Labels Unwilling to Upset the Apple Cart?

Has there ever been so much interest in record label licenses? At least not since Robbie Williams and that was of course an entirely different kind of license…I suppose I am comparing apples to oranges…which of course was just a very laboured pun-tastic link into talking about iTunes.

So Apple have managed to avoid flexible pricing for a while longer. When I’m wrong I hold my head up. I got it wrong here. I really believed that Apple would have to accept flexible pricing at this round of negotiations and some of the labels felt pretty confident they were getting there. So what happened?

The simple fact is that the labels don’t want to upset the apple cart (the puns just won’t stop coming). If this had been 5 or 6 years ago the labels would have pushed harder. But since then the music industry finds itself in a cold brave new world. Global music sales have dropped by the best part of 20% since 2000. There are positive signs of recovery now, but much more modest growth than in the heyday of the 80’s and 90’s when the CD replacement cycle was in full swing and the CD was the dominant home media format. Now digital (Internet and mobile) are the key element of growth and record labels can’t afford to compromise that revenue stream. In Internet based digital music iTunes are the dominant player by a big stretch so the labels can be forgiven for being nervous of disrupting that business.

But the bottom line is digital music is just starting out. Ceding so much ground to Apple now only consolidates their dominant position, and is it really in the interest of the music industry to have a consumer electronics manufacturer de facto controlling the fastest growing music format? Also, it sends out a very bad message to those services which already have flexible pricing (e.g. Virgin and HMV) and those that are currently implementing it. I.e. You don’t have the negotiating muscle that Apple has, so we’re going to force upon you what we couldn’t make wash with Apple.

And that is the (Apple) core of the problem…(I warned you about those puns)

One further thought: I was asked by a journalist ‘how long can Apple stick with fixed pricing?’ The answer I gave was ‘as long as they like’. Even if they in the future have to accept flexible pricing deals, they could chose to swallow the costs and continue to sell at fixed prices. The margins in 99 cents singles are already tiny and it’s the iPod margins that matter. So it’s not that large a leap in imagination.