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by Bryan Chaffin

Death Knell #31: The Reg Says That The iTMS Will Soon Be Extinct
November 7th, 2003

Make it 31. We're adding a new Death Knell to the Apple Death Knell Counter, though this one is a pronouncement for the iTunes Music Store (iTMS), and not Apple itself, and it comes to us from The Register. The Reg's Andrew Orlowski, a long-time Apple watcher, says that the iTMS is soon to be an "extinct brand."

The Reg has been somewhat down on the iTMS from the get-go, mostly because of the fact that it relies on Digital Rights Management technology. I empathize with that position because I loathe DRM, too. Yes, Apple's FairPlay DRM scheme is the least loathsome DRM scheme on the market, but it's still DRM, and it's just rotten to have any sort of restrictions on content that we have legally purchased.

It's that legally purchased thing that Mr. Orlowski is really on about in his editorial today, because he says that the only people to win with the iTMS are the five major labels.

Well, although it costs nothing for the record industry pigopolists, this small ragged army, to make a digital version of one of its hoardings available to hear, somebody must pay. It costs Apple real dollars to provide the hosting service that delivers that digital file to you, and to write the sophisticated software that delivers it. Meanwhile, almost all the cash is flowing back to the copyright holders. Who, when you last looked, were a dinosaur oligopoly of five record labels, desperately seeking a way to preserve their copyright cartel into a new century. They were down, and they were out: but Steve Jobs rode to their rescue.

"Most of the money goes to the music companies," admitted Jobs.

He's right, sort of. Apple's plan for the iTMS is to sell iPods, but when it comes to the iTMS itself, Apple doesn't make money, the artists don't make money, but the labels make a lot of money. In fact, the labels make more money than they have ever, ever, ever made on a per-song basis. The reason for this is that they are collecting the same giant-sized portion of the licensing fees that they have always collected, but they don't do a lick of work for it.

Some brief background

Distribution of CDs costs money in transportation, manufacturing, warehousing, middlemen-galore, etc. As I have written about more extensively in the past, it is the funds and resources required for distribution that have given the labels their power (read the above link for more information). Today, however, with all the music download services, the labels still keep most of the money they are getting (65-70 cents per song), but they aren't doing anything save digitizing the content. That cost is negligible, at best

They aren't making labels, they aren't shipping the CDs, they aren't sending A&R reps to CD stores to manage relations, they aren't printing inserts, and they aren't paying the artists a higher cut...They aren't doing a damned thing except making lots and lots of money on each song.

Didn't we try this before?

Mr. Orlowski says that the future of music distribution is compulsory licensing. This is a remarkably stupid idea where we all pay money in the form of a tax -- say an extra percentage on sales tax or somesuch -- whether or not we are listening to music, and no matter how much music we are listening to. The beneficent state would then distribute that money to worthy artists as determined by the number of downloads. Mr. Orlowski says this sort of system is all but inevitable.

What a load of horse-pucky. I could go off on a rant on the absurdities of this sort of scheme, but this isn't the time and place. Instead, I will say that I would rather have DRM restrictions than such a socialist system.

It's all about the change

All of this leads Mr. Orlowski to issue his Death Knell. From The Reg:

While much of the received wisdom in both the music industries and technology industries see compulsory licenses in one form or another as inevitable, both Apple and RIAA are agreed on the short-term solution. One where the ancient copyright rules spin the money back to the pigopolists, and some sucker, like Apple, is left holding a brand of dubious (and soon to be extinct) value. [Emphasis added]

The iTMS will soon be extinct? Hardly.

I like Andrew Orlowski, but in this case he is just wrong. What he is missing is the fact that the current relationship between Apple, the labels, and the artists is not the way it will always be. I've already explained this in great detail, but Apple will soon, or eventually, be in the position of dealing directly with the artists. That means cutting the useless labels out of the equation is all but a certainty, unless they actually become productive partners. Apple is already working with CD Baby!, an independent distribution house that offers artists far better terms than the major labels, and that's just the beginning IMNHO.

Remember that Apple's contract with the labels lasts for only a year. When that was first revealed, many thought it was because the labels would want to hold Apple over a barrel at the end of that year. Dave Hamilton and I were discussing just yesterday that it is likely Apple that will be doing the holding, and the labels who will find themselves scrambling to keep in Apple's good graces. Remember, it is the labels that are making obscene profits from the iTMS, and they are going to want that to keep on keepin' on as CD sales fall and digital downloads increase.

Artists, too, are going to be in the position of renegotiating their own contracts. Once the super stars start claiming their proper cuts from digital sales, smaller artists will be able to also get a fair(er) shake, and don't forget that some of those artists could start dealing directly, or more directly, with Apple and the other download services.

This will lead to lower prices and the artists making more money, and that is what is inevitable.

The current situation with 99 cents a download and obscene profits for the labels, and no one else, is indeed doomed, but it is the iTMS (and by extension those competing services that remain competitive) that will be in the position to change with the times.

Welcome to the Apple Death Knell Counter, Mr. Orlowski.

began using Apple computers in 1983 in a high school BASIC programming class. He started using Macs in 1990 when the Kinko's guy taught him how to use Aldus PageMaker, finally buying a Power Computing Power 100 in 1995. Today, Bryan is the Editor of The Mac Observer, and has contributed to the print versions of MacAddict and MacFormat (UK).

You can send your comments directly to him, or you can also post your comments below.

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