
It’s a reflection of Apples success with iTunes in that at the outset they struggled to get the record companies on board but now the labels have finally realised that the world of music distribution has totally changed and Apple are at the forefront of this they don’t like it. I think it’s correct of Apple to see the opportunity in the iPhone leading to more impulse buys from its users. You hear a song on the radio and instead of looking to get it for free you go straight to iTunes and get a legal copy, all while you’re out and about. It makes perfect sense.
Chris Thomas@Free iPhone3GS´s last blog ..Telegraph iPhone3GS review
16 amatör şarkı dinle // Sep 9, 2009 at 3:50 pm
This is really very good for listeners and musicians. But for new uupcoming artist, it is really gonna give very bad pain.
17 John from Automatic Garage Doors // Sep 11, 2009 at 12:00 pm
@amatör şarkı dinle – The moral of the story is that if you’re a good band, you’ll do just fine. I’m sure the Arctic Monkeys are doing just fine…
18 Melody4Arab from arabic music // Sep 18, 2009 at 2:40 am
The more money the artists make the better!
19 ricky // Sep 22, 2009 at 7:56 am
It is rightly expressed by Charlie Walk that the most popular track on the i tunes chart is a hot topic discussion among kids and that majorly decides what kind of music they prefer
20 jan from emo // Oct 13, 2009 at 6:30 pm
Seems like the digital distribution of music is making the record companies obsolete.
jan@emo´s last blog ..Medical makeup
21 lauchie from cheap ipod touch 64gb // Oct 27, 2009 at 4:39 pm
@:
This exactly.
22 Jules from Apple // Dec 8, 2009 at 11:40 am
This is a very interesting post. I had not thought about the possibility of iTunes signing and distributing artists directly. It makes complete sense and I can see why big music executives would be worried, it cuts them out of the profits. iTunes and Apple in general are increasingly important in the spread of music.
23 Adam from How to Lose Weight // Dec 14, 2009 at 2:36 am
I think that is a pretty good move on their part! The number of phones/iPods they’ve sold proves they know what they’re doing.
-Adam
Adam @ How to Lose Weight´s last blog ..How to Lose Weight Fast and Keep it Off
24 Morgan Monroe // Jan 1, 2010 at 3:25 pm
what do i feel about this growing influences of i Tunes is that,no particular company whoever they are should have total control of market.But i do prefer the chances of new artists signing up via Apple or iTunes.
25 jinnie from iphone spares uk // Jan 4, 2010 at 3:18 am
thanks for this great resource.love your blog.
26 Mike from PCTECH // Jan 8, 2010 at 1:01 pm
Love The blog! Check out mine
Mike @ PCTECH´s last blog ..Homeland Security USA s01e03 Part 4
27 Kürtçe Müzik // Jan 22, 2010 at 3:42 pm
Nice… Love your blog.
28 agel // Feb 18, 2010 at 2:51 pm
This is a very interesting post. I had not thought about the possibility of iTunes signing and distributing artists directly.
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