iTunes: Universal Music Will Trade $750 Million for $250 Million Just to Spite You!

The Universal boycott or game of chicken or gamesmanship is certainly an odd way to do business with iTunes.

A writer from Forbes actually defends their actions as “good for industry.”

Huh? WTH?

Let’s review.

CD sales are down. Free illegal downloads are still around. The ONLY major growth is LEGAL downloads of which iTunes is clearly the market force – bringing in 75% of the revenue and yet, it’s a good thing for Universal Music to try and throw a wrench into the works?

Why? To RAISE prices … or as they like to call it variable pricing or discriminatory prices.

From a Bloomberg article, “Digital music accounted for about 16 percent of Universal’s first-quarter sales, or $217.9 million.”

They also cite “iTunes is the largest seller of downloaded music, with about 75 percent of the digital market, according to research firm NPD.”

So, iTunes alone delivers about $163 into Universal coffers this quarter – presuming 3 quarters of the year are about the same and the 4th quarter is much higher, iTunes is delivering maybe $750-800 MILLION in revenues to Universal.

And presuming the “other” online music sellers delivers maybe $200-$250 million into Universal’s bottom line each year, does it seem a good business practice to try and walk away from $750 million in revenue to make $250 million instead?

Just to spite iTunes & its customers?

Because raising prices will sell that many more tracks?

While digital online sales are good, most people cite numbers that the average iPod user has purchased less than 30 tracks so the way to get more people interested in something new is to raise prices?

Maybe they really, really, really don’t understand math or economics at all.

Now, a boycott would work if you actually had leverage but let’s put everything on the table.

Universal apparently doesn’t think $750 million a year from iTunes is enough revenue. Now if the ONLY way to get any and ALL music onto a portable player (not just iPods) was to buy it online, they would have leverage on Apple or any other online music seller.

But they don’t, because going by numbers they would even concede, clearly iPod know how to load CD’s onto their iPod … which would be okay except that clearly consumers are tiring of their CD prices (sales dropping 20% this year on top of more declines).

And of course, no matter how many people they try and sue, illegal downloads are uncontrollable.

So, basically instead of being glad that Apple delivers them $750 million in revenue, they would rather try and sell CD’s to consumers losing interest in the format and stand on a dirt levee as the illegal download wave is about 50 feet high washing away most of the levee.

And they would rather trade $750 million in revenue for $250 million just to show Apple’s who is “boss.”

Bwahahahaha.

The only problem is Apple doesn’t really care that much. Not only does Apple make a few pennies per track sale, clearly not that many people are buying iPods to buy music online but rather to carry around their favorite CD’s. Along with the main growth from the much smaller iPhone this year topping out at 8 GB’s – you don’t need as much music to fill an iPhone.

Apple has TV shows and perhaps more movies this years – along with photos and perhaps games later also, music is going to be a smaller and smaller part of the iTunes store.

And this is mostly ignoring that digital sales are much easier logistics wise – no manufacturing, no printing, no shiping, and no returns. If you print 2 million CD’s and booklets, you better sell most of them or they get shipped back and re-shipped as cutouts. Digital? After maybe 200 sales, you’ve probably broken even and iTunes refills that vending machine FOREVER without you the music label having to do anything else. Take a look at the Sopranos suddenly peaking huge interest in Journey’s “Don’t Stop Believin’,” how many CD’s did most stores have – maybe 2? How long is that frenzy going to continue? How many CD’s and booklets do you press? 10,000? 25,000? And if you can’t find it, what do you do? You can click in iTunes or maybe you just click here?

When it’s this easy to search for MP3’s to illegally download, are you going to pay $19.99 for a CD for the one track you want?

If you can longer find it on iTunes?

Universal Music – If you don’t let us raise prices, we’ll walk – sure, people can download it for free but what’s $500 MILLION dollars to prove a point? It’s not our money, it’s the band and the shareholders – what do we care.

The shareholders might want to buy their execs a calculator and a Dummy’s Guide to Math & Economics.

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6 Comments

Filed under Computing, iPhone, Marketing, Music

6 responses to “iTunes: Universal Music Will Trade $750 Million for $250 Million Just to Spite You!

  1. Sharpe

    UMG is banking on other download services picking on the slack if they indeed drop out from iTunes Store. However, they are forgetting that most people buying tracks online play them on their computers and mainly on their digital music players, not on the home stereo (though devices like AirPort Express allow them to stream tracks to the home stereo). With iPod commanding a huge marketshare of DMP and iPod is not compatible with WMA used by other stores, chances are not many will shop there. Most people will simply go back to copying music, or simply spend their money on artists available at iTunes Store. UMG’s other choice is to go DRM-less (yeah, right). Unless they want to commit suicide, they are wedded to iTunes Store for better or for worse. Their attempt to raise a storm is just posturing.

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    The record industry is hopeless. They just realized there was this new thing called the Internet.

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  4. George Providakes

    To be clear, Universal wants to “increase” revenue by charging more for popular tracks and less for less popular tracks. Depending on your listing style drives cost. Similar to DVDs buy day 1 pay $25 buy day 180 pay $10. They also want o get subscription option in place, well to them its good, but has not worked and is complicated. Finally, I think they want to treat iPod like cassette tape and get a kickback on all sales to reflect anticipated piracy.

    Now I think they are nuts. At the end of the day the world has changed, smell the coffee and wakeup! When will Apple be the #1 vendor 10% now when will Apple hit 16% beyond Walmarts level! And this is good, Walmart is commodity city you want to get out of the Walmart business and into the premium business. There is no premium business in Walmart, look at their failed attempts with organic, fashion, and now DELL?

    Think of a new business model, e.g., DRM-free and get a premium on all music!, bundle lyrics with music and get a premium, create special packages of tracks with video get premium, pdf books, go back to day of real liner notes that had content!! get premium, work with Apple to embed commercials [careful here], rethink podcasting as live broadcasts with advertizing [yuk, but is a way], ….

    Without imagining new business models they will die off its just a matter of time.

    Finally, how about working with artists to create new and compelling content versus developing boy bands for girls or visa versa for guys!!! They are shedding talent and developing almost none. Tremendous talent out there, but you got to go get it. This was the magic of all the smaller lablels who loved the music not the bottom line.

    Consolidation for efficiency is great if you are a commodity producer [and expect to go to the bottom of profit barrel – this is the strategy for toilet paper not artists and music] or become a premium product producer [hhmmm Dell vs Apple/HP?].

    Forgive the rank too much pent up grumpyness.

  5. Pingback: Universal Music Goes DRM Free(ish) But Not on iTunes « TWO A DAY

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