This story appeared on Network World at

http://www.networkworld.com/columnists/2005/090505bradner.html

'Net Insider

Never met a tech they didn't hate

By Scott Bradner, Network World, 09/05/05

In late August The New York Times reported that half of the major record companies are threatening to not renew their contracts with Apple for iTunes, because they want a different business model that would make them more money.

There have been rumors of this ever since Apple started iTunes and, with the current contracts expiring early next year, it's now time for the record companies to show just how stupid they are.

Apple has sold more than 500 million songs since starting the iTunes store. If all of these had been sold as individual songs, this would mean revenue of just less than $500 million for Apple and $350 million for the record companies (and, according to some recording artists and songwriters, about $12 for the people who wrote and sang the material). Not all of the songs were sold individually; many were sold as albums where the per-song fee can be less. So the total money to the record companies was a bit less.

But a quick look at Amazon's prices for albums on physical CDs shows that the record companies are doing just fine when Apple sells an album for download. Amazon's prices for a bunch of current new releases from the Back Eyed Peas, Mariah Carey and the Rolling Stones is $10.99 per CD. Compare this to the $9.99 Apple charges for the Black Eyed Peas and Mariah Carey albums, and the $12.99 Apple charges for the Rolling Stones album. Remember that the record company does not have to actually make anything for Apple (other than a single digitized copy of the music), whereas they have to make and distribute physical things for Amazon.

It's hard to see how the record company can be making less through Apple than from Amazon when either sells albums. Maybe the real problem is that there are too often only one or two songs worth buying on an album and the Apple customers can just get those and not have to pay for the crap. I think the real problems are two - the record companies are terrified of new technology, and they cannot constrain their greed, even in the face of clear evidence that the greed would be suicidal.

Media companies, both recording and film, have fought every new technology tooth and nail from VCRs to MP3 players and peer-to-peer networks. Every time the media companies have lost a particular fight, they have made money. The best example are video (the DVD) sales, which became an important revenue source for the movie companies.

Every time they have won a particular fight they have not made any money - one example is Digital Audio Tapes, which failed in the market after the record companies won a fight to tax them. In this context, iTunes is just another new technology that needs to be feared and controlled.

The stupidity on the greed front is breathtaking. Apple has shown that legal music downloading can be a success if it's done right. The recording industry has a chance to encourage those people who have been law-abiding to switch to illegal downloading. It looks like some of the recording companies want to seize the opportunity.

Disclaimer: Even Harvard would have a hard time teaching people to be as stupid as the recording companies too often are, but the university has not expressed an opinion on the topic.