I have been thinking a lot about all the noise around the iTunes and Major label issues. A quick review - Apple likes the $.99 flat rate, labels want variable pricing ultimately pushing their net revenue up. To sum it up: Apple wants to sell more iPods, they do not care about selling content, and the music companies want to increase their revenue and margins for digital products. To be clear, I do not fault either party in this debate and both, within degrees, are doing what they should. What strikes me though is a very common theme.
What does MTV, Wal-Mart, iTunes, and soon wireless carriers have in common? They all were initially loved by the music industry for generating revenue/opportunity and then hated for a) building a business on the back of the industry and b) having too much control on the industry.
MTV is the example held up by the music business on what not to do. MTV took content, for basically nothing, and built an enormous business and opportunity off of its back. In the beginning, and even now to a certain extent, labels fought tooth and nail to ensure that videos got play. Over the course of time the labels began to resent MTV and the fact that their business was built off free content. Fortunately/unfortunately MTV uses video less and less so the debate is not as heated as it once was. However, MTV is the poster child for what the music business does not want to happen.
Wal-Mart sells so many CDs that they control pricing to a great extent. CDs are used as a loss leader to drive traffic, they do not sell CDs with explicit lyrics, they dominate retail. The music industry bows to Wal-mart, like many vendors do often and regularly.
iTunes was once hailed as the savior of the music business. With P2P rampant, Steve Jobs was heralded as the messiah the industry badly needed. But now, with 70% market share, with proprietary DRM, and a seemingly inflexibility on price, the music industry is singing a very different tune.
Mobile is projected to be a full 25% of the music market within the next 3 years. With carriers collecting 35% - 50% of revenue and an oligopoly like grip on shelf placement, pricing, availability, etc.. They are the next in-line to fall into the ire of the music industry.
To me, there is one consistent theme that makes all of these market makers successful and in kind what makes the music industry struggle – wholesale vs. retail. In each of these markets the music industry wanted and almost insisted on being a wholesaler of content. They turned over potential direct relationships with THEIR consumers to their partners, allowing, no, rather, insisting that they be the destination for their consumers. Anyone remember Press Play, owned by the labels, sold to Napster? Could Press Play have been iTunes?
A predictor of business going forward – in the world we live in, owning or at least communicating directly to your audience and removing friction and middlemen will win the day. Currently, I can see myspace.com doing the same thing that MTV did – and I guarantee that soon the industry will dislike them as much as they do MTV. The question is what company is next?
