figure 1: UMG CEO Doug Morris as interpreted by artist Psillos
If you're looking read a sob story for the music industry, Wired has your ticket. They interviewed Universal CEO Doug Morris about his woes with iTunes and how to deal with the MP3 problem, and it's pretty revealing.
Universal in the process of starting a new subscription-based service called Total Music to replace iTunes (and Microsoft's Plays-For-Sure, and maybe Microsoft's other Zune marketplace too). The best part about that is he's looking to deliver yet another format. You have MP3s, you have iTunes' AACs, you have Windows Media's WMA, you have other myriad formats like OGG and FLAC, and then you'll have yet another choice.
figure 2: Mr. Non-Digital guy drinking with Mr. Internet Enabling Apple Board Member Digital Guy
Morris admits he's not a digital guy, but... wow. his response to the threat of iTunes doesn't make sense to me. He wants tech companies to foot the bill for at least the first few months, which I don't think will fly. They're just going to pass the added cost on to consumers, and after that the consumer is stuck with keeping things up. Would I need multiple subscriptions for multiple devices? If I do, that would suck. If I don't, it would still suck, since the tech companies would still build the cost of the unnecessary subscription into the retail price of their music player. And this is assuming they don't try to establish a 4th common format, mind you. Which they probably will, probably with the help of Microsoft (or worse, Real).
If they sell multiple versions with different music licensing -- one version more expensive and with a subscription, and one much less but without a subscription -- consumers get confused, have a negative experience with the platform, and return to iTunes (or Amazon MP3, or stealing music, or home taping, or whatever).
And if they get the tech makers to build in the cost a lifelong subscription into a device, what's to stop Apple from licensing that tech besides collusion? What would be my purpose to upgrade in music-playing hardware besides capacity? It doesn't look like it would be a good long-term deal for the tech giants either (let alone me), unless the tech giants have an elaborate plan for screwing over the record companies later.
Another part of his plan was to not renew the contract with iTunes, so they could reduce the number of songs and albums they'd sell on iTunes. Forcing customers to subscribe to a subscription service so he can escape the "golden handcuffs" of iTunes probably isn't going to fly especially well. The market has pretty much spoken for the iPod so far -- maybe something revolutionary will come along; maybe something won't. My best guess is that whatever replaces the iPod will still be made by Apple, but whatever. The music industry's next best hope is the Zune from Microsoft. Is that scary or what? Fleeing Apple for Microsoft is the very definition of "out of the frying pan, into the fire."
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p>I dunno, it seems like this guy is dancing in quicksand. In other news, iTunes accounts for 22% of all music sold in the USA, and Amazon MP3 is also an excellent choice for online music. My line in the sand: if it's not iTunes or it's not MP3 or some similar open format, it's doomed. (photo via Getty, painting via Wired)
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Want to Feel Bad For the Record Industry?
In the olden days, you needed something between the artist and the outlet (who fed the consumer); someone to find talent, press albums/cds, package, ship, and stock product. No longer. If the old media companies become too annoying, it's only a matter of time before iTunes, Amazon, Zune Marketplace or whatever just open their pipes directly to the artists (see Burns, Ed). That's the trump card, and the birth of the new media.
As to Universal and the old media companies in general, there's not much to say that Fake Steve hasn't already said:
http://fakesteve.blogspot.com/2007/07/music-industry-nobs-have-finally.html
So you've no doubt seen this story or one like it explaining that Universal Music Group won't renew its iTunes deal. And you've seen people saying that the majors are trying to "recalibrate" their relationships with us. Actually what's happening is they're crapping in their pants. They woke up one day and realized that we've got 80% share of digital downloads. Suddenly all the power in the value chain resides in one player. Oops.
Here's the thing. These guys could have done what we did. In the early days of the Internet, everyone figured the majors would build digital distribution arms. But they didn't do it, because they didn't understand technology, and they didn't want to invest in building this expertise, and they were freaked out about piracy and paralyzed with fear. So we stepped in. We made the big investment. We hired programmers. We developed software that's easy to use and works flawlessly. (If you think that's trivial, think again. It's huge.) We ran the system. We promoted it, we marketed it, we haggled with all the majors and struck deals. We took all the risk, which was considerable. Now we're reaping the reward. And the majors want a bigger slice. Um, for what? We did all the work. Ain't gonna happen, slick.
Here's the back story. The music companies are in a dying business, and they know it. Sure, they act all cool because they hang around with rock stars. But beneath all the glamour these guys are actually operating two very low-tech businesses. One is a form of loan-sharking: they put up money to make records, then force recording artists to pay the money back with exorbitant interest. The other business is distribution. Theyve got big warehouses and they control the shipment of little plastic boxes that happen to have music in them.
The guys running the labels are pretty stupid -- most are just dirtbags who started out as band managers or promoters -- but now at long last they are kinda sorta finally vaguely getting clued in to the fact that both parts of their business model are ****ed. Their loan-sharking business is being eliminated by low-cost digital recording technology that lets people make an album for very little money. And by letting us build the online music store they've taken themselves out of the distribution business. In the days of vinyl and then CDs, the labels managed to control the value chain by having loads of retailers in a highly fragmented market, and playing them off each other. In the digital world they've got us. And that's it.
Ironically the mistake the major labels made was the same one that IBM made when it gave the DOS franchise to Microsoft nearly 30 years ago. They had a piece of work that they couldn't do on their own or didn't want to do on their own and they didn't view it as critical or important so they outsourced it to a partner. ("Go make us an online music store.") The partner turned that seemingly unimportant work into a way to accrue power and create a monopoly and control the industry. Today in the music business we're about where IBM and Microsoft were in 1989, when IBM finally got hit with the clue stick and realized what Microsoft was doing.
How will it play out this time? I don't know, honestly. But I like our chances.