Music groups eye share of Apple's pie
By Andrew Edgecliffe-Johnson in Berlin and Allison in San,Francisco
Published: March 19 2008 02:00 | Last updated: March 19 2008 02:00
Ever since Apple launched its first iPod in 2001, the music industry has been kicking itself for not having secured a cut of the lucrative digital music device's revenues.
Although sales from Apple's iTunes online music store still account, by some estimates, for up to 70 per cent of the industry's revenues from digital downloads, they pale into insignificance beside the profits Apple has made from creating the device.
Now, recorded music groups such as Universal Music, Sony BMG, Warner Music and EMI are wondering whether they can effectively secure a share in the next generation of digital music hardware through revenue-sharing deals with manufacturers.
The relationship between Apple and the music industry has long been tense, with record label executives objecting to Apple's fixed 99 cents per song pricing and its reluctance to make its devices interoperable with other digital music services.
Although iTunes has so far been the most successful of the legitimate digital music services that have sprung up in response to the industry's battering by piracy and illegal downloads, it has made the music industry relatively little money. An analysis released last year suggested that the average iPod held just 20 tracks downloaded from iTunes.
The rest were largely uploaded to the device from CDs or pirated. Now, a model pioneered in the mobile phone industry may offer the music majors a stronger hand in renegotiating their fractious relationship with Apple.
In December, Nokia signed up Universal Music, the market leader, to be its partner on a range of handsets which will be launched this autumn under the brand of Comes With Music.
The partnership not only showed music companies a potential route to sharing in hardware revenues, offering them up to $80 between them for each handset Nokia sells, but also showed Apple that the iPod may face competition from a new corner.
In the past year, music companies have shifted their focus from trying to persuade Apple to change the iTunes model to trying to build up rival services.
Launches such as Amazon's MP3 store have received support from companies which had previously refused to make music available without strict digital rights management software to protect them.
Now, they are turning from competition in software to see whether they can develop a hardware rival in the shape of the near-ubiquitous mobile phone. Other handset manufacturers such as Sony Ericsson, which has already seen success with the Walkman music phone brand, are now talking to music companies about following Nokia's example.
Since Apple's entry into the mobile phone business with the iPhone, it has both more of a direct competitor to the likes of Nokia and acquired the technology which would enable it to create its own subscription business model. "Now that you've got connected iPhones and iPods you could imagine Apple getting into some sort of subscription business," says Michael Gartenberg, an analyst at Jupiter Research.
"With film rentals, they now have support for time-sensitive digital rights management software. That's one of the key things you would need to do a subscription model," he added.
The models under discussion with the music companies would also ensure that iTunes remains the route through which music would be delivered to Apple's devices, rather than seeing the online music store undercut by a new service.
Some executives admit that by talking to Apple they are also acknowledging that iTunes, for all their complaints about it, remains the best of the existing digital business models. The music industry is anxious that it does not kill off its proven source of digital revenues before another has demonstrated that it can work.
Source: Financial TimesLabels: Apple, BMG, EMI, iTunes, Nokia, Sony, Universal Music, Warner Music |
