Can Apple Save the Music Industry, Again?

There is plenty of speculation about what Apple (Nasdaq: AAPL  ) has in store with next Tuesday's "Let's Rock" press event, and most of it revolves around the company updating its line of iPod portable media players.

It's inevitable. Unit sales have slowed over the past year. The iPod touch can't cling to its $299 price, when the superior iPhone with built-in speaker for media playback is being subsidized by AT&T (NYSE: T  ) at a lower price. Smaller players can use a little pizzazz to get them moving again.

However, in this article, I won't be the zillionth person to go over a hardware wish list -- or even the iTunes software upgrades, which may include the rollout of a music subscription plan. Instead, I want to get into a likely aspect of next week's announcement that isn't getting a whole lot of press attention: the interactive digital album.

British magazine Music Week is reporting that Snow Patrol's next studio CD -- A Hundred Million Suns -- will be the first major release to also come out as an interactive album. When purchased through iTunes, the digital disc will include lyrics, liner notes, and special features.

It remains to be seen whether these enhanced qualities will only come from the App Store -- which would mean they’d be available only to iPod touch and iPhone owners -- or if it's a seismic shift for iTunes, attempting to get music fans to buy entire albums again.

Either way, it seems as if Apple is playing lifeguard here, donning the red swim trunks and going back out to rescue the major labels, who are repeatedly ignoring the riptide warnings and continue to lose their way in open waters.

"Baywatch": Steve Jobs edition
Major labels have been bellyaching over Apple's pricing for years. With digital singles at just $0.99 each, fans can cherry-pick the tracks they want without having to buy entire albums.

This complicates the value proposition for major labels, who invest heavily in album releases.

Digital distribution has its advantages, of course. It's hard not to embrace the inventory-free process with no CDs to press, package, or ship, to say nothing of the cutouts that labels have to stomach when albums are returned by retailers.

Digital music distributors also benefit the labels because it's the website doing all of the heavy lifting. The website is the one serving up the chunky files, processing the payments, and attracting customers. All the labels have to do is sit back and collect their generous cuts.

This is all great, of course, until you compare a $10 CD sold at a retail store to a $0.99 download of the disc's hit single.

Cynical music fans would lay the blame on the labels and the artists. If bands want consumers to buy all the tracks, bands need to make every song worth buying. However, the case can be made for the artistic process of pacing an actual album from start to finish, as well as the long-lost art of the concept album.

That is where the interactive albums come in. Singles will still be attractive, but the enhanced versions of the complete albums will draw fans who want a more immersive ownership experience.

Choice is the key
The ability to sell interactive albums through Apple is a testament to the market darling's flexibility. It didn't seem possible last year, when General Electric's (NYSE: GE  ) majority-owned NBC Universal was pulling its television shows from iTunes. It went to Amazon.com (Nasdaq: AMZN  ) , which offered the bundling flexibility that the major network wanted in order to milk more out of its digital offerings.

Let's hope that the music industry realizes what it has here, because it has a history of biting the mouth that is resuscitating it.

Just last month, Warner Music (NYSE: WMG  ) was taking shots at Activision Blizzard's (Nasdaq: ATVI  ) Guitar Hero and Viacom's (NYSE: VIA  ) Rock Band because it wanted a bigger piece of the games’ action. Yikes! Those guitar-strumming games are reigniting interest in rock music and inspiring the sale of the chosen tracks, and Warner isn't happy with its meager in-game music royalties?

I'm guessing that the labels may not realize what they have until it's gone. They gripe about Apple's pricing policy instead of thanking Apple for actually making it cool to buy digital songs.

Now let's see labels complain about the additional costs required to make interactive albums more appealing to consumers. It'll happen. Or you may even see the tech-nots complaining about the teach-savvy labels that hop on this bandwagon early, improving the perceived value of their music rosters on iTunes at the expense of those who don't follow suit.

The whining is getting old. Apple having to go in and out of the water to drag the bloated labels safely ashore is getting even older.

Thank the lifeguard, major labels, or get used to the taste of saltwater.

Other ways to jam along:

Activision Blizzard, Amazon.com, and Apple are Motley Fool Stock Advisor recommendations. Try any of our Foolish newsletters today, free for 30 days.

Longtime Fool contributor Rick Munarriz got an ugly glimpse into the inner workings of the music industry when his band was signed to Sony's Columbia Records many moons ago. He does not own shares in any of the stocks in this article. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.


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  • Report this Comment On September 04, 2008, at 4:45 PM, Babble100 wrote:

    "the enhanced versions of the complete albums will draw fans who want a more immersive ownership experience."? That's a song & dance. Consumers have weighed in - they don't want albums. They want to choose their songs. Search for any artist on iTunes and look at those "meter bars" on the right. They usually slope steeply. Just a few songs account for the great majority of downloads. Even the patience of Jobs will not change this consumer urge.

  • Report this Comment On September 04, 2008, at 6:20 PM, clarus wrote:

    @ Babble100

    There is still a significant number of us who prefer to select artists rather than songs. We not only buy albums, we buy box sets from artists we listened to in the past. Some of my favorite songs are tracks I discovered by purchasing albums from an artist's back catalog.

    I think a big part of the problem is that many of today's acts simply don't have much good material. When you combine that with a generation raised on sound bites you're going to get sales of nothing but a handful of hits.

    In order to be truly successful an artist needs to convince the public that their material, in all it's variety, is worth listening to. That generates album sales and, more importantly, concert ticket sales. Few can sustain a 90 minute show on 2 hit songs.

  • Report this Comment On September 04, 2008, at 8:29 PM, BertC2 wrote:

    Time for Apple to create their own label.

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