Setting up a streaming music service in the U.S. isn’t an easy task, and to find out why, you need only look as far as the company holding the music industry’s purse strings. That company is Apple (s aapl), and according to Spotify‘s head of business development Faisal Galaria, it’s a force that may be impossible to reckon with.
In an interview with StrategyEye, Galaria suggested that one of the main reasons behind the long delay of Spotify’s U.S. launch (originally rumored for 2009, then set for 2010 by the company itself) is that the labels depend too heavily on revenue from iTunes to risk angering Apple:
If you’re the digital team [at a label] and 80% of your revenue was coming from one place, how much are you going to p*ss them off until someone else can guarantee all that revenue from a new source?
Put yourself into their shoes for a moment – you’re a nice, fat big executive at label X, Y, Z. You’re getting half a million dollars a year as long as you hit your bonus. Your bonus means that 80% of your revenues comes from iTunes. Are you going to tell iTunes where to go? Because your half a million dollar bonus has now gone.
Galaria also suggests that the reason Apple is obstructing the arrival of Spotify in the U.S. (where the music market is larger than all of Europe’s combined) is that it’s working on its own cloud music service, and doesn’t want any existing competition in the space when it comes to market.
That Apple carries a lot of weight with record labels is hardly a secret, nor is it news. Ever since the introduction of the iPod and the iTunes music store, Apple’s influence on the music industry has been growing at a pace that rivals like Amazon .mp3 (s amzn) couldn’t possibly match. In many ways, the Nov. 10 announcement that finally brought the The Beatles catalog to the iTunes store is a good symbolic representation of its current dominance.
Though Apple’s influence shouldn’t come as a surprise, Galaria’s comments are important for two reasons. First, they remind us that Apple does nothing by accident, and probably plans much far further out than most other companies can anticipate. Music industry clout gives Apple the freedom to proceed at its own pace (which depends on being able to offer a consistent, quality experience before going to market) with cloud music delivery.
Two, it reinforces Michael Wolf’s assertion that leading the way with a cloud-based music service is basically a card that Apple alone holds right now. Just like with NFC and digital transactions, Apple is the brand most users trust when it comes to handling their music purchases. If labels move to the cloud independent of Apple, there’s no guarantee Apple’s users will follow, and 80 percent of revenue isn’t a figure any major content provider can risk losing.
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