Amazon vs. Apple vs. the Music Industry
The music industry, in its latest attempt to destroy itself, has decided that Amazon is its savior. And Amazon’s new downloading service is excellent: it’s easy to use, the prices are consistently lower than those on Apple’s store, there’s no annoying DRM that limits how and where you can listen to the music you own, and it integrates smoothly with Apple’s iTunes software. The terms Amazon is giving the major labels are clearly more agreeable than those Apple is. During the Super Bowl, expect to see a big giveaway campaign for the Amazon digital-music store. But, once again, the few record companies still in business are behaving with the maturity of a toddler who really wants her older brother’s Power Ranger doll now.
Those with memories longer than the people who run the record industry will recall that the industry tried this exact same plan several years ago — with Apple. Apple was going to be the savior of the music industry, delivering a reliable platform for selling music online. But, as the iTunes store became quite successful, the relationships between Apple and the labels soured. There were arguments over price flexibility and DRM. So, taking the lead from the TV networks (another dying media breed), some of the major labels have decided to take their content elsewhere, in this case to Amazon. Now, after several years of teaching people to buy music for a mere 99 cents a track at Apple, the labels are now selling tracks for 89 cents each, cutting an already razor-thin margin. It’s a system under which the labels will make hardly anything, Amazon will make a bit — and the artist, as usual, depending on the contract, may make nothing.
Despite the suicidal behavior by the labels, you might think Apple is a loser here, too. There are significant DRM-free catalogs on Amazon it won’t have access to now. But this is a problem only if you think Apple is in the business of selling music. It isn’t. It’s in the business of selling devices. It makes money selling media via the iTunes store, but it’s only at consistently high volume that the thin margins make any sense. What Apple does is sell iPods at very high margins. That’s what keeps Steve Jobs in fresh turtlenecks. What is Amazon doing? Selling music that will be played on high-margin iPods. What else does Amazon do? Sell high-margin iPods. If the record industry thinks this move will give it leverage over Apple, it’s even more delusional than usual.
Things may end better this time — Amazon has a very good business selling the record industry’s physical product (CDs) — but it looks as though the industry is locked into trying the same thing over and over again. (Remember, before it latched onto iTunes, the industry tried two competing online stores, MusicNet and pressplay, both of which failed.) So, rather than continually seeking its next high-profile savior, the industry needs to test multiple approaches simultaneously. And I don’t mean SpiralFrog, the baffling ad-supported service that lets you download heavily-DRM’d music that won’t work on an iPod. Trying to sell music in formats that won’t work on the most popular services is like selling gas that won’t work in Toyotas or Hondas.
So what should the music industry do?
First, price its products in a way that will let everyone — the labels, the retailers, and (for a change) the performers — make a decent profit. Otherwise, there is no industry. And pricing, of course, has a profound effect on what the labels pay their performers and themselves. The entire economics of the business have to be reexamined.
Second, give iTunes (and everyone else) the same DRM-free terms as Amazon and let retailers compete to serve the customer best. That’s the key to spurring increased sales. Favoring one seller over the other just means everyone else loses.
Amazon vs. Apple vs. the Music Industry
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