* Posts by Kevin Thomas

1 publicly visible post • joined 17 Jul 2007

Behind the Apple vs Universal breakup

Kevin Thomas

Flawed Analysis

You're math shows that your analysis is completely flawed. You say that "As discussed, iTunes sales have not been hugely profitable for the labels." I'm not sure where you got that. It is almost free money. They have zero distribution costs as this is paid for by Apple. They also have zero media costs once the tracks are digitized (often done when recorded so meaningless in most cases). The reality is that the iTunes store is more profitable for the labels on a per song basis. Is is widely recognized that it is not significantly profitable for Apple however.

Even more importantly, you say that the iTune Store has sold 2.5 billion songs and that the labels only get 70% of that revenue. That means that they have 'only' received $1.75 billion dollars in revenue from Apple alone. If they were able to convince Apple to give them a dollar per iPod sold (and somehow convinced them to make that retroactive to ALL previous iPod sales) they would have been given an additional $100 million dollars. That is barely more than 5% of how much they have already been paid. If they were to pull their catalog from iTunes they would lose significantly more than they could ever gain by forcing a royalty from Apple.

Beyond the flawed math, how are iPod sales different from the sales of radios or car stereos or home receivers or just about any other piece of stereo equpment? Do the record companies receive a royalty for those sales? In fact, if those did not exist, would there even be any music sales? Remember, iPods out of the box do not record. So comparing them to digital tape recorders is incorrect. Apple has never endorsed stealing music. In fact, they opened the iTunes to allow legitimate sales after having to convince the labels in the first place.

As for the idea that the labels could receive a royalty of 4 to 5 dollars per computer sold, that would be absolutely ridiculous. Computer have many uses beyond playing music. Should there also be a software royalty because of all the losses to software piracy? Perhaps typewriter manufacturers should receive a royalty for all lost sales to people who purchase a computer instead. That could go on forever. Pretty soon the computer would have hundreds of dollars in royalties included.

Technolgy changes and companies must adapt along with it or or die. Look at the movie and television industry. They fought VCRs with a vengence proclaiming that they would kill their business. Instead, when they finally opened their eyes to the possibilities, they found a whole new business which makes them huge amounts of money.

The record labels must adapt to the new reality. That is the way it is.

Kevin