Wednesday, January 21, 2004

I'd like to begin with an apology. What you're about to read is exactly and perfectly boring. I'm going to couch my thoughts on digital music, the iTunes distribution model, and the record industry in a response to something written by USA Today technology columnist Kevin Maney. In an effort to make what's going to follow at least marginally entertaining, I will use adult words like "fuck" and I'll call Mr. Maney names. I'll also include an image of breasts at the end. None of these things will help much, but I hope it shows that I'm making an effort.

OK. So the first problem is that the above linked piece is titled "Apple's iTunes Might Not Be Only Answer to Ending Piracy." Whether Maney or his editor is to blame, I can't be certain, but I'll unfairly hold him responsible for a clunky, noncommittal headline that goes perfectly with his meandering ruminations on why the praise heaped on Steve Jobs for iTunes is ultimately unwarranted.

I'll boil Maney's argument down to two key points. The first is that iTunes loses money and people still file swap, therefore it can't be all that great an idea. The second is that he suggests that Magnatune, an online label and distributor, has a more compelling answer to the record industry's woes. Maney is comparing Apple to oranges, of course, and how about that nifty little turn of phrase? Apple with oranges? Get it?

Let's deal with Maney's beef with iTunes first. Steve Jobs has said that Apple doesn't make money on iTunes. That's a drag for Apple. What they do make money on is the iPod. They make lots of money, in fact. To ignore the connection between the two products is stupid. If nothing else, think of iTunes as your iPod's hot-sync software. If you did, you wouldn't expect there to be any revenue stream associated with it.

Or don't think of it that way. Instead, think about QuickTime. For years Apple tried to get QuickTime on Windows, and for years they were effectively prevented from it. Isn't iTunes just another attempt? To ignore the significance of Apple's recent deal with HP is massively stupid. In exchange for the right to make an iPod clone, HP will bundle iTunes on all its PC's. John Markoff examines the implications in this article. It appeared in The New York Times. It's not Maney's green section of the USA Today, but it's not too shabby, either. In a nutshell, he posits that iTunes is a sneaky way for Apple to get a little API leverage of its own over Microsoft.

But that's speculative, isn't it? Let's just ignore the iPod entirely.

Let's suppose that iTunes penetration wasn't increasing, that the library of songs wasn't getting larger, and that initial development costs continued indefinitely. If we suppose all that, Apple would continue breaking even or losing money. The fact remains, though, that record labels are making money with iTunes. Apple's taken the labels' only real assets, their music catalogs, and made them a spectacular offer: "We'll take this market that you're completely incapable of reaching, and we'll reach it for you. All you need to do is give us access to your catalog, and we'll write you a check every month." Not bad, especially since the labels weren't doing much with those catalogs, other than watching them fly out the Napster window.

And Apple is writing them those checks. They did it not by selling downloads to big fucking nerds like Kevin Maney. They did it by selling downloads to my mom, my sister, and me. In short, people who can afford to spend a dollar but can't afford to spend an hour and a half finding some bullshit Gnutella connection, downloading from a 10-year-old and splitting his bandwidth 'cause he's getting a clip of Jenna Jameson sucking dick, then waiting 15 minutes only so you can listen and discover it's the wrong tune, and the last two minutes are clipped. iTunes is good because it's reliable, reasonably priced, and it's easy.

I remember that my sister used to call the radio station and request a song. She'd then turn on the radio, set up a little tape recorder in the same room and wait. When the song came on, she'd hit record. Eventually, she stopped because it was a huge pain in the ass and the recordings sucked 'cause my mom would barge in and tell her to clean the room. There'll always be people who do that kind of thing because they're cheap and they have a shitload of time. iTunes doesn't stop bootlegging. Nothing ever has, and nothing ever will. It's providing an attractive alternative to bootlegging where there was none previously.

Before I get into Maney's next point -- that Magnatune has the business model that's the solution to the labels' problems -- I really must insist that you read this. It's a piece by noted indie producer Steve Albini on how a band gets fucked by its record company. It's a grim view for musicians, and it's why I don't feel particularly sympathetic when the major labels whine about piracy losses.

OK. So here's the deal with Magnatune: Suppose you're a band. Maney says you should record your album at home on some of the inexpensive new digital recording equipment available, so you buy an iMac and GarageBand (thanks, Mr. Jobs), and lay down some tasty grooves. You submit said grooves to Magnatune and, if you're the lucky one in 300, they agree to distribute your record on their site. They won't promote it at all, of course, because that would require an investment on their part. That's called financial risk, which is gross. Nope, they'll just sell it and take half of the money. Oh, and one other thing. They're going to sell the record at a flexible price. So they'll suggest people spend $8 for it, but if people want to spend only $5, that's OK, too. Why not, right? It's all profit for them, and they'd rather have half of $5 than half of nothing.

Bands sign with a label to get two things they usually can't afford to pay for on their own: distribution and promotion. Granted, they're getting fucked on the deal, since everything they're getting is an advance against future royalties, but that's Albini's issue. The logic of the labels is that since they're taking most of the financial risk, they should get most of the reward. In Magnatune's vision, the one that Maney finds so attractive, the bands take the vast majority of the financial risk, and they get half of the reward.

By the way, how this model solves piracy is completely beyond me.

The flexible pricing thing is indeed new to the music business. Never mind that it's stupid. The rest of the model isn't. In fact, Steve Jobs has been asked a number of times if Apple would start signing bands, presumably adopting this all digital, low risk model. His answer is always no, because there's no benefit to either Apple or the bands. Jobs recognizes that simply having a CD available doesn't mean anyone's going to buy it. Apple wants sales, bands want sales, and labels want sales. That means someone's going to have to risk marketing the thing.

But suppose that the days of marketing bands are over. CDBaby is a terrific company for indie bands that distributes but doesn't promote. It's widely recognized as an artist-friendly way to make money in music. Any indie band can sell their CDs on their site. CDBaby just does the order fulfillment. Basically, for years they've been doing what Magnatune plans on doing, except they don't reject any bands, they can actually ship you a CD, they're already making money, and they give bands between $6 and $12 per CD sold -- more than half the money.

You know who does CDBaby's online distribution? Apple.

So here are the breasts I promised:

Mrs. Maney's Mammies

Analogcabin @ 10:04 AM
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