[AdamM]

Apple

Yeah, that's right.  Apple, through the vast market penetration of iTunes and it's $.99 limit, is now the biggest player with the most weight in the music industry.

Good? Bad?  I bet it's good for Apple.  Is it any different / better for the artists?  I know it's better for the small guys (easier to get out there) but do the major artists get as much a slice?

CD price breakdown:
$0.17 Musicians' unions
$0.80 Packaging/manufacturing
$0.82 Publishing royalties
$0.80 Retail profit
$0.90 Distribution
$1.60 Artists' royalties
$1.70 Label profit
$2.40 Marketing/promotion
$2.91 Label overhead
$3.89 Retail overhead

itunes breakdown:
http://www.futureofmusic.org/itunes2.cfm

Some articles on iTunes / record industry
http://pimpwiz.com/2006/04/record-industry-surrenders-to-itunes.shtml
http://www.itwire.com.au/content/view/9580/1023/

[BradJudy]

Apple isn't a record label, they are a retail outlet.  Arguably, they are the most powerful music retail outlet, but they aren't a record label. 

I don't expect the iTunes breakdown is really that different than a regular CD since the same record company is involved and Apple is merely a replacement for the retail channel.  The only difference would be actual packaging/manufacturing and distribution. 

[AdamM]

Ah but where Apple shows their power, is that they manipulate and control the record labels.  Apple tells them what to charge for things, otherwise it doesn't go onto iTunes

Ok, so the vernacular isn't acute. I'll reword it:   Apple is the biggest player in the music industry.

The iTunes breakdown is a bit different, distribution and manufacturing for sure like you mentioned, but with Apple taking a percentage, the labels have a smaller slice than before.

/A

[AdamM]

Apple isn't a record label, they are a retail outlet.  Arguably, they are the most powerful music retail outlet, but they aren't a record label.   

You know, actually they are.  They host unsigned independent talent.  You and i can write a song, publish it on iTunes, and receive income if people download it.  By virtue, that makes them a 'Label'.  Sure, it's a different landscape than we're traditionally used to, but they are effectively working as a label in that regard.

/A

[BradJudy]

Ah but where Apple shows their power, is that they manipulate and control the record labels.  Apple tells them what to charge for things, otherwise it doesn't go onto iTunes
...
The iTunes breakdown is a bit different, distribution and manufacturing for sure like you mentioned, but with Apple taking a percentage, the labels have a smaller slice than before.

Apple has no control over how big of a slice the record companies take from their payment or give to the artists, just the retail price of the music.  Retailers have always taken a slice of the money, so the only difference is now we have a major music market with basically zero variance in pricing.  It's very possible that the breakdowns have changed very little and any retail pricing reduction is purely from eliminating some of the overhead. 

Pretty much any huge retailer or manufacturer is going to throw around their weight a bit to negotiate with their suppliers and "manipulate" them into good pricing or particular agreements - that's everyday business.  The only thing notable here is that there hasn't been much of that in the retail music sales area.  The last one I can think of was WalMart pushing around record labels on lyrical content. 

As for us selling on iTunes, we could also go on eBay and sell CDs we cut in our basement, or put up a MySpace page that builds word of mouth sales through our own websites. 

Apple has done very well with iTunes, but it's not revolutionary in either business or technology, it's just a major player in the music and movie retail sales channels. 

[AdamM]

You don't think what Apple has done to music is revolutionary?

For a computer manufacturer to practically OWN the music business within a few years of getting into it... that's not revolutionary?   What qualifies as revolutionary to you?

It's hard to argue that it's not a big deal technically, and business wise.

If i were to say to you 5 years ago that a computer company would be a major player in a giant, completely tangential business model such as music, you'd laugh. Anyone would.

/A

[Steve Eddy]

Apple isn't a record label, they are a retail outlet.

And if Apple Corps has their way, they never will be a record label.

se

[AdamM]

And if Apple Corps has their way, they never will be a record label.

Yeah, no kidding.  All the money, no 'artist management'

[lonewolfny42]

The Universal Music Group (UMG) is the worlds largest record company....and they want a bigger slice of the pie....See This Link.......and....This Link....

[AdamM]

Great links lonewolf, very interesting indeed.

What's hilarious?  These 'old skool' record exec types hated mp3s and everything they stood for.  They fought tooth and nail against them, and now years later they're finally giving in and embracing it.

It took fresher minds (Apple) to not see this technology as a threat, but an opportunity.  It probably helps if the technology doesn't immediately challenge your business model.....

It's hard not to be impressed with what Apple has done, i can't see how people aren't blown away by it.  That's like saying it's not miraculous if Black and Decker suddenly had a major TV network.

[BradJudy]

I don't see it as shocking or even that odd.  Apple is a company that has always been popular in the AV media realm (photo, audio, video editing and creation) and they took a big step further when they put out the iPod in 2001 and it captured (and largely defined) its market segment.  Going from having the market owning device to selling content for that device isn't a big leap.  Capturing the playback device market gave them the leverage they required to successfully negotiate with content owners. 

Large companies do all sorts of more diverse ventures, many are very successful.  Naturally, these are most successful when a smart company grabs a good opportunity, like the move Apple made with iTunes.  But, Apple's move was a progressive strategy, not a shocking random move. 

If you want seemingly random diversification, check out the large east Asian companies like Hyundai.  They have now largely split into separate companies, but they were massively successful in not only building cars, but also semiconductors (mostly computer RAM) and some of the largest ships on the ocean (supertankers and cargo ships), plus a random department store chain. 

Or perhaps a more similar move - Microsoft saw an opportunity and jumped into the travel agent business when they created Expedia, which has been very successful.  I never understood that move, other than simply capitalizing on an opportunity. 

Yes, Apple has done some very impressive work with the iPod and iTunes, and they have certainly repositioned themselves in multiple markets.  They capitalized on the slow response, and perhaps lack of vision, of others as well as their market position in playback devices, to really capture an emerging market. 

There's no argument that digital music as a technology has revolutionized how many people use and acquire their music or that Apple is right in the middle of it, but I guess I define the revolutionaries to be the ones who came up with the ideas originally and not the ones to be the most successful.  One could certainly argue that the group to bring an idea to the masses is the revolutionary group, and by that definition, Apple's iPod and iTunes work could be considered revolutionary.

[cujobob]

I believe Apple's IPod has saved the music industry.  The reason music is everywhere you go now is due in large part because of the IPod.  Now that the IPhone has come out, all of a sudden the rest of the cellphone carriers are forced to develop a better product so they can match its quality.

[AdamM]

I believe Apple's IPod has saved the music industry.  The reason music is everywhere you go now is due in large part because of the IPod.  Now that the IPhone has come out, all of a sudden the rest of the cellphone carriers are forced to develop a better product so they can match its quality.

Innovation does that.  I love it.  What strikes me as the most significant aspect is that they don't rely on technology.  Nothing groundbreaking anyway, it's all design and consumer experience.  The ipod, itunes or iphome is no more technically advanced than any other hardware or software, yet because of the thoughtfulness in the 'entire user experience' these products catapult to the top.

I picked up an ipod touch recently, and it's a bloody marvel.