Compulsory Cannibalism

Posted by | Feb. 16, 2010 | 1,931 views

Last week the Chairman of Warner Music Group made some interesting comments during the annual earnings conference call. He decried “free” streaming models, saying that WMG is not interested in supporting them any longer. By streaming their music for free, he seems to think that such services are cutting into WMG revenues. This, of course, led to a wave of speculation that he was referring to Spotify. There has been a lot of grumbling coming from some of the labels about licensing Spotify in the US because the conversion rates don’t seem to be as large as the labels want them to be.

This, in my twisted opinion, is totally ridiculous. It doesn’t seem to matter that Spotify is working in the EU with a freemium offering. But there is no way that the golden goose US market is going to be served up like foie gras on a silver serving tray.

The real killer argument that some labels are making is that even though they are pissed about the power that Apple wields over them, they are scared shitless about cannibalizing their iTunes revenue. Scared to the point that some are even wary of licensing new business models. Fear is fueled by ignorance and that’s what has gotten the business into the state that it is today. Are we looking at another lost decade?

Not all label execs feel this way. I was chatting to one digital label head and he said that when he hears that he gets so pissed off that it makes his “shit itch”. I love that phrase. Very descriptive.

Anyway, like the above-mentioned label exec, I find the argument insulting to my intelligence. First of all, don’t you think that iTunes revenue is already being cannibalized by the likes of The Pirate Bay, Limewire, Frostwire, Demonoid, isohunt, etc., etc.? And this forms the logic NOT to sanction new models that will at least bring in some revenues? So Spotify is only getting a 4% conversion rate and the labels want 8% or 10% and that’s reason enough to keep them out of the market instead of taking what revenue they can get and helping build a new service? Do you really think that these new services compete with Apple? Do you really think that some guy who is spending $300 a year in iTunes is going to stop and opt instead to only spend $10 a month on Spotify or another similar service? If that was the case people would be flocking to Napster (gag). Please tell me that people are not really that stupid. And by the way, do you really think that Apple is going to pay locker rates to labels once they get their cloud streaming up and running? Pass the fois gras, please.

Labels say that they just want fair value for their content. But the question is, what’s fair value? It’s common knowledge that iTunes volume is down since the labels got the variable pricing that they had been demanding. I always thought that the recording business was a volume business. Tonnage. The lower the price, the higher the volume. So variable pricing seems to have actually contracted sales while at the same time artificially propping up a price point that content owners deem to be fair value.

There just has to be a better excuse than iTunes revenue cannibalization for trying to slow or stop the growth of new models. There just has to be. At least one that makes sense. If you can think of a better excuse, please leave it in the comments so that some of these label guys can look smart.

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Posted by on Feb 16 2010. Filed under Business Models, featured. You can follow any responses to this entry through the RSS 2.0. You can skip to the end and leave a response. Pinging is currently not allowed.

3 Comments for “Compulsory Cannibalism”

  1. thomas

    i think some labels are just trying to survive at the moment and the itunes income is key for the cash flow of these smaller structure as the physical business is going down and as the physical revenue gets off set by huge returns, manufacturing and other retail co-ops.
    itunes’s income is whats fueling most inde labels at the moment and whats keeping them afloat and in business.

  2. Steve Sikora

    It is really amazing how the record industry keeps destroying themselves. You would figure after a decade of chasing pirates{me included] that they will never catch,they would change it’s ways. Of all people they had the chance to really cash in on music sales and be rich. Too late now. Itunes is great. Yeah I can download anything I want but Itunes makes it easy and hassle free. Plus look at all the free stuff you can get at Apple. They have the right idea, give out samples to enjoy and people will buy. Not so difficult to understand. Human nature.Maybe Itunes has become a monopoly,[good for them, they are the only ones who understand people] they deserve it. Recording Industry are nothing but a bunch of dopes. Old ones at that. Not to worry,they won’t be around much longer.

  3. Iggy

    Clearly, they still hope that CDs become popular again – once the Internet and iPods go out of fashion – and sales go up again!

    That or they just want to help make the iPad a success!

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