Doctor Q said:
the value of a song depends mostly on its demand/appeal, which is higher for new releases. So the value of a new song is higher than the value of an old song.
My point is that, in arguing for another model, Sony and Warner may be stubborn but they aren't being illogical.
I disagree.
In the not-so-distant past (about 2000) Sony, Warner and the rest of the "major" record labels now doing business with Apple were sued by 40+ states for violating anti-trust laws by "artificially raising the price of songs" to consumers. In other words, the labels colluded with each other to arbitrarily set the lowest price for CD's that consumers would pay, preventing any discounting at retail and thus bringing the overall market price up. The labels didn't prevail in the suit and ended up settling the case (more on that later).
Prior to setting up the iTunes music store (which, tellingly, was Jobs idea, not the labels) the labels were, at that time, more preoccupied with keeping music
off the internet. Jobs eventually convinced them that they could make money selling songs on the net, but the labels hedged the bet. By exposing the iTunes store to just Mac users, the labels felt less threatened from abuse by the small market share compared with Windows. They also felt, according to their sales projections, that the numbers from the upstart iTunes store would be very low, hence, they charged at least .70 for every .99 song sale. This wasn't due to their costs involved in providing iTunes compatible music, Apple does all of the encoding. All the labels needed to do was basically Fed-Ex the existing two-track master for the CD to Apple. So the labels figured if sales were low - and given that they still believed it wouldn't begin to dent the ubiquitousness of free file-shared songs - the absurdly high .70 per song share reflected at least some profitability (remember their cost) from the expected low volume of sales and eventual failure of Jobs' idea.
Apple knew better, but even Apple's most optimistic projections for the iTunes store didn't come close to predicting the almost immediate success of the store. Needless to say, it just blew away the labels expectations. The labels became believers, and thats when "hell froze over." The rest is rather well documented history and 80+ market share compared with other online music store wannabes. Apple did it's homework, and it paid off. Especially for the record companies. Apple initially lost money on the store, then broke even for awhile, and only recently has reported a modest profit specific to song sales from iTunes. In that regard, .70 per song was a huge amount to pay the record companies, and Apple saw the iPod as it's saviour.
The New York Times covered this story regarding the label's interest in variable pricing about a week ago. As it turns out, that's not all they're interested in. It seems the labels have become a little envious of Apple's iPod success now, and feel (God knows why) that maybe they should see a part of that action too. It's just amazing. The head of Sony Records mentioned that Apple sees two "revenue streams;" one from iTunes music store sales (what?), and one from the iPod. His next breath was to mention that Sony only sees
one revenue stream, just from the music store. Then he says that revenue stream is so small "it would take a medical professional" to find it. This, on the heels of Apple's announcement that it sold over a
half billion songs. Not to mention that Sony, in particular, is also involved in online sales and portable devices and is selling it's Sony label songs there. So I count three "revenue streams" One lucrative one from Apple (Sony's share of a half billion songs sold at .70 per song net profit) and two revenue streams from it's music store and portable players, which probably do need a surgeon to find any profit from those.
So if Job's doesn't want to be the labels's new partner in the latest price fixing scam, then perhaps he will fork over a percentage of iPod revenue. It's just amazing, expecially after Jobs (and no one else) saved their ass when the net looked, to them, like this:
😕
All in all, my problem with the record companies is that they are serial liars. Despite the phenomenal success of iTunes, the online music business is still very much in it's infancy and expansion - as Australians (among others) will attest. Apple has established the undisputed (in terms of market share) formula for success, which includes song pricing. Customers know the price of songs before they even log on to the music store. Changing the formula now, at this early stage of development, risks changing how purchasing music on the net is perceived. And since raising prices without justification is never perceived well, the former method off obtaining music on the net may enjoy a newfound renaissance. You don't need to be an economist to figure that out.
By the way, part of the settlement for the labels' antitrust suit called for them to donate CD's to public libraries in the states bringing suit. What did the labels do? They ended up unloading hundreds of copies of CDs from unknowns, artists that never sold, and stuff from their back catalog they couldn't sell. In other words, junk. In most cases, it was hundreds of copies of the
same worthless CD. And yes the libraries complained, and ended up tossing almost all of what was the labels "settlement"
Nice guys, huh?
😡
