Apple, Amazon set to squeeze music labels over DRM

[AppleInsider]

As the newly self-proclaimed champ of consumer choice, Apple is reportedly putting the screws to music label giants in an attempt to get equally open treatment for all its songs, and on Monday received apparent help from an unexpected ally.

Following its landmark deal with EMI this month to banish digital rights management from the label's iTunes tracks, Apple is said to be flush with confidence and is pushing the other three major labels into an unenviable negotiating position, according to clandestine sources within the organizations.

Though Sony-BMG, Universal, and Warner have all to date successfully resisted calls to end the use of DRM -- with Warner CEO Edgar Bronfman infamously questioning the mind of Apple's Steve Jobs for even hinting at the change -- the companies now find themselves on the defensive. The iTunes operator is allegedly using the clout gained from the EMI contract to push for DRM-free music when royalties and variable pricing had been the focal points until April.

"EMI struck a deal that puts all of us [negotiators] at a disadvantage," claimed an anonymous executive from one of the holdout labels, who complained that EMI had signed the Apple deal in fear of seeming slow to investors.

The situation was made all the worse on Monday when Britain's paper The Times caught word of a potential Amazon deal that would also have the web retailer sell music without digital padlocks, but choosing MP3 files over Apple's preferred AAC formats.

Taking an even more bullish stance than its prospective rival, Amazon is reportedly drawing on the momentum of the EMI decision in hopes that it can secure ideal terms for its store's May debut -- even if it means dropping most major-label music in favor of EMI and independents, as the company doesn't have the safety net of protected but lower-quality DRM should talks end in failure.

In spite of how many music download stores raise the copy protection issue with the progressively isolated label trio, however, the group's greatest fear may be that one of its own will turn traitor, forcing the remaining agencies to follow suit if they don't want to be seen as lagging behind. Universal Music is especially worrisome to Sony-BMG and Warner as hints of a possible Amazon contract, combined with its lead in world music sales, could shift the battle almost entirely in favor of Amazon, Apple, and existing MP3-only shops such as eMusic.

"If Universal goes, then everyone has to follow," groused the unknown music executive.

[ View this article at AppleInsider.com ]

[JimDreamworx]

Interesting that it is Universal that holds the power.

Wasn't there a rumor Apple was going to buy them a few years back?

[Mkane]

DRM should be dropped because anybody with half a brain can find out how to get around it by simply searching the net.

Apple has proved that legally bought music is a successful business model. A lower price will always defeat piracy.

The days of music companies selling a whole CD with only 2 good songs on it for way too much $$$$ is over. No days people buy/download the songs they like and burn it to disk, ipod, zune(lol....yes I know....lol), Zen, etc...

[josa92]

The use of anonymity in this article is sickening. use their names or don't use their quotes. Nora Ephron (writer of movies such as "Sleepless in Seattle" and "When Harry Met Sally") wrote a great article about this very same subject, and it drives me just as crazy as it does her.
Read it here.

[Kasper]

Originally Posted by josa92

The use of anonymity in this article is sickening. use their names or don't use their quotes. Nora Ephron (writer of movies such as "Sleepless in Seattle" and "When Harry Met Sally") wrote a great article about this very same subject, and it drives me just as crazy as it does her.
Read it here.

When the source publication doesn't identify their sources, it makes it somewhat difficult for us to identify their sources It was both Reuters and UK's the Times cited unnamed sources, not us. Sorry it's so vague.

Best,

K

[josa92]

Originally Posted by Kasper

When the source publication doesn't identify their sources, it makes it somewhat difficult for us to identify their sources It was both Reuters and UK's the Times cited unnamed sources, not us. Sorry it's so vague.

Best,

K

Sorry to be kind of nasty, Kasper.
I take it back, I understand the predicament.
But the over-use of anonymity in the media bothers me.
Sorry again,
J

[JeffDM]

Originally Posted by josa92

The use of anonymity in this article is sickening. use their names or don't use their quotes.

The way it works, it sounds like you want nothing, I really struggle to find an alternative explanation. Few are going to allow their name to be used attached to a rumor, so you don't want this site to have anything to do with rumors? Rumors are the very point of this site. Anonymous sources are used to get information from people whose jobs may otherwise be in jeopardy if publicly known. I think that society is worse off if news media cannot use anonymous sources, corruption would be even more pervasive.

Nora Ephron (writer of movies such as "Sleepless in Seattle" and "When Harry Met Sally") wrote a great article about this very same subject, and it drives me just as crazy as it does her.
Read it here.

That's just a weird case, and that interview had nothing to do with specific anonymous sources, but rather vague generalizations of groups of people that hold certain opinions.

[quinney]

Originally Posted by AppleInsider

"EMI struck a deal that puts all of us [negotiators] at a disadvantage," claimed an anonymous executive from one of the holdout labels, who complained that EMI had signed the Apple deal in fear of seeming slow to investors.

In spite of how many music download stores raise the copy protection issue with the progressively isolated label trio, however, the group's greatest fear may be that one of its own will turn traitor, forcing the remaining agencies to follow suit if they don't want to be seen as lagging behind.

The laggards criticize EMI for the Apple deal for fearing seeming slow to investors.

The laggards greatest fear is seeming slow to investors. What hypocrisy.

The laggards have their heads all the way up their asses. They would rather strike a
stubbornly macho pose to the detriment of their own investors than admit that CD
sales are circling the bowl on their way down the toilet.

[DeaPeaJay]

I still don't get it.

It seems to me that the type of crowd that's buying music on iTunes is not likely to be sharing their music online anyway.

How come we're so smart and the record companies are so dumb?

[Mooch]

Originally Posted by DeaPeaJay

I still don't get it.

It seems to me that the type of crowd that's buying music on iTunes is not likely to be sharing their music online anyway.

How come we're so smart and the record companies are so dumb?

Maybe cause they do market research before they make decisions like that, rather than just saying, "seems to me..."?

[DeaPeaJay]

Originally Posted by Mooch

Maybe cause they do market research before they make decisions like that, rather than just saying, "seems to me..."?

you think that's it?... possibly I suppose. I'd like to see that research though

[Shookster]

Strange that Universal is the one they think will go DRM-free first, as one of the Universal execs said every iPod owner was a music pirate about 6 months ago.

[Wally]

Originally Posted by quinney

The laggards have their heads all the way up their asses. They would rather strike a stubbornly macho pose to the detriment of their own investors than admit that CD
sales are circling the bowl on their way down the toilet.

Or put another way:
"Their heads are so far up their f**king asses that the lump in their throat is thier own g**damned nose"

I love that quote.

[Ireland]

"If Universal goes, then everyone has to follow," groused the unknown music executive.

Idiot. DRM isn't working. Stop your complaining and ditch that crap already!

[Ireland]

Originally Posted by Mkane

DRM should be dropped because anybody with half a brain can find out how to get around it by simply searching the net.

It's even easier than that. Just re-rip your crippled tunes.

[JeffDM]

Originally Posted by Mooch

Maybe cause they do market research before they make decisions like that, rather than just saying, "seems to me..."?

I don't know about that. They seem to be more about bullsh!t than anything else.

For a good while, it looked like despite what they said, falling CD sales was more due to reduction of signed bands & fewer titles being released than illegal trading. They also have this dogma that one copied CD equals one lost sale when that's not the case. Maybe that's all just PR (a.k.a. lying).

[waytogobuddy]

Eat that prisoner's dilemma RIAA biatches!

[TBaggins]

Originally Posted by DeaPeaJay

How come... the record companies are so dumb?

It's likely some heady mix of arrogance, technical ignorance, being pathetically out of touch with their customers, and bad aftershave.

Seriously, the music industry suits are SO screwed right now. They want the clock to turn back to the '90s, when they were riding high selling $18 CDs with only one or two good tracks on them... with little in the way of competing formats (maybe cassette tape). Those days are gone forever. How they consistently fail to grasp this is beyond me.

But what truly astounds me is how they seem to think that if they had complete control, they would be able to remedy the situation. Can you see it now? Download prices tripled or quadrupled, the growing legit online customer segment being quashed as everyone flees en masse to the pirate sites, and CD sales still in free fall with no online sales safety net left anymore. And all the while, the core problem of an over-reliance on a very few big acts and this year's crop of one-hit wonders festers on, while the overall quality of their catalogs plummets to new lows.

These guys are clowns. Actually, saying that is unfair to clowns.

.

[shetline]

Originally Posted by Mooch

Maybe cause they do market research before they make decisions like that, rather than just saying, "seems to me..."?

Kind of like the "research" that told Hollywood that the VCR was going to destroy them, that told the music industry that the CD was going to destroy them, that, even after the tremendous success video on tape was for Hollywood, told Hollywood again that the DVD was going to destroy them...

The entertainment industry has a track record of fearing change, fearing loss of control, and fighting tooth and nail against anything they're afraid of. They may have a few legitimate concerns here and there, but it's more like a broken clock being right twice per day than a carefully researched reaction to any given situation.

[shamino]

Originally Posted by quinney

The laggards have their heads all the way up their asses. They would rather strike a stubbornly macho pose to the detriment of their own investors than admit that CD sales are circling the bowl on their way down the toilet.

It's a case of rampaging egos, pure and simple.

To agree to sell without DRM today would be admitting that they were wrong to insist on it in the past. Admitting a mistake is the one mortal sin no egomaniac will ever transgress. While we would all (or mostly all) read it as "that didn't work out, so we're going to try something else", they would see it as "we were a bunch of complete screw-ups, and since we can't be gods, there's no point in even breathing."

So they stick with their failed strategies and will violently insist on never changing them, even if it means financial ruin to themselves, their companies and their shareholders.

[caliminius]

Originally Posted by TBaggins

It's likely some heady mix of arrogance, technical ignorance, being pathetically out of touch with their customers, and bad aftershave.

Seriously, the music industry suits are SO screwed right now. They want the clock to turn back to the '90s, when they were riding high selling $18 CDs with only one or two good tracks on them... with little in the way of competing formats (maybe cassette tape). Those days are gone forever. How they consistently fail to grasp this is beyond me.

But what truly astounds me is how they seem to think that if they had complete control, they would be able to remedy the situation. Can you see it now? Download prices tripled or quadrupled, the growing legit online customer segment being quashed as everyone flees en masse to the pirate sites, and CD sales still in free fall with no online sales safety net left anymore. And all the while, the core problem of an over-reliance on a very few big acts and this year's crop of one-hit wonders festers on, while the overall quality of their catalogs plummets to new lows.

What? I'm not even sure where to begin to ripping apart your rant.

Competing formats? Why would the record companies want competing formats? Answer: they don't. That's the problem right now with HD DVD. Competing formats are bad for the content providers because it splits their potential market. CD's never competed with tapes because the albums for a long time came out on both formats.

For the most part, the record companies do have complete control. It's quite obnoxious how these articles make it sound like Apple has the record companies by the balls when it comes to negotiations. iTunes accounts for a whopping 8.5% of music sales, hardly a particularly strong bargaining position. The big 3 could easily just pull their music and watch the iTunes Store dry up practically overnight. Would doing so lose them money? Probably, but could it be worth it to them to do so? Quite possibly. Some people might turn to piracy, but the people pirating are probably not buying from iTunes in the first place. What "safety net" does online sales provide? Maybe a little from casual pirates who might be just as happy buying the song they were looking for as searching torrents for it.

I don't think piracy or even crappy music is the reason for the decline in album sales. It's market saturation, the same thing that is now slowing down DVD sales. People already own most of the music they want to own, so there's only new albums left to buy. When CD's came out, there was 3+ decades worth of albums to purchase, now people are left with only buying what's new. This is the reason movie studios are anxious to get people on HD, so they can re-buy their content all over again on the new format and start the sales cycle all over again.

[TBaggins]

Originally Posted by caliminius

What? I'm not even sure where to begin to ripping apart your rant.

That's the great thing about AppleInsider... always a great place to make new friends.

Competing formats? Why would the record companies want competing formats? Answer: they don't. That's the problem right now with HD DVD. Competing formats are bad for the content providers because it splits their potential market. CD's never competed with tapes because the albums for a long time came out on both formats.

Actually, tapes did compete with CDs for awhile, because you had the choice of buying an album you wanted on tape for 10 bucks or so, or on CD for 18 bucks or so. Hmm, I wonder which format the music companies wanted you to choose there?

And today, we do have competing formats again, with online downloads beginning to challenge CDs. Sure, it's early days yet, but with online downloads being cheaper and more convenient, one can see which way the pendulum is swinging. Of course, again, the music companies don't much like online downloads, as they don't make as much money as they'd like off them, and they don't have complete control over distribution. Sound familiar?

For the most part, the record companies do have complete control. It's quite obnoxious how these articles make it sound like Apple has the record companies by the balls when it comes to negotiations.

I'd agree that the big music companies still have plenty of power, but complete control? Nah. They've wanted variable pricing from Apple for ages now, and only recently got it in the lone case of EMI, and only in exchange for offering DRM-free music. They also want Apple to start doing subscriptions, something Apple has not given them. Apple has said 'no' to them quite a bit, yet the iTunes store is still around, happily selling songs at about a two billion-a-year pace. I would define that as less than complete control.

iTunes accounts for a whopping 8.5% of music sales, hardly a particularly strong bargaining position. The big 3 could easily just pull their music and watch the iTunes Store dry up practically overnight. Would doing so lose them money? Probably, but could it be worth it to them to do so? Quite possibly.

I dunno Cal... iTunes is not huge yet, but it's sure growing, and the music industry knows it. And they've tried to come up with their own alternatives to it, and failed. They seem to feel that they need Apple, and Apple's bargaining position certainly has been strong enough that Apple has gotten away with saying no to them an awful lot.

Some people might turn to piracy, but the people pirating are probably not buying from iTunes in the first place.

In the absence of any reasonable alternatives, there's a real tendency to turn to piracy over time. If all online stores had ridiculous pricing, and yet you wanted to do online downloading, and you know about Limewire, etc. etc., the chances of you eventually doing the wrong thing increase. And there is certainly a number of people using iTunes that used to pirate, or still pirate if they can't get the track they want off of iTunes.

Sadly, I know people who will still pirate on occasion if the song they want is 'Album Only' on iTS.

What "safety net" does online sales provide?

The fact that as CD sales have been declining, legit online downloading has been on the rise. The revenue replacement hasn't been 1 to 1 (and shouldn't be, as CDs are overpriced in most cases), but its definitely better than nothing at all. The major labels seem to concur, as they haven't told Stevie J to hit the road.

I don't think piracy or even crappy music is the reason for the decline in album sales. It's market saturation, the same thing that is now slowing down DVD sales. People already own most of the music they want to own, so there's only new albums left to buy. When CD's came out, there was 3+ decades worth of albums to purchase, now people are left with only buying what's new. This is the reason movie studios are anxious to get people on HD, so they can re-buy their content all over again on the new format and start the sales cycle all over again.

While the reasons you cite are a factor, a great many people disagree with you regarding crappy music not being a reason for declining CD sales. And the record companies would certainly throw a fit over your belief that piracy is not a factor.

Personally, I think your reason is a secondary factor. If you truly love music, you'll never get to the point of "owning most of the music you want to own", as you state... you're always listening to, and buying, new stuff.

Far as declining album quality and piracy being non-factors... c'mon, let's be real here. Nearly everyone has had the following unfortunate experience: You hear this awesome song on the radio, in a video, in a TV show or movie, or whatever, then run out and drop 15 bucks on the CD. You take it home, listen to it, and yeah, that one track is great, but the entire rest of the album is not fit to wipe your dog's patoot with. Congrats, you just paid 15 bucks for ONE good song. There's no stats as to how many customers the major labels have turned into iTunes Store 'cherry-pickers' (people who seldom/never buy complete albums, but only the best songs), but I bet it's considerable.

And piracy, a non-factor? LOL. I know people who are approaching the 100 gig mark in mostly pirated songs. Would they suddenly start buying all their music legit if they couldn't pirate? No, certainly not... they'd borrow and rip friends CDs as much as possible, and swap mp3s with buddies ad nauseum, but if they couldn't get tracks they wanted that way, they'd likely buy 'em. These people are, after all, music lovers, even if they are 'dirty pirates', as a friend called 'em.

I do agree with you that the major labels would LOVE to be in the position of re-selling to us all of our favorite music again in a different and allegedly superior format to CD. It would certainly light a rocket under sales for them, but its not going to happen. The industry did too good a job of convincing people that CD was the 'perfect format' and could not be significantly improved upon, quality-wise.

So with that fantasy out of the way, the industry needs to deal with its real problems head-on: piracy, quality, and making the best out of online distribution. But I think they'll continue to whine about how they're being screwed for quite some time instead.

.

[dfiler]

My take is that the labels are dead, or at least dieing.

They are trying to charge for a service that is simply no longer needed. The internet provides more than adequate exposure and distribution, and it does it almost for free.

And don't even get me started on copyright (prevention) law. Our society and economy would be better off without our the current, absurdly inequitable, copyprevention system. It is accomplishing the exact opposite of the original goal, to foster artists and writers by providing them with economic incentive. Instead, copyprevention laws are foisted upon us for the benefit of large corporations and at the expense of individual creators and consumers. Copypreventions are making the distribution of wealth less equitable while simultaneously stifling creativity. (I told you not to get me started. )

[shamino]

Originally Posted by caliminius

I don't think piracy or even crappy music is the reason for the decline in album sales. It's market saturation, the same thing that is now slowing down DVD sales.

... Refusing to sell what customers want to buy, and accusing them all of being criminals when they choose to take their money elsewhere also has a lot to do with this. The industry attitude for decades has been "we will tell you what to think, and you'll pay us for the privilege". Well this generation has woken up, and they aren't going along. So like any good megalomaniac, the industry has responded with threats and accusations. Everybody is evil, except for themselves.

Originally Posted by TBaggins

Actually, tapes did compete with CDs for awhile, because you had the choice of buying an album you wanted on tape for 10 bucks or so, or on CD for 18 bucks or so. Hmm, I wonder which format the music companies wanted you to choose there?

Especially when the manufacturing costs for CDs are (and always were) significantly lower than cassette. They didn't charge a premium when transitioning from vinyl to tape, so nobody had a problem. With CD, they doubled their prices and didn't do a single thing to deserve it. The songs are still being recorded only once, the artists are getting the same (lack of) royalties, and their costs are lower.

There is no (and never was any) justification for the high price of CD. I'm shocked that it's taken 20 years for this to actually hurt the labels.

Originally Posted by TBaggins

Of course, again, the music companies don't much like online downloads, as they don't make as much money as they'd like off them, and they don't have complete control over distribution. Sound familiar?

With iTunes, they make 65 cents per track, or $6.50 for a typical 10-track album. This is more than what they make for a CD. According to Billboard, for a $17 disc, $6.23 goes to the store, $3.34 goes to the distributor, and the remaining $7.43 goes to the label. Now subtract the costs that don't apply to iTunes, like physical manufacturing ($0.75) and kickbacks to retailers ($0.85), and we get $5.83 revenue per CD.

(BTW, this is why companies like BMG can sell closeout CDs for $6.50-7.00 per disc. Simply eliminating a store and distributor knocks almost $10 off of the price without changing anything else.)

So the labels make 67 cents more per album on iTunes than with CD. And they're complaining that it isn't enough.

Originally Posted by TBaggins

I do agree with you that the major labels would LOVE to be in the position of re-selling to us all of our favorite music again in a different and allegedly superior format to CD. It would certainly light a rocket under sales for them, but its not going to happen. The industry did too good a job of convincing people that CD was the 'perfect format' and could not be significantly improved upon, quality-wise.

They're trying again with SACD and DVD-A. The problem is that most people can't hear much difference between the two, and even those that can aren't going to consider the difference enough to justify paying $22-25 for an album they already own.

Case in point: I bought two Yes albums on DVD-A ("Fragile" and "Magnification"). Fragile sounded incredible, because they did a lot of remixing and remastering from the original 70's multitrack recordings. Magnification, on the other hand, sounded exactly the same as the CD, because that album was originally recorded digitally, and the CD shipped with a surround (Dolby Pro Logic) mix.

In other words, customers are not likely to see any good reason to migrate away from CD unless the industry forces them to by halting CD production altogether. IMO, all of the improvements people are seeing with newer audio media are coming from remixing and remastering, which can be (and often are) done for ordinary CDs today.

[TBaggins]

Originally Posted by shamino

With iTunes, they make 65 cents per track, or $6.50 for a typical 10-track album. This is more than what they make for a CD. According to Billboard, for a $17 disc, $6.23 goes to the store, $3.34 goes to the distributor, and the remaining $7.43 goes to the label. Now subtract the costs that don't apply to iTunes, like physical manufacturing ($0.75) and kickbacks to retailers ($0.85), and we get $5.83 revenue per CD.

(BTW, this is why companies like BMG can sell closeout CDs for $6.50-7.00 per disc. Simply eliminating a store and distributor knocks almost $10 off of the price without changing anything else.)

So the labels make 67 cents more per album on iTunes than with CD. And they're complaining that it isn't enough.

Yes Shamino, but you also have to take into account 'lost' sales due to folks cherry-picking tracks on iTunes. With CD, they'd have to purchase the entire album to get the song they want (unless there was a CD single out, but those are not doing well as a format). With iTunes, consumers bypass all of that.

Given that, CDs appear to be more profitable overall than downloads for the music industry. Which would better explain the whining and crying and repeated attempts to bully Jobs into raising iTunes' prices... though given that this is the music industry, simple-minded greed comes into it too, no doubt.

On all your other points, I concur.

ps- Given how much the major labels would stand to save by cutting out stores and distributors, its a wonder that they haven't tried harder to sell the bulk of their CDs through their own online stores. They could hit much sexier pricepoints ($9.99 for new music), which would very likely boost sales, while still making more money per CD.

But, of course, they have become so dependent on a few large store chains (Wal-Mart, Target, Best Buy, etc.) that they're probably terrified of the retribution that would ensue, even though long-term it'd probably be better for them to go that way. And of course Amazon would be pissed about being undercut as well.

.

[shamino]

Originally Posted by TBaggins

Yes Shamino, but you also have to take into account 'lost' sales due to folks cherry-picking tracks on iTunes. With CD, they'd have to purchase the entire album to get the song they want (unless there was a CD single out, but those are not doing well as a format). With iTunes, consumers bypass all of that.

I'm not certain of that either.

Sure, one person will buy 1-3 tracks instead of all 10, but others will buy those 1-3 tracks instead of not buying anything. If there are 4 "bought 3 instead of nothing" people for every "bought 3 instead of 10" person, then the overall number of tracks sold will be greater, and profits will be higher.

I wonder if anyone has done the research to see if this is happening. It wouldn't surprise me if the music industry doesn't want to know the answer.