Total Disaster: Universal’s Never-Ending War Against Apple.

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BusinessWeek published a story about yet another move Universal is taking against Apple. Before we get to their latest, let’s review the recent shots Universal has fired:

  • Pulled out of negotiations for iTunes contract extension.
  • Supplied DRM-free tracks to Wal-Mart’s PC-only music store as a “test”. Not for Mac.
  • Threw a boatload of DRM-free titles at Amazon in support of their AmazonMP3 store.
  • The Amazon and Wal-Mart tracks were not offered DRM-free to Apple’s iTunes store.
  • Teamed with SpiralFrog to offer “free” subscription music. You know, the exploding media that renders itself inoperable if you don’t visit the site often enough. Not for Mac. Not for iPod.

I wrote about the last item here, and the Amazon deal here. It’s amazing Universal changed their DRM views (for now) on selected titles — still a small percentage of their catalog — to spite Apple and hinder an online store that’s working, is popular, and making them lots of money! How greedy/stupid/arrogant do you have to be to potentially harm your sales in the belief that you’ll get back to the “good old days” of controlling all music distribution with an iron fist? And how pathetic do you have to be to do this while complaining about the very sales you’re hindering?

OK, enough review, let’s see what BusinessWeek says is next up Universal’s sleeve:

“Now, [Universal CEO Doug] Morris is going on the offensive. The world’s most powerful music executive aims to join forces with other record companies to launch an industry-owned subscription service. BusinessWeek has learned that Morris has already enlisted Sony BMG Music Entertainment as a potential partner and is talking to Warner Music Group… The service… will be called Total Music.”

Total Music? Total Disaster is more like it.

I can see why Sony would buy into this. After all, these are the guys who invented the CD root-kit and ATRAC, both disasters. They also spawned the ridiculous “ringle”, which will be a disaster when they bring it to market (I blasted it here).

As for Time Warner, they were the relatively “quiet” label until a week ago when they formally announced they can be as stupid as Universal. They’ve shown nothing in the way of original thinking and I’m sure would follow Universal down one of its many meandering paths.

“This isn’t only about Jobs; Morris badly needs to boost his business, and Apple is the one to beat.”

Dear Morris, APPLE IS SELLING YOUR PRODUCT! They’ve sold over three billion tracks, and statistically most of those were yours. When Apple sells one of your titles, you make money. And you spent zip for that profit; all you did was supply a source file. Do you understand any of this?

You should be helping Apple and iTunes, not wasting profits on building something inferior. You should attempt to leverage Apple’s success, not treat it as an enemy to turn your back on. That makes zero sense. Do you really think another subscription model and/or jacking up prices are your only options?

“And let’s not forget that existing subscription services have signed up only a few million people, vs. hundreds of millions of iTunes software downloads.”

The music labels have already forgotten this. This is why most of their initiatives revolve around very restrictive DRM and a subscription system. They keep chasing that dream.

“While the details are in flux, insiders say Morris & Co. have an intriguing business model: get hardware makers or cell carriers to absorb the cost of a roughly $5-per-month subscription fee so consumers get a device with all-you-can-eat music that’s essentially free.”

Oh, gee, another subscription service with another twist on “free”. While the SpiralFrog service is funded via ads, this new initiative will be funded by the consumer, having to pay for it in the initial price of the device. How the heck does this make it free?

“And though Morris hasn’t publicly blasted Jobs, his boss at Universal parent Vivendi is not nearly so hesitant. The split with record labels–Apple takes 29 cents of the 99 cents–“is indecent,” Vivendi CEO Jean-Bernard Levy told reporters in September. “Our contracts give too good a share to Apple.””

Dear Levy, you don’t create the music, you don’t promote it, you don’t host it, you don’t distribute it, you don’t support it, and you built no infrastructure for it. In essence, you spend nothing yet rake in 70% of the price. It’s indecent alright, but not in the way your twisted view sees it.

Apple gets 30%, and from that must fund the infrastructure to make this happen. What’s that leave them? Half? Not bad, but nowhere near 70. Are you begrudging them any profit at all? The service they provide isn’t worth ~15% to you? You get nearly five times their profit, do none of the work, and it’s not enough? You’re even more out of touch than Morris. The truth is, you are indecent.

“With the Total Music service, Morris and his allies are trying to hit reset on how digital music is consumed. In essence, Morris & Co. are telling consumers that music is a utility to which they are entitled, like water or gas.”

Aren’t water and gas more like, you know, necessities? And don’t you usually have just one source? It’s not like I went online, shopped around, and then picked the best gas and water companies to service my home. It’s a dumb analogy, and shows that BusinessWeek should maybe mind another business.

To me, this is just another BS maneuver by the labels in a bid to get people to rent music. They want what the video guys have, but the difference in the two is pretty fundamental. People listen to their favorite music over and over. While there may be a few movies or TV shows watched numerous times, the majority are watched once or twice. This is why DVRs or renting flicks work so well. Video and music are different animals, with different experiences and totally different expectations.

“The big question is whether the makers of music players and phones can charge enough to cover the cost of baking in the subscription. Under one scenario industry insiders figure the cost per player would amount to about $90.”

So, right now an incredible music player with 4GB memory and video/podcast/game capability sells for $149. But they’ll sell an inferior one (no one’s made one better) with a price 60% higher, and justify it by saying the user can load it with DRM-infested music for “free”? Wow. Can you show me the dictionary being used to define “free”?

Oh, and let’s talk about the DRM they’ll be using. Can the user put this music on an unlimited number of mobile players? Of course not. Can they play it on up to five PCs? Don’t bet on it. Can they effortlessly burn it on CD? Hell no. Remember, folks, this DRM won’t be FairPlay. It’s going to be a subscription DRM. You do not own these songs; they must be locked tightly to the device or the subscription model is useless.

“Of course, Morris still needs Jobs. It’s noteworthy that Universal has not pulled its music from iTunes–Morris simply can’t afford to do that.”

But apparently he can afford to thumb his nose at Apple and their iTunes customers. I’d love to hear why Universal didn’t cut Apple the same deal they cut Amazon for DRM-free tracks. There’s little reason except a certain disdain for iTunes and those who use it. The labels have decided that iPod consumers (most of them are pirates, remember?) and their overwhelmingly favorite online music store must be the cause of their declining sales.

Personally, I think the cause of the music labels failure is a lot more simple. It’s the morons in charge. I’ve asked this before but it bears repeating: Where are the labels’ stockholders? Why aren’t they calling for these guys’ heads?

A Disagreement With DF On Apple’s Approach To The Ringtone Racket.

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Daring Fireball’s John Gruber had a lot to say in his article about ringtones and what he calls the “ringtones racket”. However, I disagree with part of his premise, and ultimately his conclusions. For other views on this subject here’s a great post from Epple, and Roughly Drafted touches on the subject as well.

I don’t necessarily disagree that it’s a “racket” in the sense that I’d say nearly all people agree that ringtones should be considered “fair use”. However, the article seems to believe they’re that way now, whereas I don’t believe the matter is settled at all — certainly not settled enough for Apple to act in the manner the article suggests. And that’s where I disagree the most: The call for some Herculean effort on Apple’s part that’s simply not realistic in the current environment. Gruber does not like Apple’s approach, I think it’s a start.The DF article concludes thusly:

“Faced with the choice between doing what’s right for customers or charging them money for something they shouldn’t need to pay for, Apple chose the latter. There is no middle ground. And any business that hinges on your customers “not knowing any better” is a bad business.”

Apple’s real choices were to offer nothing or something much better than what’s available now, and at a lower price. Apple negotiated this while Verizon and other carriers never even tried to. Apple took an approach that didn’t put an end to the ringtones “racket” altogether because they cannot do so. There are limits to what Apple can do with content that’s not theirs. Such things must be negotiated, and we’re talking about negotiations with companies whose heads are still in the 70’s and believe you should pay them every time you so much as hum a song.

I’m not sure why Gruber believes a better ringtone deal available today is somehow not “right for customers”. He believes it should be free or nothing, but there are alternatives. Apple is correct at this time to negotiate major changes that shake the status quo, even though they don’t reach the utopian plane DF (and others) believe should be the only next step.

The argument that Apple is now restricting non-iTunes songs is overreaching. All “MP3 players” let you rip and play your own CDs, but how many let you make ringtones from them? None. Asking Apple to do what would be flatly refused by the labels is not just living in Utopia, but running for mayor as well.

The fact that most people want a ringtone considered “fair use” doesn’t change the fact that currently the labels have, at the very least, the upper hand in this argument. They have years of precedent in sales of ringtones, as well as specific prohibition of using songs as ringtones in online music stores’ TOS, on their side.

How did it get this way? Easy, we were all asleep. Ringtones weren’t as much in demand years ago and we didn’t notice or care. For every person that might have balked when the first trickle of such ringtones were offered for sale, there were 50 people who bought ’em. It’s not so easy putting that cat back in the bag. Too bad. Sucks to be us. Now it’s gonna be harder to change.

Take the labels to court, or let their own failing business tactics eventually force them in the right direction; those are the only things likely to make them change. But given how slow they’re moving on DRM, and their own warped views on ringtones (see below), that’ll take a while. Gruber seems to think that in the meantime Apple should either do nothing, or launch an initiative of free ringtones they’d be forced to pull within 48 hours, tops.

To put Apple’s approach in perspective, let’s look at ringtones from Apple’s and the labels’ point of view to compare and contrast…Apple’s ringtone offering is radical compared to the options available before it:

  • Cost is ninety-nine cents, or $1.98 if you don’t own the iTunes song.
  • Make it yourself (up to 30 seconds, with optional fade in and fad out).
  • Initially half a million titles available.
  • Purchase online and receive immediately for synching to multiple iPhones.

Notice that both prices are less than ringtones available from service providers elsewhere, and in their case you don’t even get the song! What if, As Gruber suggests, you already own the song on CD? Apple charges $1.98 for the ringtone, which is still less than anybody else, you still get to make it yourself, and you can still use it on multiple iPhones. In other words, even the worst-case iTunes ringtone scenario is a better value for the consumer than anywhere else.

Now let’s look at what the labels apparently believe is a ringtone value: The “ringle.” I’ve already written about how stupid these are, and their announcement provides a perfect point of comparison to Apple’s approach:

  • Cost is six or seven bucks.
  • Somebody makes it for you.
  • Initially 60 to 70 titles available.
  • Available at retailers on a CD, so you get to drive there, stand in line, etc.
  • Bundled with a couple songs you don’t want (so they can charge six or seven bucks).

The above two scenarios are the reality of ringtones now (well, ringles are due this Fall). They’re legitimate and legal. Neither is free, and both charge for a ringtone of a song you ultimately own, yet look at the world of difference between them! Heck, the “ringle” can even make buying ringtones from current carriers look good. Who would have thought that possible? Sony and Universal combine to scrounge up maybe 70 titles? Seventy?! I’d say that makes Apple’s half-million look pretty damn good.

How can anyone look at these two approaches and not realize Apple just made a game-changing move? How short-sighted do you have to be to eye only an ultimate goal, and consider any progress short of that some sort of misstep? In my view, Apple’s patience in building itself back up these last 10 years has probably been its greatest strength.

There are other ways to get ringtones on an iPhone, but their legality is highly questionable and I won’t dwell on them. Apple makes half-hearted attempts to block them since it’s no doubt obligated by the labels to do so. You cannot be the #3 retailer of music and simply turn a blind eye to it, the labels would have your head on a platter. Apple has every incentive to just quit the whole thing.

Thankfully, Apple doesn’t live in Utopia, but rather the real world where they realize change is made (sometimes slowly) one positive step at a time. This is exactly how they built the iTunes store. Gruber certainly doesn’t have to follow in Apple’s footsteps, but he shouldn’t attempt to cover their tracks either.

Sony And Universal Team Up To Create Something Stupid

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Oil and water. Matter and anti-matter. Sony and Universal. These are apparently combinations that just don’t mix.The brilliant minds at the record labels have come up with a new idea for the holiday season. They’re going to sell “ringles.” Heh. Ringles. I just had to see that name again.

It’s a single combined with a ringtone. Get it? A Ringle. No doubt they selected that name after many hours of heated debate over the name “Singtone.” Maybe they can get Scooby Doo for the ads: “I rearry rove my ringles, Raggy.”If it wasn’t their own doing, I’d feel sorry for the labels right now.

Anyway, here’s the gist of this new offering from the labels’ best and brightest:

“Each ringle is expected to contain three songs — one hit and maybe one remix and an older track — and one ringtone, on a CD with a slip-sleeve cover.”

So I get the same song twice (a remix), a song I probably don’t want, and a ringtone whose length and content have been decided for me — maybe by the same guy who thought up the name “ringle”.

“The idea is that if consumers in the digital age can download any tracks they want individually, why not let them buy singles in the store as well?”

Um, except the song I download is just 99 cents and I don’t have to drive to the retailer to get it, or did that fact elude the labels? More importantly, it’s the one song I wanted; not a remix and not an “older track.” Do they see the difference now? No, of course they don’t. As a label they stopped reading at the part about it costing 99 cents. That’s what’s bothering them.

“Sony BMG Music Entertainment, which came up with the ringle idea, and Universal Music Group are going to be the first out of the box with ringles.”

Yes, Sony’s had so many great ideas about music distribution lately. Their CD rootkit was a big hit. And isn’t ATRAC wonderful? Well, I mean wasn’t it wonderful before they had to kill it? And with Universal on board you just know this can’t really be a good deal for the consumer.

“The former will unleash 50 titles during October and November, while UMG will have anywhere from 10 to 20 titles ready.”

Um, 60 or 70 total songs to choose from initially? Are they serious? Hey guys, Apple is starting with half a million! How can the largest label on the planet in Universal only come up with 10 or 20 titles to start with? Universal is truly pathetic.Further, with iTunes I get the song I want and a ringtone I create myself for $1.98 (unless I already own the song, in which case it’s just 99 cents), so tell me what will the “ringle” cost?

Drumroll, please…

Wait for it…

“Sources suggest the ringle will carry either a $5.98 or $6.98 list price,”

BWAAAHAHAHAHAHAHAHAHAHAHAHA!! For three to six times the cost of iTunes I get the “bonus” of a questionable remix and an old song I don’t want, but I have to visit a retailer to get it, stand in line, pay tax, and the ringtone is created by someone else. Six or seven bucks is the price of an EP, which typically provides maybe five real songs. This is such a horrible deal for the consumer I can see why Universal jumped all over it.

“If it’s $5.98, ringles will have a 31 percent gross margin, shy of the 35 percent profit margin that CD albums carry nowadays; if it’s $6.98, that would give retail a 42.7 percent gross margin, similar to the profit margin cassette and vinyl albums enjoyed back in the day.”

CDs aren’t selling. Isn’t that what the labels are telling us? Isn’t that what the sales data says? Isn’t that what everybody knows? Yet the morons at Sony and Universal have decided that they’ll make a less desirable package at the same profit margin? Sure, that’s the solution. This absolutely boggles the mind.

Why isn’t everyone who owns stock in these labels calling for the heads of all senior management? At what point will the stock holders speak up?

“On the plus side, big retailers like Wal-Mart, Target, Best Buy and Amazon have agreed to support the configuration, although all of them may not be ready to do so at launch date, sources say.”

Yes, it will be hard to find shelf space for maybe 60 CDs not even in jewel boxes. Please. If they’re not ready at the launch date it’s because they know these won’t sell. Does anybody outside of Sony and Universal think these have a prayer? In the words of Scooby: “Rorry, Rony, your ringles won’t rell.”