p2p news / p2pnet:- The corporate online music market doesn`t really exist. Ninety-nine percent of the action is on the p2p networks and until EMI Group, Vivendi Universal, Sony BMG and Warner Music, accept the fact they`re in the 21st century where digital media, not physical product, rule, that`s the way things will stay.

The remaining 1% serviced and supplied by the members of the Big Four record label cartel is, to all intents and purposes, in the hands of one company. Apple.

Its iTunes which, ironically, is far more a self-funding promo vehicle for iPod products than a genuine music download operation, completely dominates the corporate music scene. It costs $1 and up (depending on where you are) for each lossy, highly compressed download.

But even that price is in question because the labels now want to get really silly.

They already wholesale `product` at between 65 and 80 cents, Mashboxx chairman Wayne Rosso told p2pnet a while back.

But now they`re planning to hike their charges for what would amount to ‘premium’ product. As a result, companies would be forced to demand $1.50 for some tracks, a totally ridiculous price it would probably be impossible for even the Apple faithful to swallow.

This morning we had an email from David Faiman of Odessa Mama Records in Melbourne, Australia. This topic [pricing] has been hotly debated in the news, last couple of weeks, he said, going on:

Since I run an independent label and we are selling on iTunes, I wanted to give an opinion on this matter, as obviously, it will have an impact, not only on the major labels, but many independent labels, as well as, on digital and mobile downloads market-place in general.

Here’s what Faiman has to say >>>>>>>>>>>>>>>>>>>>>>>>

The 99c Question
By David Faiman – managing director, Odessa Mama Records

With a showdown approaching between the major labels and Apple over 99c price for the downloads and now UK`s Music Managers Forum also unhappy with iTunes pricing , I wanted to give an independent label’s view on this subject, given that there are over 1000 independent labels on iTunes. With almost 15 years experience of running one, I think that the majority of my peers will agree with my views. Of course, I doubt very much that the majors will actually remove their catalogues from iTunes store, nevertheless I`m very concerned about the developing situation.

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 the new releases. They simply want to make more money now, which they are not denying and it`s fine with me. After all, 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 taking off, phenomenal success of ringtones, expansion of digital radio etc., but in the last five years many independents have closed their doors. I’m not talking about small 1-2 person operations, but companies who in mid-to-late 90s sold millions of albums per year. What forced them to close, wasn’t so much the internet downloads, but cd piracy.

I remember talking to one of our partners in SE Asia and within two weeks of a release, they would see bootleg cds of their compilations selling on the street. Physical sales are still going down every quarter and 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 we`ve had just a few years ago, and how many do we have today? How many records get released, say today vs. end of 90`s? It`s 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 `big hits` sell fewer numbers.

To force Apple to raise prices now will only benefit Apple’s competitors, but again 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 going to help them to stay in business, if many just started to turn profit or 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`. I`m almost certain, that having `variable pricing` on individual downloads, will only lead to actual price reduction down the road. Some labels will reduce prices for the new releases, in effect, to `buy` their way into the charts and others will have to follow. So, instead of selling tracks for 99c, we`ll 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 music, but that`s 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% 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 are increased, would they be happy with, say, 6p from a download? I don`t think so, it`s 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 Top100 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 3 albums, at the same time, in Top 100 Dance Albums on iTunes US, and 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 create a “culture” of paying for music, which has unfortunately eroded in the last few years.. There is actually a significant proportion of fans that are paying, not because they can`t get it for free, but because they want to do the `right thing`. Some, simply can`t be bothered to search for free music, when they can easily find it and buy online. Of course, if you raise the price, this `proportion` will decrease – everyone has a price. (Perhaps 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. It`s a `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’. 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

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See:-
65 and 80 cents – Mashboxx for mid-November, August 23, 2005

This entry was posted on Tuesday, October 18th, 2005 at 6:56 pm and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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