Why the music industry doesn’t have a prayer against iTunes

It is a fact that the music industry is flat on the mat. CD Sales have been in near free fall for the last 4-5 years. Exactly why this is happening is the subject of a good bit of back and forth by industry pundits, music executives and a raging herd of music industry lawyers. From media accounts one would think that this massive decline in sales (translate revenue) started with Napster and has reached a perigee with iTunes….ah, yes iTunes. To hear a typical music industry executive talk about iTunes is to understand the true definition of the “Death Star”.

The current rant against iTunes by the few surviving music industry executives is a wide-ranging complaint about Apple’s near complete control of the distribution of recording companies’ content. This outcry is based on Apple’s refusal to allow flexible pricing and Apple’s demand for elimination of copyright protection schemes (DRM) from songs sold on iTunes. As the music industry views it, this pitched battle evidently reached a high point in the last two months as Apple gave into flexible pricing but held fast to DRM removal. The whining by music companies could be heard from Hollywood to Madison Avenue. Much of this dialogue is focused on finding a distribution model competitive with iTunes. Apparently such a model would allow the music industry to return to days of yore where a million tons of plastic discs were dumped into the retail distribution channels and out sprang eye-popping profits.

At the very least, music companies are looking to new channels for music distribution outside of Apple’s domination. Currently this is seen mostly in the form of monthly subscription services provided through mobile operators like Nokia, Verizon and other famously out-of-touch telcos.  With iTunes pulling in $1.5 billion in 2008, compared to $70 million in wireless music sales, this tactic is clearly an uphill battle. Unfortunately for the music business, this strategy is likely to have a surprisingly short life-span, since Apple’s iPhone and iPod Touch are rapidly outpacing the competition and setting the bar in terms of wireless music purchasing and cross-platform syncing, managed, of course, through the iTunes franchise. The result is a practical version of “two steps forward..three steps back” for the music industry.

It is also a rather surprising fact that the music business is no longer about music. It is simply about creating the lowest friction method for allowing customers access to their artist of choice, recommended NOT by music industry PR firms or marketing departments, but by customers’ friends on Twitter, Facebook or MySpace. This whole idea that the music industry can develop an alternative to iTunes is pure fantasy and the reasons why this is true are somewhat counter-intuitive.

For example, in the same way that music is no longer about music, it is also profoundly true that iTunes is not about “selling” music. iTunes is about selling a “process” for selling music. Apple couldn’t care less about the packets of digital data that reside on its servers that form the gruel for billions of micro transactions. This new process model (call it what you may) has only one primary business objective, to make the user experience as simple and error-resistant as possible. Apple cares not what the number one hit is on iTunes this week. Apple cares only about completely controlling the entire series of customer touch points that connect the dots between purchasing music and playing it. It is the seamless integration of Apple iTunes/iPod/iPhone hardware and software that determine success. This level of refinement and objective control of the music distribution and consumption value chain requires fanatical levels of control and selfless matching of business goals for the good of the process overall.

In order to actually compete with iTunes, the music industry would have to morph into a new “process” model where those who create music, store it, promote it, sell it, and create devices that allow users to consume music would all have to work seamlessly together with one goal in mind: to create a lower friction consumer experience than Apple iTunes. One needs only to lunch with a typical music industry executive to know that this is absolutely not going to happen. Apple has already dictated the end game. Although there are moves left on the board, the outcome is nearly certain…checkmate. Fold the King (BB or otherwise) and let it go. To do otherwise is a vast and complex user experience design problem which the music industry does not have either the skills or knowledge to address in a manner that will threaten (or even deflect) iTunes.

Famously at odds industries like music production, web content distribution, and music player manufacturers cannot begin to conceptualize the complexity and selfless decision-making they would need to endure in order to create a user experience even remotely as compelling as iTunes. This is not to say that iTunes is a paragon of ultimate usability for all functions. It is not, but overall iTunes will continue to trump anything the music industry, web music services, or MP3 player manufacturers can throw at it.

Steven Jobs has no reason to negotiate away any advantage to the music industry. He (Apple) had the discipline and patience to understand that iTunes is not about music any more than the iPhone is about phone calls. There are those who understand this way of thinking and then there are music industry executives who do not. A warning to all those music industry executives plotting the demise of iTunes: Beware, the Death Star is upon you!

Charles L. Mauro CHFP

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13 Comments

  1. Charles –

    A very compelling argument. I’d also add the ecosystem surrounding iTunes goes exponentially beyond Apple. From accessories to integration into the living room, the vehicle, and even now networked equipment – see Cisco’s new multi-room music systems which extends iTunes to non-Apple devices – such an effort to lessens apple power will be a battle not easily won.

  2. I think that the product to process transformation we find in iTunes is as you describe, but it is even more powerful when described from the customer’s perspective, not Apple’s or the music industry. That is, that customers want their experience of music on their own terms: unbundled from the music industry’s business model (songs, not albums); available wherever they want it, whenever they want it, and played through whatever equipment they own; easily found, sampled, and bought.

    Customers are now seeking satisfaction through the whole business process, not just in the product. They don’t want to make the same distinctions between product and process that the music industry does. What the music industry doesn’t get is that the customer wants (and is getting used to having) control, while they just want to sell them a product and dictate the terms. iTunes gives customers the flexibility and control they seek, because Apple understands how to make the process work pretty seamlessly for them. Not perfect, but a lot better than what the music industry offered them.

  3. Quite interesting — so the problem isn’t that people aren’t buying music. The problem — from the industry’s perspective — is that people aren’t being told what music to buy, and obediently trundling off to buy it because nothing else is out there, or they have no clear idea of what else is out there other than the Billboard top 100.

    People are finding out what they might like not from a PR department but from their friendslists; and all iTunes is doing is facilitating the movement of the data, and not which data is doing the moving. Since so much of the middle-man-like industry is devoted to PR and marketing, iTunes isn’t only doing an end run around them but obviating them.

    There was so much talk even recently about guerilla marketing and all that rot … and here is how social networking changes industry after industry. It’s interesting just what landscapes shift and how if you make it trivially easy for people to talk to one another and find obscure things.

    I’ve always assumed that my own recent weird musical wanderings (it’s a twisted path from Steve Perry to operatic countertenors to New York Pro Musica) were just because I’ve hit middle age and gotten bored with what’s commonly available, but it may simply be the same thing that’s driving anyone of any age. It’s just easier nowdays for me to pick a very fast path from Perry to NYPM thanks to the web and iTunes. Hm. From Journey to Baroque opera in three easy clicks …

  4. Andy: Agreed, clearly the more Apple penetrates into other platforms and technologies like the automobile the more difficult it will be for the Music industry to deflect Apple’s presence.

    FYI: Andy is a founding partner in a very interesting Media/Technology research company “The Diffusion Group” which often has an interesting take on new media. Here is TDG blog link for reference. http://asktdg.com/blogs/tdg-opinions/

  5. David: Interesting POV on transferring the process view to the perspective of the customer. When this is done I can see that the concept of “Friction” takes on a different meaning where those who produce music (or other forms of media) no longer objectively control the physics of the transaction. Music companies must then work against a process model that is determined by customer-mediated performance metrics…which will have little to do with traditional music industry metrics.

    CM

  6. Janis: I like the way you frame the elimination of the traditional music PR and marketing components. However, we know realistically these functions are not going away but are (probably) going to morph into divisions focused on working with iTunes distribution models and social networking platforms. These new PR and marketing teams require a totally new set of skills which it is likely Apple/iTunes will to a great extent determine and modulate.

    CM

  7. “That is, that customers want their experience of music on their own terms: unbundled from the music industry’s business model (songs, not albums); available wherever they want it, whenever they want it, and played through whatever equipment they own; easily found, sampled, and bought.”

    I totally agree with that David, I also add there is no logic in fighting Itunes or any legal service that is viable. DRM does prevent people from sharing music, and I think it hurts sales of digital music.

    Actually I think the Major Record Labels don’t need to challenge itunes, they need common sense economics and business practice. They need to realize they don’t need everyone on earth to buy their music to be profitable. Itunes is only compelling because it’s ease of use and popularity. It is not really innovative it is really common sense. As of today you still can not download digital files directly from most of the major labels website, I think that should be an option.

  8. However, we know realistically these functions are not going away but are (probably) going to morph into divisions focused on working with iTunes distribution models and social networking platforms.

    Charles — agreed completely. Stuff still needs to be sold, but it’s a matter where. Music and bands won’t be pushed the same way they used to be; it’ll all have to shift to new places. Instead of manufactured events or pushes, we’ll see more of what ended up happening on shows like Buffy the Vampire Slayer, where bands were featured in the show and then searched on by viewers. Sort of like putting a Coke machine in the background in a blockbuster movie. They’ll have to sow the seeds in different places; music marketing will be much more cross-platform. I guess “American Idol” is an example of that sort of thing. In the old days, we called it “Star Search,” and it was understood to be a bit lowbrow, the back road to stardom. Now, it’s the freeway.

  9. And I probably should have said “alongside” as opposed to “instead of,” up there. Things shift slowly, and there’s always a place for the McMusic that’s commonly pushed in traditional ways.

  10. Thanks for sending me the link to this. There are two big areas that I keep observing. One is the marketing of the way people listen to music. Back when we were kids, we wanted the big booming speakers so you could hear the bass rumbling in your chest, making listening also a physical experience. Today, the marketing is about the availability of having your “tunes” with you 24 hours a day, and the ability to listen anywhere / anytime. But even the way we used to listen to music is being taken care of by electronics companies who are making iPod docking devices available on amplifiers and large sound systems.

    The other big area is the relationship of recordings and the promotion of live music. Time was when you would record an album, then go on tour to promote the album. That, along with radio play and chart position, would guarantee a “hit.” Now companies like Live Nation with their 360 Deal, are changing the process. Now the tour gets booked, and recordings are made to promote the tour. The process has been reversed.

    Another marketing point that Apple is exploiting is the reasonable cost of music. CD’s have always been too expensive. Music should have always been available at a lower price than it is. There was a survey done a few years ago with 11-19 year olds asking, “Why do you download?” At the time the number one answer was, “I download to see what is on the album to see if I want to buy it.” That same question was asked a few months ago, and the number one answer was, “Why should I pay $19.95 for an album that I may want 2 or 3 songs from, when I can buy just those songs for $.99 from iTunes.”

    Music artists used to need the record labels to foot the bill for the extremely high cost of recording and manufacturing of CD’s. For the first time in the history of recording, this is not necessary anymore. DigiDesign and other similar companies, have created recording systems such as ProTools, which offer computer based recording systems that you can purchase and keep for about the cost of one major recording session. Now independent artists have pro-sounding recording systems available in their homes to compete with the high priced recording studios, which are going out of business faster than record stores. With up-loading to iTunes, the independent no longer needs to compete with the majors for shelf space in the record stores.

    This whole process is good and bad. Bad for the big business of the record labels, distribution companies, record stores, etc. Good for the independent artist who might not ever get “signed” by a record label. And, of course, it is good for the consumer. He gets his music at fraction of the cost of a CD; gets more music available to him because more independent artists are able to release their music; and with his ear buds, he gets his music everywhere. I wish I was a kid growing up with this technology.

  11. Greg: Very interesting response. Based on your extensive background in the music industry (rock and classical)your post especially relevant. Note: for those of you on this thread, Greg is successful rock and classical music producer who currently teaches in the Jazz program at Juilliard in NYC. He has over 25 years experience in the music industry

  12. I’m glad that Greg mentioned the advantage of iTunes for independent artists like myself. I’m grateful that I can at least now be heard and the consumers have access to my music which can speak for itself. Years ago indie artists always had the 200lb gorilla of large record labels standing in the way.

    Now we have the opportunity to be recognized by the merits of the music itself and not whether or not some A&R representative deemed us worthy of a listen. No more gatekeepers, we have our own keys.

    Through our own online music marketing we now have the opportunity to finally let the consumer decide what they like and wish to purchase. I for one am grateful!

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