Tough Times Ahead For Steve Jobs
It is not going to be a happy weekend at the Jobs’. Both of Steve’s babies – Apple and Pixar – are in bit of a pickle. Pixar is being informally investigated by the SEC which has asked for more information from the company after it missed its second quarter earnings estimates because of slower than expected sales of “The Incredibles” DVDs. (Dreamworks is also being looked at for over estimating the demand for Shrek 2 DVDs)
Steve and his troops are facing a long pitched battle with the music industry, according to The New York Times. Over past three years, Apple and its iTunes have saved their music industry from falling into the dark abyss that is peer-to-peer sharing. Now the same record industry wants to kill the golden goose, by raising prices of the songs.
Why? Because the record executives are thinking to themselves: That damn Steve, he is so smart that he makes money by selling iPods and by selling music. How can this geek be a better businessman than us, they say? I mean they have been screwing the talent for so long, and now this computer guy, pulled a fast one on them! The nerve! (I am channeling their inner thoughts here, in case you were wondering.)
> “As I recall, three years ago these guys were wandering around with their hands out looking for someone to save them,” said Mike McGuire, an analyst at Gartner G2. “It’d be rather silly to try to destabilize him because iTunes is one of the few bright spots in the industry right now. He’s got something that’s working.”
Well put Mike! The record industry just can’t help itself, and shoot itself in the foot. Thankfully, they record business is split into two camps – one that wants price of downloads to stay at 99 cents, and the boneheads.
> “I don’t think it’s time yet,” said Jimmy Iovine, the chairman of Interscope Records, Universal’s biggest division. “We need to convert a lot more people to the habit of buying music online. I don’t think a way to convert more people is to raise the price.
Many lament, that Apple could really help the market grow if it opened up and work with other device makers. Nevertheless, its going to be tough going for Steve and his team for some months!
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It is interesting that the article does not even broach the topic of what customers want. But then I guess the music industry does not really care what customers want either.
The view that downloads should stay at .99/song is boneheaded. The price of music should be falling with the advent of more efficient distribution methods.
The opening up argument is just another ruse on the part of the music companies to break Apple’s hold so they can raise prices. Are there many dissuaded from buying online at iTMS or any WMA store because of lack of DRM interoperability? Are there iPod owners who say I won’t buy from iTMS because someday I may own a non-iPod? That would be giving our consumers too much credit for forward-thinking. Now it might be true that non-iPod owners may envision owning an iPod and that would dissuade them, but that’s a fairly small population.
I think more are dissuaded because they want higher quality than 128kbps, which they can get via CD.
At a minimum, on principle alone, Apple should not provide Fairplay to any music store or music player until WM 10 and Janus is available for the Mac OS. WMA DRM is just as proprietary and non-interoperable as Fairplay.
Funny, isn’t it? When Apple has a “monopoly”, they “abuse” it by standing up to RIAA against price gauging the consumers. Quite different from Microsoft’s monopolistic practices. Keep on “abusing” your “monopoly”, Apple.
I know Jobs is too smart to do this, but if he wanted to send a shot across the music industry’s bow, he could setup a new music company. Pickup one or two freshly dropped groups with solid followings, and just give them a sweatheart deal.
Jobs has a strong hand to play via “the talent” angle.
Seriously this showdown is the classic battle between distribution and content. So sooner or later they’ll get in each other’s business.
Buying content to boost the value of your distribution asset is the age-old Turner/Murdoch play. I sure hope Jobs has got some super secret talent hidden away for all the implusive 12 yros.
I think the end of the NYTimes article gives this up for what it is. At 99cts per full song on iTunes vs. ~$3 for a cheesy ringtone, the mobile carriers are telling the music industry to raise Steve’s prices, otherwise we’re going to look like morons and not make any money. Telecom hates competition.
Just think of the sky-rocketing customer care costs for the carriers when these music services launch. I mean the one thing carriers have never mastered is a billing system without errors and massive hassles.
And yes, the consumer is the least important player here.
I read recently that there is new audible book service geared for libraries that will download to everything BUT iPods– it’s in Windows Media, you know. What a boneheaded concept; selling a stillborn piece of dreck to cash-strapped libraries.
I expect we will soon see so much free iPod soken word content (starting with Podcasts, moving to literature) that libraries will soon see thee folly of buying anything Bill Gates is pushing.
Quite different from Microsoft’s monopolistic practices.
Not totally different. Apple is trying to reduce the prices for things that they don’t make in order to sell more of their own complementary goods. Microsoft has plenty of times tried to reduce the prices for competing products in the same way, or tried to reduce hardware costs in order to sell more software; Intel tries to foster cooperation in operating systems similarly. Let’s not forget that one of the big charges against Microsoft was in undercutting Netscape, which tried to charge $49 for its browser.
All these companies are out to make money. Sometimes one company making profits is good for consumers, but don’t fool yourself into thinking that they act out of pure altruism. Apple wants to charge less for songs in order to sell more iPods.
I think the game is changing, Apple doesn’t need to buy content to feed it’s distribution channel…They just make it real easy for artists to become their own distributors…easy tools, guidelines, support, etc. If the artist makes it a 3-6 month iTunes exclusive, they throw in visible iTunes promotions, marketing and possibly ads. Apple gets all the advantages of owning without putting out any cash. They lead the way into the future where record companies and recording contracts aren’t as important. All they need is a few big names to sign on and they are off and running.
It’s a bit rich to see a music industry exec complaining that Apple isn’t making much money off downloads since most of the 99 cents a song goes to the music industry, and the rest just covers Apple’s costs. Perhaps if they shared more profits with apple, Apple would be more amenable.
Raising prices? For 99 cents you get an inferior product to CDs in so many ways (sound quality, interoperability, liner notes, etc.)… so prices should be less. But regardless, I’m still not buying any DRM crap.