Jul 27, 2009
Posted by: Hitsville

Is Apple trying to reconstitute the CD?

Talk about a possible Apple tablet has increased over the past week, starting with an Apple Insider story Friday and a Financial Times story yesterday. The sources for the FT one seem to be in the music industry:

The device is expected to be launched alongside new content deals, including some aimed at stimulating sales of CD-length music, according to people briefed on the project. The touch-sensitive computer will have a screen that may be up to 10 inches diagonally.

Those “content deals”?

Recording industry executives said Apple planned to use the larger screen to offer new services such as interactive booklets and liner notes that come along with purchases of entire music CDs.

While iTunes moved legal sales of digitised music into the mainstream, the digital take-up for full CDs has disappointed the industry. Consumers usually select just one or two tracks.

Wow—liner notes and interactive booklets!

Whenever I read the word “interactive” it reminds of me of last year, during the presidential campaign, when everyone I knew was following electoral college scenarios on various news websites. A friend of mine told me he liked the one at LATimes.com. “They have an interactive map,” he said.

It wasn’t until later, after more discussions, that I realized he didn’t know what “interactive”meant—that he could, in this instance, click on the states to turn them red or blue and so change the electoral vote totals. He just liked the colors and accepted that it was, somehow, “interactive.”

All of which is to say that such packages aren’t going to do anything for digital sales of full CDs. People buy just their favorite songs from their favorite artists because, now, they can.

In the great pop era coursing through the first decades of the last century, people bought sheet music—of songs, not albums. In the first ten or fifteen years of the rock era, too, they mostly bought songs, in the shape of 45s.

There followed, in a happy confluence of commercialism and art, the album era, which lasted right up until 2001. It was a good thirty years for the record industry—particularly when it got folks to rebuy their collections on cassette and then CD—but it’s over now. We’re back to people buying songs, and there’s no reason it’s going to revert.

My theory? Steve Jobs is tossing another handful of gossamer dust into the eyes of the industry. The last time was when he allowed the prices of music at the iTunes Store to rise.

It seemed like a defeat for Apple. In fact, to the extent the increase—up to $1.29, from its previous across-the-board 99 cents—drove people back to the file-sharing networks and undercut the music industry’s sales even more, it worked to his advantage.

(I won’t be surprised, should the fancy-schmancy new album packages come to fruition, if the labels charge a premium for them. How much more would you pay for an “interactive booklet”?)

Whether the tablet will be a hit or not no one knows—there’s an argument against it here—but I do know that music fans are not going to go back to shelling out $10-plus for filler-laden hour-plusses of music, interactive or not.

Apr 09, 2009
Posted by: Hitsville

iTunes gets “flexible”

The iTunes Store went live with its new increased prices this week. Most coverage, NYT and LAT included, led with the fair and balanced news that the store was raising the price of many hit singles to $1.29 and lowering more obscure tracks to 79 cents.

In reality, since the $1.29 price will be for the most popular songs, the ratio in terms of sheer number of sales will be highly skewed to the new high price, and should in the short term significantly increase the income at the store.

That’s what all the talk about more “flexibility” in the prices was all about: Selling things for more money.

In classic record industry fashion, this does indeed look good in the short term, but not in the long term.

Why?

The downside for the labels is that the price hike came only after they agreed to remove the DRM from the iTunes.

Did Jobs get the best of the labels yet again?

Imagine two teens buying music. They are used to buying songs for 99 cents. They notice the price is higher … but the restrictions on just emailing a downloaded song to a friend has been removed.

Aren’t the labels giving them a rationale to buy the track once and send it around to their friends? And as the learning curve for that rises, won’t the rate of sales for the higher-priced songs start dropping?

“Oh, Madison, we shouldn’t—file-sharing is illegal! It’s stealing!”

“Oh Barlow, don’t be silly. They just jacked up the prices! And besides, they specifically changed it so we can just email songs. They want us to!”

There will be a learning curve, of course, but how long is it going to take 14-year-olds to get into the habit to emailing any song they buy to a half-dozen friends?

Feb 02, 2009
Posted by: Hitsville

Did Apple really lose the iTunes pricing war?

It looks like the company did, finally giving in last month and allowing the record companies to jack up prices for hit product. The cover was the removal of DRM, something Steve Jobs had long campaigned for.

Today however, comes news that the real heart of the deal was an agreement with the labels to allow wireless downloads to the iPhone.  The story is somewhat vague on the details:

But according to one music industry executive involved in the negotiations, Apple’s primary goal was securing distribution of music over its iPhone, as mobile phones are expected to become an increasingly important outlet for music.

Much later in the story, we read:

Apple indicated it was willing to make the switch to variable pricing [“variable pricing” is an industry euphemism for “raising prices”] provided that the music companies — which negotiate individually with Apple to avoid colluding — would agree to license songs for wireless downloads on the iPhone, as well as drop copyright protections using digital rights management, or D.R.M., software.

All the labels agreed except Sony Music. […] Eventually, Sony gave in ….

But it looks as if Jobs, by selling out consumers on the pricing issue, gained for himself both a new income stream and an enviable new selling point for his iPhone.

Jan 16, 2009
Posted by: Hitsville

How Steve Jobs really matters …

… is detailed after the jump in today’s quite good NYT story on his importance to Apple:

But there are other aspects of his role that do not get as much attention and may be more difficult to replace. […]

Mr. Jobs, former Apple employees say, has the authority and long-term vision to yoke Apple managers and employees together under a single cause. At many technology companies, various divisions often work at cross purposes, competing with one other to develop related products. This can lead to devices and software that are sometimes incompatible, frustrating customers.
[…]
Mr. Jobs has also been Apple’s chief deal maker. After introducing the iTunes store in 2003, he persuaded entertainment companies to sell digital versions of their products when they were largely bivouacked, hiding in fear of piracy. In large part because of Mr. Jobs’s efforts, those barriers have fallen, though other challenges remain like getting the Hollywood studios to relax their restrictions on renting or downloading movies over the Internet.

Emphasis added. For the first point, consider the WSJ’s very harsh front-page assessment today of Microsoft’s many missed opportunities to get in the ring with Google:

[B]ehind [Steve Ballmer’s] push to capture a bigger piece of Google’s lucrative business lies an untold story: Nearly a decade ago, early in Mr. Ballmer’s tenure as CEO, Microsoft had its own inner Google and killed it.

In 2000, before Google married Web search with advertising, Microsoft had a rudimentary system that did the same, called Keywords, running on the Web. Advertisers began signing up. But Microsoft executives, in part fearing the company would cannibalize other revenue streams, shut it down after two months.

And for the second, Jobs’s potent intelligence and persuasive abilities may be his most under-appreciated features. As I wrestle with the two most backward technological presences in my life, the car stereo and the cable box, I find myself idly wishing Apple would get into those products. Jobs could knock heads and design and manufacture new editions that would bring them into the 21st century—a Tivo cum iPod for car radios and a combo cable box/computer/Tivo/Apple TV for the TV.

Both products a) make sense and b) would spur growth in all sorts of ways for all the industries involved, but neither will ever get done because those industries work at cross purposes, and none of the borgs involved—car companies, radio broadcasters, cable companies, and the movie studios, for starters—are known for their big-picture vision.

It doesn’t have to be those products in particular; but if Steve Jobs ever comes back to Apple, won’t the loss of that vision and the grit to realize it be the two big things the company loses?

Jan 06, 2009
Posted by: Hitsville

Itunes goes DRM free—at a price

Greg Sandoval at Cnet was first to report that Apple has finally cut a deal with Warner, Sony and Universal to sell DRM-free tracks on iTunes.

The catch—Steve Jobs is apparently retreating from his long-time insistence on a 99-cent consistent price:

Apple has cut deals that will finally enable iTunes to offer songs free of copy protection software from the three largest music labels, according to two sources close to the negotiations. In exchange, Apple has agreed to become more flexible on pricing, the sources said.

Note how even Cnet is using the phrase “become more flexible on pricing” in its record-industry preferred way, as a euphemism for “raise prices.” (See my previous discussions of this tendency here.) The piece is a little too-industry friendly overall:

The good news is that the price of catalog music is falling to 79 cents per song. The labels will get an opportunity to price some hit songs for more than 99 cents but eventually those songs will drop to 79 cents, according to one source.

Before iTunes users get too worked up, they should remember that song prices at iTunes haven’t increased in five years. According to the Consumer Price Index, a 99-cent song in 2002 would be worth $1.17 today.

Since the bad news was “flexibility,” the good news makes things seem all better. The real bad news, which the piece doesn’t say flatly, is that the hit songs of the day Apple is going to allow the companies to charge more for will of course make up a huge percentage of a day’s typical sales.

As for the CPI, the peer-to-peer networks offered music for the competitive price of zero in 2000. Today, adjusting for inflation, the price there is still … free.

Last graf of the Cnet piece:

Not only will new music downloads be free of copy-protection software, but Apple and the labels will begin removing DRM from music already available in the iTunes Store, the source said. However, it’s unclear what will happen to songs that have already been purchased.

Removing the DRM from already purchased music would be an important and somewhat ameliorative gesture by the labels how wrong their insistence on DRM was.

—–

The question of selling non-handcuffed music raises the question of how much the companies are going to be sacrificing in sales. Without the copy protection, purchasers will be able to do what comes naturally: Email a friend a song, right after purchasing it at the iTunes store.

It’s possible to pass along legitimately purchased music to friends right now in any number of ways, ranging from simply letting them rip a store-bought CD to the more laborious one of burning a physical CD from one you bought on iTunes (i.e., thereby removing the DRM) and letting them import that.

The new way, obviously, is going to be easier, and ironically enough it’s going to hit the hits, most minor and major, most heavily, because someone who eagerly buys a new Beyoncé track will presumably have a friend or ten who are interested in it as well and can now immediately and easily pass it on. If you’re digging up an old song from Nirvana’s first album, by contrast, it’s unlikely you have ten friends who are going to want it that same minute.

You’d think, in fact, that the industry would charge less for hits (to encourage people to buy it online rather than get it from a friend) and price catalog higher—if you want that old Nirvana song, you’ll pay the extra quarter, and the chances are lower a friend of yours would have it.

I think Jobs, for all his severity, was appealing to the better nature of people with consistent pricing. In a world where you don’t have to buy, the image of an industry playing fair, for once, on pricing couldn’t have hurt.