Steve Jobs rules the recording industry. Now what?

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Feb 11
2008

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Steve Jobs rules the recording industry. Now what?

Last night's Grammy Awards ceremonies were even less relevant than usual, no small achievement. The TV broadcast began with a "performance" by that cutting-edge new artist Frank Sinatra and fell down from there. The only real emotional charge of an evening celebrating the most emotional of media came when we viewers were confronted with the disparity between the preternatural confidence of Amy Winehouse's "Rehab" and the shaky, shell-shocked manner in which Winehouse accepted her award for it. Alpha geeks had a moment to celebrate, too, when one of the winners behind Historical Album of the Year (Woody Guthrie's Live Wire) turned out to be a mathematician.

But, those and few other brief moments notwithstanding, the action in the music industry is elsewhere.

One of those places is Apple's iTunes online music store. For several days last week, the top-selling track on the store was Yael Naim's "New Soul," a song available, at least to U.S. audiences, exclusively via iTunes. The exclusivity isn't a big deal -- the store is powerful enough to offer plenty of high-profile exclusives -- but the reason "New Soul" became a hit is a big deal. "New Soul" was a hit solely because it appeared in Apple's commercial for the MacBook Air. Until the 1980s, record companies looked to radio to break new artists. Until five years ago, the place to launch new performers was music video. For most of this decade, the breakdown of traditional music channels has led to new songs being noticed via video games, television shows, and -- most of all -- commercials. Whoever is programming the music for Apple's television commercials may be, right now, the most powerful talent scout in the record industry.

How did Apple gain all this power? The record companies, desperate, vain, and stupid, handed it over. As Michael Hirschorn wrote in the March Atlantic (I'd link to his terrific essay, but the venerable Atlantic tends to get around to uploading new articles to its website weeks after they appear in print), "Steve Jobs shanghaied and basically destroyed the CD business. The major record labels, in giving Apple's iTunes the right to sell individual songs for 99 cents each, undermind their own business model -- selling bundles of songs gathered together into something called an album for up to $20 a pop -- because they didn't see that people were about to consumer music in an entirely new way. The labels saw iTunes as free money; 'ancillary,' in the legal vernacular. Jobs took their cheap music and used it as a loss leader to sell his expensive iPods, and the traditional music business now lies in tatters." The punch line, of course, is that the record industry is trying to shut out Apple by selling music online elsewhere such as Amazon -- for a mere 89 cents per cut.

I've written before here about clever ways to sell music nowadays. Like the performers I celebrated in that post, record companies have to adopt new ways of packaging and selling if they want to stay in business. Just as twin geniuses Sam Phillips and Ahmet Ertegun reinvented the record industry in the 1950s, we need a new generation of tech-savvy entrepreneurs who accept that recorded music consumed in $20 increments -- except for that created by a small subset of veteran performers with large and reliable fan bases -- is a dead notion for now. Music is everywhere, just as software is everywhere. We've seen an explosion of new models in recent years for selling software -- web-based, software as a service, various levels of open source, and so on -- some of which have been quite successful. Software may be useful, but for the most part it doesn't satisfy the emotional need that music does. It should be easy to sell music, certainly easier than it is to sell software. The music industry has much to learn from the computer software industry about reinvention and staying in touch with the customer. (In future posts, I'll probe what the music biz can learn from the software biz.) If what remains of the music industry doesn't look to successful technology industries for ideas, it'll be as lifeless as the Frank Sinatra half of last night's Grammy "duet."

tags: copyright, release 2.0 | comments: 21 | Sphere It
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Comments: 21

Andy Wong [02.11.08 03:42 PM]

Luckily Apple Inc was forbidden from formally entering the music industry. Otherwise, we will have "iMusic" of Apple which consists of recording rooms, singers and musicians, and Apple will license the apple-made music to other record labels, while selling through iTunes.

David H Dennis [02.11.08 04:27 PM]

What would be so terrible about that, Andy?

Steve Jobs would probably give the performers a significantly better deal than the labels do.

65/35, all music sold through iTunes.

Right now, if you're a label, you take the 65% and give the artist $ 0.08 as her share.

Wouldn't you rather deal with Steve?

jdb [02.11.08 04:46 PM]

Wow. This article is like reading about the sinking of the Titanic with no mention of an iceberg. Steve Jobs didn't come out of nowhere to "shanghai the CD business." Rather, the industry was looking for a lifeboat after flailing around in the post-Napster seas. It's not Jobs's fault that Apple's boat appeared as a luxury liner to consumers next to alternatives like Microsoft's "Sinks For Sure."

Andy Wong [02.11.08 05:38 PM]

David, I do appreciate that Apple Inc had introduce new way of competition to music distribution, though Apple Inc is still not allowed to become a record label-like thing. And such competition brought by Apple Inc is full of spirit of Web 2.0, that is, the distribution is more friendly to consumers. If Apple Inc one day can become something similar to a record label ( for example, Gapple http://www.flickr.com/photos/coolmel/229996102/), making the production, distribution and the commercial products itself altogether be more Apple style, things will become interesting.

Who can make the deal between Apple Corps and Apple Inc last 100 years?

Viviana Wong [02.11.08 07:51 PM]

Apple already makes the hardware and software to record the music. What is holding up the artists to produce their own music and sell it directly through iTune and get rid of the producers at the same time?

Bruce [02.11.08 08:17 PM]

I'm not sure who is dumber, the record labels or the Apple haters. Maybe they are both out to promote their own interests over common sense and logic.

CDs (AIFF files) became obsolete by the MP3 format itself, and the greed of the record labels. Napster inherited Microsoft's total disregard for ethics and destroyed the CD business. iTunes saved the music business, and actually provides MORE money to the record labels on each CD than they were making from their wholesale prices after paying for production of CDs and packaging. Not only that, but iTunes provides a HUGE savings for the consumer, enabling them to purchase MORE music for their money. To top it all off, it's far better for the environment since there are not so many petrochemicals used to make CDs and packaging, not to mention shipping costs and the associated pollution.

Legitimate music lovers NEEDED a convenient, guilt-free way to pay a reasonable fee for music. A true music lover doesn't want to rip off their favorite artists. (Though they might not mind sticking it to the greedy record labels that take the vast majority of the money from a traditional CD sale and offer pennies to the artists.) Legitimate consumers also needed and grew to appreciate the incredible convenience that iTunes provided. iPods themselves make nearly anyone crave music and appreciate it on a new level.

Finally, an Apple 'label' is a great idea destined to happen. Why isn't apple 'allowed' to do this? I follow this very closely and have never heard such nonsense. This would be great because it would allow for a far more diverse array of music--you would not have to be a 'star' and achieve critical mass to get your music on iTunes and have it available to anyone who might be interested (wether a music executive thought you were 'worthy' of signing or not.

Remember, Decca turned down the Beatles. Record labels don't necessarily recognize talent.

Apple recognizes talent and design and always have. They created most all of what we consider a modern computer, usually only to be totally ripped off by Microsoft's inferior software and a clueless (and gutless) justice system.

Bob [02.11.08 08:36 PM]

@Andy Wong: "David, I do appreciate that Apple Inc had introduce new way of competition to music distribution, though Apple Inc is still not allowed to become a record label-like thing."

There's nothing prohibiting Apple Inc. from becoming a record label any more. After they (then Apple Computer) won the last lawsuit, they and Apple Corps (aka The Beatles' label) instituted a new agreement, whereby "Computer" owns all the marks and licenses them back to "Corps" for certain uses.

Even the previous agreement only prohibited using the "Apple" mark for pre-recorded music. Apple Inc. has always been free to go into business as a record label under, for instance, "iTunes Music".

Now, whether it would be a *good idea* to become a record label, from Apple's perspective, is still an open question.

KenC [02.11.08 08:47 PM]

Apple is NOT prevented from becoming its own label. It settled with the Beatle's Apple Music last year. Apple Inc, gets virtually all rights to the name, in exchange for an undisclosed lump of money.

history [02.12.08 01:13 AM]

Just as twin geniuses Sam Phillips and Ahmet Ertegun reinvented the record industry in the 1950s, ...

Let's not forget Motown in the 60s - accelerating the reinvention.

John Lockwood [02.12.08 03:44 AM]

What the whinging useless idiots in charge of the record companies don't say is that before Steve Jobs and the iTunes Store appeared, the record 'single' was a practically dead format.

So Steve comes along and saves the record single and all they can do is complain.

RT [02.12.08 04:40 AM]

I think one thing you conveniently failed to mention in your deceptive article is that the music industry's business model was in the process of failing due to the likes of napster,etc. who were allowing free downloads. Consumers, for some strange reason, did not like being ripped off by the music industry for $20 an album, which typically only contained one or two good songs.

Legitimate downloading offers an outlet for the music industry to reach honest consumers at a fair price. Apple should be applauded for providing such a useful service. To blame Apple for destroying the music industry clearly suggests a lack of insight.

Ted T. [02.12.08 05:34 AM]

"David, I do appreciate that Apple Inc had introduce new way of competition to music distribution, though Apple Inc is still not allowed to become a record label-like thing." ....."Who can make the deal between Apple Corps and Apple Inc last 100 years?"

Andy, do you have any evidence of this? I thought that Apple could start a record label tomorrow if they wanted to and that the Apple Corps deal was permanent. Please enlighten us.

Gerald [02.12.08 07:33 AM]

Apple ALREADY IS a label, albeit it a back-handed way. Any artist who is not under contract to someone else can publish their music through iTunes.

The artist is technically the label, but it gets sold as one of the "Store Brands" (aka "iTunes Original" or "iTunes Exclusive"). The technicality keeps Apple on the "vendor" side of the Label/Vendor line, but in the post-physical-media world the line is blurred.

The only thing a customer cares about is: "Can I buy it here or not?" As far as the customer is concerned, the vendor is the label.

It's only a matter of time before enough artists realize they can produce, distribute, and promote their music without having to give up 94% of the gross to the "We have to pay the recording studio back. Nevermind that we own it and rented it to ourselves for $1000 per minute. You owe us eleventy gazillion dollars and that comes out of your 6%! Our 94% is for operating costs" labels.

The means to produce and distribute are already affordable to anyone serious enough to be a professional, and the means to promote yourself are getting cheaper. MySpace and YouTube (in their current forms) will never give you the exposure a good PR Firm, Concert Promoter, or Ad Agency would. Then again, they are free and a few fluke hits have happened.

...and maybe if you play enough gigs, you can hire one of the above.

The Labels are dead corporations walking. They're living in the eye of the storm. The brief time while those old enough and established enough to free themselves are waiting out their contracts and young people are still gullible enough to buy a slick scouts siren song.

But each year contracts will expire and new acts will be a little more internet savvy.

Reedo [02.12.08 11:52 AM]

Summary of the summary of the essay: Jobs took the iTunes straw and drank the record labels' milkshake. He drank it up!

JJ [02.14.08 03:52 AM]

"New Soul" was a hit solely because it appeared in Apple's commercial for the MacBook Air. ... Whoever is programming the music for Apple's television commercials may be, right now, the most powerful talent scout in the record industry.

This isn't really a big deal, TV ads have done this for years. Remember the Levis ads in the 90s? At the moment in the UK the Lloyds Bank ad has popularised 'Elizas Aria' and the remix 'The Journey Continues'.

See http://www.independent.co.uk/news/media/how-to-get-ahead-in-music-make-an-ad-516535.html

Eric Wahlforss [02.14.08 06:15 AM]

Unless Apple offers a way for users to enjoy their catalog over some sort of streaming $20/Mo or so deal, consumers will soon realise en masse how much more convenient it is to buy access to music and not files, and ITMS will become irrelevant.

Services like Last.fm, Spotify.com or the startup I'm working on myself represent the future of music listening in a post-scarcity publishing world.

The Widget is the new CD, not Mp4-files. The new format is not about files at all, consumers also have to look beyond that. The real power of digital is *social*.

ALN [02.19.08 11:28 PM]

Thank you for an insightful post on the music industry and Apple’s increasing role therein. I wonder about the possibility of Apple becoming an entirely self-proficient record label. This may actually be beneficial, allowing lesser-known artists the chance to promote their music inexpensively through the iTunes music store and gain a greater fan base without having to sacrifice the majority of their profits to a commercial label. However, do you feel that there is any great danger in Apple becoming too powerful in the industry? You wrote that the “music industry has much to learn from the computer software industry about reinvention and staying in touch with the customer.” Accordingly, then, if Apple were to become its own record label, its role as a trendsetter in new technologies would make it a perfect candidate for success in this revolutionary move. Since digital is now the new realm for music purchases and downloads, the artists themselves must learn to capitalize on this medium in order to maintain relationships with their fans, since signed artists should expect their labels to do very little on their behalf in this respect. I particularly enjoyed following the link to one of your older posts, in which you discuss Jill Sobule as an example of an artist finding innovative ways of funding her record without a label. Providing fans with the incentive to donate to their favorite artists’ recording funds by affording them the opportunity to become more involved in the creative process or receive pre-releases of the working album is an excellent way to stimulate greater interest in the artist’s music and progress. Perhaps some of the problem with new artists is that they expect their affiliation with a label to increase their credibility and put them on the fast-track to success, while in reality the labels are not necessarily focused on talent and consumers will always look for the cheapest and most convenient ways to consume music (enter iTunes and illegal downloading software). New artists often fail to consider the possibility that starting independently with a small and loyal fan base will not only give them greater control over their work, but also put them on a more plausible and creative track toward success. I, like you, look forward to seeing how the music industry adapts to these changing technologies and counters Apple’s future moves.
-ALN

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