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Warner Music Group (NYSE: WMG) CEO Edgar Bronfman Jr. couldn’t have made it more clear – the music industry wants to ween itself off its App…

Edgar Bronfman Jr
photo: Corbis

Warner Music Group (NYSE: WMG) CEO Edgar Bronfman Jr. couldn’t have made it more clear – the music industry wants to ween itself off its Apple (NSDQ: AAPL) dependency, and it will get do just that when iTunes comes under massive competition pressure from new unlimited and mobile services…

Digital growth has slowed following iTunes’ introduction of a variable pricing model in April 2009,” he told analysts on WMG’s Q1 earnings call. “It couldn’t have come at a worse time,” Bronfman said. “(It was) agreed in summer of 2008 before the financial crisis even hit – Apple went through that price increase in April, but in the face of the worse recession since the Depression.”

The CEO acknowledged that it was the labels which called for the new multi-tier pricing structure, which has nevertheless been a “net positive”, and: “It’s difficult to know, even today, if it is just consumer resistance to a higher price points or if taking a pricepoint of 30 percent more at such a fragile time (is to blame). I don’t think there’s been another company to have taken such a price increase in the 2009 period.”

One thing’s for sure – Bronfman’s tiring of an Apple that both remains critical for the labels and which is nevertheless branching out from music alone. “We’re seeing tremendous interest in Apple products,” he said. “But there’s more competition in the Apple ecosystem now, with apps, video content and other things on which the gift card money can be spent. What we’ll see is the very significant growth of access models… These models will be one of the long-term drivers of digital revenue.” He also spoke fondly of mobile.

The subscription models that we are promoting will create much more value over time than the per-play or per-purchase models,” he said. “The number of potential subscribers dwarves the number of people purchasing music on iTunes.

“There are a lot of people who see the extraordinary value that Apple has created … you’re going to see a lot of people try to emulate that value.” There’s no shortage of services vying to provide users with unlimited monthly music – Rhapsody’s already doing it, Spotify is making waves in Europe, Mog.com launched such a feature in December and Rdio is due for beta launch.

If you watch this space, you’re going to see accelerated competition for … consumers,” Bronfman said, seemingly pleased to welcome channels other than just iTunes. “There are going to be quite a lot of players engaged in trying to win those hearts and minds. One of the tools or weapons they’re going to be using is content – music will be an important part of that play.”

Bronfman appears to recognize the popularity of music consumption, if not sales, and is clearly seeking relationships with unlimited-subscription providers, whether music services or ISPs, which would give the labels dependable income, as opposed to per-track purchases, from services like iTunes, that can twist in the wind.

It’s here that he jumped on to Rupert Murdoch’s bandwagon. “The comments that Rupert Murdoch has made, around the role of content and the necessity for content to be fairly recompensed as new business models emerge, are well thought out and reasonable, looking forward,” Bronfman said.

And this line, lifted almost wholesale from Murdoch’s own earnings call last month “Content is going to have more pricing flexibility over time – the only thing that drives iPods, Kindles, Zunes and other devices is content – the power of content in (MacMillan’s) little fracas with Amazon (NSDQ: AMZN) was clearly evident. You’ll see an increase in pricing flexibility for content companies.”

In that vein, another grumble about Apple: “Book publisher pricing on iPad gives much more flexibility than the music industry has on any Apple devices.”

Despite Bronfman’s eagerness for unlimited-access competitors to iTunes, free streamers shouldn’t expect to win the same favour. “Free streaming services are not a positive thing for the industry and, as far as Warner Music Group goes, will not be licensed. It is not the kind of approach that we will be supporting in the future.”

That kills dead any prospect Anglo-Swedish service du jour Spotify might have had for launching its ad-supported service in the U.S. – but we already knew such label preferences were likely to mean Spotify could only bring its subscription offering to the Stateside market; it’s currently seeking carrier partners with whom to do just that.

  1. I did not know if ad-supported music was the the online golden goose, but since the record labels have been WRONG about everything digital, then my suspicion is that if Bronfman states that is the wrong model, then most likely it is the one that will ultimately succeed. As far as the concept of licensing ISPs to provide a license to their users, that biz model was being touted to the record labels for nearly a decade now by Jim Griffith and many of the P2P advocates. Better late than never! If the record label chiefs would just listen to the market, a lot of their problems would be solved.

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  2. Bronfman’s out of touch. The question is not whether or not the majors are sick of Itunes.The real question is are the consumers sick of Itunes? Are they going to trade in a system that is compatible with their Ipods just to satisfy the majors? I think not. If the majors want to get rid of Itunes,they’ve got to come up with new HARDWARE to compete. It ain’t happening.They don’t have the muscle (money) to challenge Apple, and they’re not going to give up the income they get from Itunes sales.Instead of raising prices,Bronfman needs to concentrate on producing a product the consumer wants. Paying $11.99 for a cd with “one hit and a bunch of sh**” doesn’t fly with consumers anymore. The majors don’t control distribution anymore,so consumers aren’t forced to only listen to what the majors produce. Innovate or die.

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  3. Robert, good overview of Edgar’s key points. I have just published a blog post on how I think WMG could become ’2.0′ and embrace the future rather than try and change the habits of 2 Billion+ connected people. Check out http://www.mediafuturist.com/2010/02/wmg-20-my-unsolicited-advise-on-how-wmg-could-embrace-the-future.html

    Key point: “Vigorously pursue flat-rate and bundling scenarios for the licensing of your entire catalog in return for flat fee payments, RAND-based revenue shares and fair splits of advertising and other revenue streams (similar to what Google has done in China, TDC in Denmark etc). Licensing access to music, rather than (just) copies, is the only way forward in a connected, always-on world that already equals listening with owning. Switch from relying on scarcity to monetizing ubiquity and abundance, and invent new models that fit this. Generate new revenues by engaging with ISPs, telecoms, ICT companies. mobile operators and search engines. Drastically reduce friction. Embrace ‘free’ models as long as somebody will pay somewhere….

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  4. Edgar Bronfman Jr. – WMG’s CEO: WMG’s private-equity investors: The Unreleased Transformational Music Catalog is the solution to Apple iTunes. Transformational Music Technology – Giving people what they want. “Today’s dynamic music industry environment requires us to radically transform the role we play in the music ecosystem and, at WMG, one of the most important ways we have been doing that is by developing powerful new approaches to enriching relationships between artists and fans.”

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