Someone May Want To Explain To Record Execs How Little Power They Really Have

from the just-saying dept

Warner Music is really backing themselves into quite a corner. Last week CEO Edgar Bronfman started whining about how Apple won't let them charge more for certain songs -- which, as we pointed out, isn't a problem with Apple. Warner is the initial seller. They can set whatever wholesale price they want, but they can't tell Apple how much to price something for retail. If they don't like the wholesale price, they should change it or (as we said) stop selling to Apple altogether. Now they're saying they might do exactly that. Broadband Reports points to a story about a different Warner exec claiming that Warner might just stop letting Apple sell its songs. Where it gets really amusing is that he seems to believe that it's the songs being in iTunes that sells iPods, rather than the other way around. You have to hope that these guys aren't so blind to what's happening that they actually believe they have any kind of leverage against Apple. It seems pretty clear to everyone else that it's the exact opposite. If Warner pulls out of iTunes, then people will simply get their songs for free on file sharing networks or just not listen to Warner songs at all. In either situation, Warner loses... big time. So, you have to assume that they're bluffing on this one, and just doing a really bad job of it. The thing about Steve Jobs, though, is that you get the feeling he isn't afraid (at all) to call the recording industry's bluff. Update: A few people have pointed to this article in TheRegister saying that the quote was misattributed to a Warner exec when it was really said by a music industry lawyer. What's weird, though, is that our original story wasn't from TheReg, so it sounds like multiple news sources got the original story wrong.

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  • identicon
    Mousky, 29 Sep 2005 @ 10:30am

    Overstating Importance of Digital Music Sales

    Actually, Warner (and the music industry in general) has way more leverage then you think they have. Digital music sales accounted for about 1.5% of global music sales in 2004. That figure is expected to double in 2005 - so we are talking 3 to 4%. Yes, it's 100% growth, but the percentage of the market is hardly worth writing home about. The impact to Warner of not selling music through iTunes is negligible at best (for the time being).

    I disagree that if Warner pulls out of iTunes that people will get their songs for free on file sharing networks. What's stopping iTunes users from choosing that route right now? Why would they choose to pay for music when a free alternative exists? Will iTunes users boycott Warner? Maybe. But, for the most part, boycotts don't work.

    reply to this | link to this | view in chronology ]

    • identicon
      Carlton, 29 Sep 2005 @ 10:49am

      Re: Overstating Importance of Digital Music Sales

      People will get their tunes from p2p networks because Warner pissed them off by pulling out of iTunes. I have seen it happen before.

      Also add warner to the list of companies who want to dictate the price of their products (this is called price fixing and is illegal) once I purchase your product wholesale I can sell it for whatever I wish or even give it away.

      reply to this | link to this | view in chronology ]

    • identicon
      Anonymous Coward, 29 Sep 2005 @ 11:02am

      Re: Overstating Importance of Digital Music Sales

      What's stopping iTunes users from choosing that route now? Why would they choose to pay for music when a free alternative exists?

      We already know they pay for their music, but if Warner stops offering their music through iTunes, where else will these people download the music?

      reply to this | link to this | view in chronology ]

      • identicon
        Mousky, 29 Sep 2005 @ 11:10am

        Re: Overstating Importance of Digital Music Sales

        Fine. I understand that some users may jump to p2p to find Warner labeled music. But that does not answer my question - why pay when a free alternative exists? I do not see the logic (either that or I am brain dead from the continuous drone of construction noise outside my office window).

        reply to this | link to this | view in chronology ]

        • icon
          Mike (profile), 29 Sep 2005 @ 11:17am

          Re: Overstating Importance of Digital Music Sales

          Fine. I understand that some users may jump to p2p to find Warner labeled music. But that does not answer my question - why pay when a free alternative exists? I do not see the logic (either that or I am brain dead from the continuous drone of construction noise outside my office window).

          That's an easy one. People will pay for convenience and value (real or perceived). iTunes gets people to pay because it's convenient, the quality is high, the search quality is good, the ease of use is there and because they feel the overall experience is better than the free alternatives (less junk, less risk of viruses, less risk of lawsuits... who knows...).

          However, if the alternative isn't there at all, then people revert back to free.

          Why do people buy bottled water? The tap is free and in many cases actually better quality. But there's perceived value there.

          reply to this | link to this | view in chronology ]

          • identicon
            Mousky, 29 Sep 2005 @ 12:10pm

            Re: Overstating Importance of Digital Music Sales

            Thanks for the response - very logical (I'll blame that construction noise on my mental block). But I'll counter with this: iTunes is not the only pay service out there. So my next question: If these users percieve a value in paying, wouldn't they be seeking a pay alternative before seeking the free alternative?

            I still disagree with your notion that iTunes users will jump ship to the the "free ship" or that they may abandon ship all together. Some users? Sure. But 'a lot' or 'many'? I don't think so.

            reply to this | link to this | view in chronology ]

            • identicon
              Chedda Mash, 29 Sep 2005 @ 12:26pm

              Re: Overstating Importance of Digital Music Sales

              I'm sure we all remember Napster. How about Metalica? Metalica illegal downloads increased 10-fold when they (mainly Lars) started whining about Napster. People were actually downloading Metalica just to do it and piss them off. People will do the samething with Warner.

              reply to this | link to this | view in chronology ]

              • identicon
                Mousky, 29 Sep 2005 @ 12:41pm

                Re: Overstating Importance of Digital Music Sales

                They may initially, but I doubt it will be sustained. With Metallica, we are talking about fans, many who had supported the band since the early days and felt stabbed in the back by a "rich" band complaining about Napster. I just do not see the same type or level of motivation or dedication from users who pay to download a song or two from a Warner artist. Most users probably do not even know which label their artist belongs too.

                reply to this | link to this | view in chronology ]

              • identicon
                Old Bay, 29 Sep 2005 @ 1:07pm

                Re: Overstating Importance of Digital Music Sales

                What he said. you worked at Red Lobster huh??

                reply to this | link to this | view in chronology ]

            • icon
              Mike (profile), 29 Sep 2005 @ 12:31pm

              Re: Overstating Importance of Digital Music Sales

              So my next question: If these users percieve a value in paying, wouldn't they be seeking a pay alternative before seeking the free alternative?

              I still disagree with your notion that iTunes users will jump ship to the the "free ship" or that they may abandon ship all together. Some users? Sure. But 'a lot' or 'many'? I don't think so.


              Good question... but all of those other services use DRM that won't work on the iPod without a fairly convoluted process (buring to a CD and then ripping as an MP3). So, for iPod users, it's easier to just go out and get the damn MP3.

              reply to this | link to this | view in chronology ]

              • identicon
                Mousky, 29 Sep 2005 @ 12:44pm

                Re: Overstating Importance of Digital Music Sales

                Or buy the CD and rip it to their iPod ;)

                I'm happy to have generated so much discussion on this issue. Much better and much more intelligent than what is posted on digg.

                reply to this | link to this | view in chronology ]

        • identicon
          Jtheletter, 29 Sep 2005 @ 12:24pm

          Re: Overstating Importance of Digital Music Sales

          Fine. I understand that some users may jump to p2p to find Warner labeled music. But that does not answer my question - why pay when a free alternative exists? I do not see the logic

          Simple, it's convenience and reliability. iTunes has everything in one place, easily searchable by title, artist, genre, etc, it has preview clips of most songs, recommends similar artists, and you know the file is good quality and correct/complete. Depending on what p2p service you use all of those things are to some degree less certain. I haven't done p2p for music in a while but I doubt any of them are as consistently reliable in all of the areas I mentioned as iTunes is. Plus there's the added bonus that the RIAA isn't going to possibly sue you for using iTunes. Also, not all (aka average-Joe) users are savvy enough to figure out p2p, what's good to use, how not to get caught by the RIAA, what different encodings mean etc etc. But they know if you install iTunes it Just Works, which is the holy grail of any tech for the masses. Also people have gotten the idea that downloading music for free is wrong (though they may not know for the right reasons) and generally want to be law-abiding people and pay for things.

          reply to this | link to this | view in chronology ]

      • identicon
        Anonymous Coward, 29 Sep 2005 @ 11:19am

        Re: Overstating Importance of Digital Music Sales

        People will pay for music if it is easy to do and they are assured of good quality files. That's why iTunes is so successful.

        reply to this | link to this | view in chronology ]

    • identicon
      Phlogistic, 29 Sep 2005 @ 11:32am

      Re: Overstating Importance of Digital Music Sales

      Not so sure. One could argue that those who hung onto other old media distribution technologies, such as tape, 8-track, or LP mediums didn't do as well either.

      I recently stored away all my CDs away next to my VHS tapes in the basement. Why? I've got all the CDs as MP3s on my hard drive, I own a Nokia 6230 that plays MP3s, my wife owns an iPod mini. Wife & I have tape decks in my car that have tape -> 3.5mm adapters to hook up our MP3 players, and the stereo at home can take a 3.5mm adapter as well.

      Call me an early all-digital adopter, but what do you like best about christmas presents, the paper they're wrapped in, or the gift itself?

      reply to this | link to this | view in chronology ]

      • identicon
        Mousky, 29 Sep 2005 @ 12:30pm

        Re: Overstating Importance of Digital Music Sales

        I'm only arguing that some people are overstating the importance of digital music sales as of today. They way some people write about and respond to anything remotely about the music industry, would lead us to believe that the music industry is in disarray and that everyone (well, ok, mostly everyone) is buying (or downloading) music in digital form (because if they buy/download digital music, surely, everyone else must be doing it).

        The fact is that in 2004, digital music accounted for 1.5% of global music sales. And 2004 was the best year in the past five. I have yet to see a major music company seek bankruptcy protection. They are making money - most of it from sales of "physical" media. Now, by no means am I suggesting that digital music will become important - it will. But as we speak, too many people are overstating it's importance on the bottom line of the music industry. Don't even get me going on the negligible impact of p2p on the bottom line of the music industry ;)

        reply to this | link to this | view in chronology ]

  • identicon
    Pete Austin, 29 Sep 2005 @ 11:11am

    Those Figures and eDonkey News

    "figures for the first six months of 2005. The IFPI calculates that 180 million downloads were sold worldwide during this period. During the whole of 2004,157 million downloads were sold." - CIRPA

    Also bear in mind that:
    (a) downloads also drive some CD sales, because people use them as a way to try new music, and
    (b) production costs are very low for legal downloads, so they should be very profitable.

    In other news (Mike please note), eDonkey Folds to RIAA Demands, Cites Legal Costs

    reply to this | link to this | view in chronology ]

    • icon
      Mike (profile), 29 Sep 2005 @ 11:44am

      Re: Those Figures and eDonkey News

      I read that thing about eDonkey, and it's not entirely clear what they mean by "folds". He just says that they're making an effort to "comply" with the RIAA -- but the rest of his talk (which we linked to yesterday, btw) points out how he could be doing the same thing and still be perfectly legal. So, I'm thinking the claim that they've "folded" may be premature.

      reply to this | link to this | view in chronology ]

    • identicon
      Mousky, 29 Sep 2005 @ 12:18pm

      Re: Those Figures and eDonkey News

      I'm not sure what your point is about the doubling in music downloads? Yes, it is a growing segment of the global music sales, but at this point in time, based on 100% growth from 2004 to 2005, music downloads would account for about 4% of global music sales. Insignificant for the time being. When that figure gets to 25% or more, then we can start talking about the online services having some leverage.

      reply to this | link to this | view in chronology ]

      • identicon
        Jtheletter, 29 Sep 2005 @ 12:33pm

        Re: Those Figures and eDonkey News

        music downloads would account for about 4% of global music sales. Insignificant for the time being. When that figure gets to 25% or more, then we can start talking about the online services having some leverage.

        Yes but as much as these record execs may have their heads in the sand I think they're still forward-looking enough to realize that pure digital is the future whether they like it or not, and putting the download genie back in the bottle will be impossible now that people have tasted it. I agree currently there is less leverage than some have implied, but the fact of the matter is that iTunes is the most successful online music seller currently and that does mean something if online music is going to be part of your current and future business model. Plus ipods clearly lead the mp3 player market, and every single one comes with itunes software and points you to their online store. While it's possible to use another service, most people use what's convenient and stick with what they were given. I do agree with you though that if Warner leaves then people are more likely to go to other pay services before going directly to free p2p piracy for those songs. But Warner would be doing themselves a disservice in the online music industry by shunning the current global leader in that industry.

        reply to this | link to this | view in chronology ]

      • identicon
        Pete Austin, 30 Sep 2005 @ 1:54am

        Re: Those Figures and eDonkey News

        Hi Mousky, Re: I'm not sure what your point is about the doubling in music downloads?
        1. Nobody was linking to the source of their figures, which makes them difficult to check, so I wanted to include a link to the best figures I can find.
        2. Although paid-for downloads may be only 4% by volume, their costs are very low, so they should be very profitable. This would make their contribution to total profits much bigger.

        reply to this | link to this | view in chronology ]

  • identicon
    marlinj, 29 Sep 2005 @ 12:44pm

    No Subject Given

    Perhaps they know that for now there is more money to be made in ringtones than in digitally delivered songs?
    These are the people who would, if they could, plant DRM inside your skull just to charge you a penny every time you hummed a tune from their catalog.
    When thinking about media companies and digital recording, one should always remember that these are the same folks who saw their death and destruction from content piracy in cassette tapes and VCRs. Media moguls should remember that each of these technologies just made them that much richer.

    reply to this | link to this | view in chronology ]

  • identicon
    bob, 29 Sep 2005 @ 1:13pm

    Itunes

    I don't mind paying a fair price for music. The way I see it, the people who bring me the entertainment I want deserve to be compensated for it. But, if they're going to be dicks about it, I'll just turn to P2P. I'm only going to play fair as long as they do.

    reply to this | link to this | view in chronology ]

  • identicon
    thom, 29 Sep 2005 @ 1:27pm

    teaching newbies

    I think that adding DRM and/or taking away songs will TEACH people to be pirates.

    I use as an example Command & Conquer. They demand a cd key on install. I bought the game and lost the key. I needed to install the game on my new pc. So, I learned how cracks work to do it. I didn't know how to crack a game and now I do, BECAUSE of their security precautions.

    Let's see if we can tie my example to Itunes. I love an imaginary band called, "I-Tuner". They are my favorite! Then, Warner Bros. pulls them from I-tunes. What! No Tuner! That sucks!

    So, I learn a simple p2p. I learn it ONLY to get the new I-tuner album.

    Wait, that wasn't that hard, do they have "Band X"? They do! And now I'm pirating instead of paying.

    My desire for the band's product fed my motivation to learn the file sharing 'trick'.

    Warner Bros. helped create the carrot that this donkey followed... yes? Or no?

    reply to this | link to this | view in chronology ]

    • identicon
      Anonymous Coward, 29 Sep 2005 @ 2:37pm

      Why did file sharing catch on so quickly again?

      Oh yeah that's right, because of the masses being fed up with ridiculously high priced CD's that are full of 80% shit music.

      We found an alternative because we, the consumer, HAVE THE POWER. We always have the power, and file-sharing is our way of expressing this. RIAA/MPAA need to accept.

      They want to increase the semi-reasonable prices of i-tunes music? Fine, I say go for it, but if anyone needs me, I'll be boycotting again by finding it somewhere else online for FREE.

      I'd much rather download an album for free and sent $1 to the artists fan mail address. That's the same amount of money they get from a CD sale anyways.

      reply to this | link to this | view in chronology ]

      • identicon
        Mousky, 30 Sep 2005 @ 6:13am

        Re: Why did file sharing catch on so quickly again

        The masses are not fed up with "ridiculously high priced CD's". I suppose if enough people say it over and over again, that it must be the truth.

        In 2004, digital music accounted for a mere 1.5% of global sales (in dollars). The figure for 2005 is expected to be 3 to 4%. Further, 2004 was the best year in the past five for the music industry. If the "masses" were really fed up, I would have expected 2004 to be a bad year and I would have expected online sales (since people only want the 20% of the CD that is not crap) to account for a greater percentage of total sales (in dollars).

        reply to this | link to this | view in chronology ]

    • identicon
      thecaptain, 30 Sep 2005 @ 5:32am

      Re: teaching newbies

      You've hit the nail on the head.

      My parents, older folks, not computer literate at all but they like what they like, learned about cracks exactly the way you describe

      (they also learned about viruses and such...but we'll let that go hehe)

      They browse the file shares now for tons of stuff..they aren't heavy downloaders, but they've learned that its VERY easy and convenient to look to P2P for digital alternatives to media.

      reply to this | link to this | view in chronology ]

  • identicon
    Mousky, 29 Sep 2005 @ 4:14pm

    Ooops

    Seems The Register made a small mistake:

    Warner Music's Michael Nash - no executioner

    reply to this | link to this | view in chronology ]

  • identicon
    Boo, 30 Sep 2005 @ 2:02am

    which is selling which


    The comment regarding itunes selling ipods in the article is correct as I understand it. Apple was never really looking to make serious money from itunes - it was always just an angle to add value to ipods and foster sales. In fact the statistics of how many ipod owners regularly download from itunes is amazingly low. And when you compare the sales volume * the profit margin on both products, it's clear that the real money is made from the hardware and the store is just a support product to boost sales.

    That's why he's not interrested in a flexable pricing model, he's not so much marketing the songs as he is the ipods - his 99 cent "sweet spot" is an easy to get concept that can push the hardware sales.

    Since day one the record bosses have pushed for a variable pricing model, charging very little for old music and high for chart toppers. this model would suite the marketing and revenue potential of selling songs, but not for selling ipods - this is where they are butting heads!

    reply to this | link to this | view in chronology ]


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