Earlier today I received emails from 2 music subscription services arguing that Apple's 30% levy on content subscriptions would force them out of the iTunes ecosystem. Digital music is a low-margin business. Rights costs typically account for over 70% of revenues and payments, technology and marketing taking most of the rest. So Apple's 30% levy has the potential to instantly turn premium music subscriptions from a low-margin to a negative-margin businesses. Apple's role in premium music subscriptions is key. Subscriptions have spent half a decade failing to break out of a niche. Portability delivered by iPhone apps and the like have given them a new life. So the levy hits subscriptions where it will hurt them most. So if subscription services opt to take their transactions out of Apple's ecosystem, the net result will be less "internal" competition for Apple's music offerings . . . just in time for a new iTunes subscription launch? And all done in an FCC-friendly manner. But perhaps most importantly, this could be an effective pre-emptive strike against an Android music service beachhead on iTunes? So the 30% levy won't kill off music subscriptions, but it will be a major speed bump with the added benefit for Apple of moving some pesky competitor tenants off its front lawn.
Last night I attended Universal Music UK’s ‘Digital Open Day’. The event was aimed at trying to get UMG’s vision across, to help them become part of the debate rather than sitting quiet whilst, as they see it, the marketplace conversation portrays them as prehistoric fat cats.
I don’t normally blog about these sorts of events, but I think it highlights a few interesting dynamics. The record labels are still hung up about how people view them. I think this is something of a red herring. People don’t download music for free because they don’t like labels. They do it because they just don’t think content should be paid for. Any label-directed vitriol by freeloaders is just after-the-fact pseudo justification. The big issue is not winning hearts and minds; it is undoing 10 years+ of music being thought of as free.
If any message needs delivering, it is that of the artists. Not the big established artists who’ve had years of record label investment and suddenly decide they want to go ‘free’ in order to drive sales concert tickets and merchandise. But the small artists who are just trying to make a decent living out of something they love, ideally enough to pay the rent and the bills.
A few years ago, I posted a couple of discussion pieces on "why music can’t just be free." Not free as in no cost to the consumer, but as in no monetization. (Regular readers will know I’m a big believer in music monetization models needing to embrace free-to-consumer pricing strategies.)
I recall my first visit to News International’s London HQ a few years ago. It takes several minutes to get through security at the vast complex, surrounded by barbed wire. Once in, I was struck by the sheer scale of the operation, and how only a tiny percentage of the floorspace was given to those creating the content (the bit, in my naivity, I thought of as important). Most of the site was devoted to printing, with articulated lorries jockeying for position as they lined up to take the newspapers off around the country.
Yesterday’s launch of The Daily gave us a glimpse of the future for news organisations, where the focus is on an editorial product, not manufacturing logistics. The distribution is electronic and through one platform only – the iPad. Newspapers have looked at salami slicing their old structures and realised that the numbers don’t stack up. In the long term this kind of radical product innovation is needed.
So will it work? The mantra in media circles is don’t bet against Murdoch, noting the success he has achieved with Pay-TV and to a lesser extent, with reinventing the newspaper business (in the UK certainly) in the 1980s. The Daily, he says, will need 1m paying subscribers to work, at the current (and attractive) price point. Given Forrester’s forecast for Tablet sales in the US, that may not be an unreasonable ask.
And although it will take time for the new product to bed in, the signs are promising. The first edition reflects a lot of thought about how content can be packaged and consumed to maximize the qualities of the iPad (and perhaps the real story here is the potential power of a relationship between Apple and a major publisher). The photography works well, for example, and there are some neat navigational tricks.