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Posted by Mark Mulligan on August 19, 2010
In guidance for their latest earnings results, troubled major label EMI cited the dominance of Apple’s iTunes as a major concern for the digital music market. The exact words were:
"The substantial dependence on a limited number of online music stores, in particular the iTunes Store, for the online sale of music recordings, and the resultant significant influence that they can exert over the pricing structure for online music stores."
I have three things to say to EMI (and indeed the other three majors also):
- I told you so.
- It’s your fault.
- Forget iTunes.
Let me explain in a little more detail:
I told you so. We’ve been warning the labels about the overdependence on Apple for years. Not just because of the pricing and competitive concerns a dominant player brings but because of Apple’s motives. Apple is in the business of selling hardware. Music has been a useful tool to help them do that. But they’ll change tack as soon as it suits them. Heck, these are the guys who started out their music strategy with ‘Rip. Mix. Burn.’ Yet the more cantankerous the labels get (e.g., giving everyone else MP3 licenses before Apple), the more Apple will look elsewhere. cf the iPad, a device which should have had music embedded in its DNA to drive a new generation of music products but instead becomes a Holy Grail for book and magazine publishers.
It’s your fault. If the labels had got their licensing acts together sooner, other services would have gained traction, creating a more balanced competitive marketplace. Instead, when Steve Jobs convinced the labels to humour him with his Mac-only iTunes ‘lab test,’ contemporary services didn’t even support MP3 players. That’s right, you paid to download tracks that only played on your PC. No wonder piracy boomed. It took Jobs & co to change that, and the rip-roaring success of the ‘lab test’ saw the iTunes Music Store come to the PC. The rest is digital history.
Forget iTunes. At least forget the iTunes 99 cent download store. And indeed Amazon, 7digital, and the rest. The 99 cent download is a transition technology with an eye on the future but with its feet stuck firmly in the past. Consumers value access to content, not paying for units of content. They value high-quality, interactive, on-demand social experiences. The 99 cent download model is a useful tool for transitioning between the distribution era of the CD and the digital consumption era, but nothing more.
The great irony is that Apple is currently probably still the best-placed company to help the labels get to their digital end state. Music product innovation is the #1 strategic imperative that will drive success. The iPad should have been the first great next-generation music product device. It can still be, but unless EMI & co start to look beyond the narrow focus of the 99 cent download market and start understanding the value that their new partners can bring, then the story of music sales will continue to be digital failing to meet its potential.