Let's come straight to the point. Forget about "variable
pricing" issues, you can already set variable album pricing on iTunes:
you can sell albums from $5.99 and up. The majors want to raise the
prices for their new releases. They simply want to make more money now,
which they are not denying and it¹s fine with me. After all, the music
business is business and they have to answer to their shareholders.
What worries me is that music industry is not out of doldrums
yet. Yes, there are reasons to be optimistic: legal digital and mobile
downloads are taking off, the phenomenal success of ringtones, the expansion
of digital radio, etc. But in the last five years many independents
have closed their doors. I'm not talking about small, one or two person
operations, but companies who in mid-to-late Œ90s sold millions of albums
per year.
What forced these labels to close wasn't so much the Internet
downloads, but CD piracy. I remember talking to one of our partners
in southeast Asia, who said that within two weeks of one of their releases,
they would see bootleg CDs of their compilations selling on the street.
Physical sales are still going down every quarter and the vast majority
of downloads are still not legitimate. P2P traffic is still growing.
Pirates can set up a "CD/DVD plant" in a spare bedroom.
How many majors did we have just a few years ago, and
how many do we have today? How many records get released, say, today
vs. the end of the Œ90s? It¹s not that there is a shortage of good artists
or material to release. Record sales are not what they used to be, so
it makes many releases not commercially viable. Today, even Œbig hits¹
sell fewer numbers.
To force Apple to raise prices now will only benefit Apple's
competitors, but only in the short term. Apple is not the only online
distributor currently selling tracks at 99c; in fact, many are selling
for less, so I presume that if Apple succumbs and raises prices, other
online stores will be also asked by the record companies to raise their
prices. How is this going to help online stores to stay in business,
if many of them just started to turn profit or are still in the red?
I think that the issue is that majors are mostly concerned
with Apple's dominance in the market (after all, revenue from digital
downloads is still insignificant) and that they have lost "control."
I¹m almost certain that "variable pricing" for individual downloads
will only lead to actual price reductions down the road. Some labels
will reduce prices for the new releases, in effect , to "buy" their
way onto the charts, and others will have to follow. So, instead of
selling tracks for 99c, we¹ll be selling them for 79c or whatever the
bottom-range price will be.
Majors are complaining that Apple makes money from iPods
and not from downloads. Sure, they are making little money from the
music, but that¹s because of how much they pay us, the record companies.
Frankly, I don't care if Apple makes money on iPods or music. All I
care is that we get 70c from every download. We have no manufacturing
cost, distribution costs or returned stock. Because of this, we can
pay artist (who supply finished masters) 50 percent of the revenue.
If UK managers are complaining that their artist are getting only 4.5p
on every 79p track, why blame Apple?! They should be blaming themselves
for negotiating these type of contracts for their artists! If download
prices were increased, would they be happy with, say, 6p from a download?
I don¹t think so; it¹s still a very low royalty rate.
Most importantly, I like the fact that Apple maintains
"editorial independence" on what records get featured on iTunes (and
I hope it stays this way), so independent labels, too, have a chance
for success. If you look at the main Top 100 chart on iTunes, you will
see mostly big name acts, as major labels will always dominate with
their marketing muscle - fans buy what they hear on the radio and see
on TV. However, if you look at the genre-specific charts, you'll see
a large number of independent releases. Earlier this year, we've had
three albums on Top 100 Dance Albums on iTunes US at the same time,
and we¹ve had a few more Top 100 positions since. I could never imagine,
even a year ago, that this could ever happen. It just goes to show that
with online distribution, given a much wider choice, music funs buy
what they like rather than what has been forced upon them previously.
Increasing prices now obviously isn't going to increase
number of downloads and, in fact, might stall the whole market, and
this is my main concern. At US 99c (actually more in UK, Europe and
Japan), it seems that many fans are reasonably happy with the price,
so why "rock the boat" now and just alienate them? We need to remove
the incentive to steal/copy/buy bootlegs and instead create a "culture"
of paying for music, which has unfortunately eroded in the last few
years. There is actually a significant proportion of fans who are paying,
not because they can¹t get it for free, but because they want to do
the "right thing." And some fans simply can¹t be bothered to search
for free music, when they can easily find it and buy online. Of course,
if you raise the price, this purchasing "proportion" will decrease -
everyone has a price. (Perhaps the major's executives should read a
few posts on forums and see what fans are saying.)
Yes, sales are rapidly increasing as more people buying
iPods, MP3 players, Sony PSPs, and music phones, but relatively speaking,
few people are actually buying downloads. It¹s common sense that increasing
prices will only drive some people who are already "payers" away from
legitimate online stores.
Finally, with or without Apple, digital distribution would
have happened sooner or later. There are many other great companies
who are involved in the digital music distribution, but as a matter
of fact, without Apple, it would taken a few years longer to hit the
mainstream. But by then, it would have been too late for many of us
in the music business.
David Faiman
Managing Director
Odessa
Mama Records
Melbourne, Australia
Provided by the MusicDish
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It 2005 - Republished with Permission
