Who's Out of iTune?

Late last week, CNET posted an interesting article about some recording industry executives feeling a bit miffed about their lack of pricing power with Apple's (Nasdaq: AAPL  ) hit digital downloading service, iTunes. My knee-jerk reaction was that these guys really need to quit their whining.

According to the article, the recording industry originally signed on with the iTunes service, thinking about the tiny segment of Mac computer users and completely unaware, of course, that the service would spread like wildfire (to PC users, no less) under the auspices of its runaway hit, the iPod.

The article also says that industry executives feel resentment at Steve Jobs' intractable ways, with his service charging $0.99 per song and $9.99 per album with little variation. Examples of things they'd like to have the freedom to do include charging lower prices for older albums and ratcheting up the prices for new releases or hits. The article noted their eagerness to partner with other musical distributors -- such as the mobile-phone companies we've heard a lot about recently -- who might end up being more "sensitive" to the recording industry's concerns on this matter than a company that has its own digital device to push as well.

At any rate, this "pricing power" -- or lack thereof -- is likely the crux of the problem to begin with. When one could easily pay somewhere between $10 and $20 for a store-bought CD (those of us over 30 or so have definitely felt the sting of inflation when it came to the escalating price of CDs over the years), it's no wonder that many people got pretty lenient about copying. On the other hand, iTunes' pricing -- which obviously feels like a bargain to many people -- has definitely shown appeal with consumers.

For all the hand-wringing about the ripping-and-burning culture, one aspect that the recording industry seems to forget is that copying music for friends (as opposed, of course, to copying and sharing with the absolute masses) is one of the best forms of word-of-mouth marketing, and that's been the case for several decades. Think about how many times a compilation cassette tape from a friend may have introduced you to a bunch of musicians you'd never before considered -- and subsequently bought.

The worst may be abating, at least judging by recent statistics out of the Recording Industry Association of America. In late March, the RIAA reported that the number of CDs shipped domestically to retail distributors increased by 5.3% after four years of decline, although the association still complained of the ill effects of piracy as compared with five years ago.

At any rate, the article infers greed and sour grapes, despite the fact that without iTunes, the digital download revolution arguably would not have gained the legitimacy and success it now enjoys as it has become more prevalent and less of a fringe activity. Meanwhile, the Internet should continue to stimulate music sales, as digital downloads' instant gratification combine with samples, user recommendations, and other aspects to make the Internet a fruitful area for selling music.

And if the music industry plans to team up with mobile-phone providers who are just now starting to see the possibilities inherent in creating cell phones that double as music players, will any greater "sensitivity" to the recording industry's concerns actually nip any cellular tune revolution in the bud if consumers balk at pricing? The next installments in the music wars should be interesting indeed.

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Alyce Lomaxdoes not own shares of any of the companies mentioned.


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