Record labels still on top: they get 62c per track, and Apple gets 4c

Have a read of the joint fruits of working with Andrew Orlowski: Record labels still on top despite online revolution.

A few details: Figures obtained by The Independent show that the labels take home the lion’s share of the cost of a digital download – making more money per track than they do with CDs in shops.

And: many of the burgeoning online music stores will go out of business, experts warned yesterday.

Apple gets to keep 4c from every 99c download on the iTMS; the record companies, 62; credit card companies 25c. Publishing rights, 8c.

Interesting thing is that earlier this year, at a meeting at the British Phonographic Institute, I echoed Steve Jobs’s comments – that Apple makes little, if any margin, on track sales – to a high-up from one of the American labels. “That’s just marketing,” he said roundly. “Jobs is a great marketer. They get to keep plenty of money.”

Sort of puts a different cast on the gnashing of teeth about Apple having differential pricing across Europe (although Andrew calculates that the difference between European sites is probably down to Apple).

For an example of how you can easily get the numbers wrong if you don’t include everything, see this blog post by someone in the US. Assumes that Apple makes shedloads of profit on songs (er, no) and similar on iPods (um, sort of).

The overall story is the same for the online stores, though: they aren’t going to survive by offering one-off downloads. Which then leads to the obvious conclusion: they’ll have to survive by offering subscriptions. (Like paid-for radio, isn’t it? As in, advert-free paid-for radio. Hey, Americans are discovering their own licence-fee model. Could we well them Chris Moyles?) Fortunately for them, Microsoft has just the right software to do that. (I suspect Apple doesn’t have the resources to write “Janus”-style DRM software.) So we’ll see some online stores surviving by offering subscriptions, and a few by being just downloads. The latter category could be just one.

9 Comments

  1. I wish more people would pay attention to people like Warp Records. The company’s bleep.com site sells their catalogue (and records from associated labels) on a rather different model.

    The music is all on unencumbered high quality MP3 (so plays happily on the iPod, despite everyone saying ‘only itunes sells ipod-compatible music’), and the artists get half the money from sales after site costs. Will it work? Dunno, but I spend more with them than I do with any other online music site. Admittedly, I’m never going to be in the market for Britney.

    I know Warp isn’t a major label, but it has put its money where its mouth is and it’s being remarkably fair to its customers and its artists. Worth a mench, chaps, and that Orlowski fellow knows a thing or two about indy music, after all…

    R

  2. There is also Magnatunes, with a very similar model, who are very good indeed.

    Returning to Charles’ main subject – I assume the point of DRM on a subscription service is to ensure that if you stop the subscription, you lose the ability to pay all the music that you have already downloaded?

  3. Indeed, Andrew, that’s the point. Microsoft’s Janus (Slashdot link; Microsoft doesn’t seem to mention it) software does that not only for PCs, but also handhelds. It’s very important for companies like Napster, which probably will subsist through subscriptions. And of course nice for them that they don’t have to defray the cost, because someone else does the development. (Presumably there’s a licensing cost to Napster et al to use Janus. Else one would have WMA format being free and the subscription system being free, and couldn’t see quite how Microsoft gets any cash from it.)

  4. “A “Download” is a Track that you may save to the hard drive of your personal computer and play back as many times as you want for so long as your subscription is current.” – so says the Napster T&Cs. It goes on to say that if you’ve got the tracks on a portable device you’ve got to dock it once a month to check subscription details. You can see how this could get a little dull, especially with people changing their playback devices all the time.

    I don’t see the basic idea as a problem, though. You pay ten dollars a month for music on demand; it’s a lot for a radio station, but it’s one that always plays what you want. Hard to see how you could do that without some sort of DRM – although my DAB radio does a nice job of snaffling stuff from 6Music onto an SD card or down the USB port the station doesn’t always respond to my emails asking for Merzbow.

    It’s when DRM beats you up with stuff you think you’ve bought good and proper that it gets nasty. Didn’t someone get hit when they moved to Canada from the US, told their iBook and iTunes promptly deregistered all their music?

    R

  5. This is idiotic…

    25% surcharge for the credit card companies???

    and only 4% for Apple

    you must be high. When has apple ever done anything for a 4% margin?

    Credit card companies typically charge 2-3% – Why do they get 25% here? I think you’ve got your numbers very wrong.

  6. 99¢ total

    62¢ label
    08¢ publishing
    24¢ apple
    05¢ cc fee

    25¢ credit card fee would be about right for the purchase of a single track at 99¢ however for the purchase of ten tracks $9.90 the cc fee is about 45¢. Guess what, Apple doesn’t charge cc acounts for individual tracks unless they have to.

    Apple offers 20% off bulk purchases of tunes (not paid by cc) and 5% on their affiliate programme, clearly 4¢ net income per track is wrong.

  7. Will asked: you must be high. When has apple ever done anything for a 4% margin? (Charmed, I’m sure.) Is the answer “when it has to in order to sell higher-margin products?”

    Gandalf – yes, good point. It would be interesting to do the numbers if one could separate out whether the “half of songs are sold as albums” means that you get 10 tracks sold individually, 10 sold as an album (assume that’s 11 people, which might be close enough).

    That would suggest cc fees of 25c x 10 + 45 = 2.95. Track revenues ten tracks, one 10-track album 19.98.
    Take off 70 x 20 for royalties: 14.00.
    Which means that from 19.98 sale, Apple gets to keep 19.98 – 16.95 = 3.03. That’s a 15 per cent margin – which begins to sound almost respectable. Though of course that’s gross margin, before costs.

  8. The economics of all this would be really interesting to know!

    I don’t think CC companies really do micropayments, so I’m sure there is a high cost for single purchases. I’m surprised Apple hasn’t already offered it’s users a 10% discount though by buying, say, a £10 voucher. So, maybe it has a deal with the CC companies now.

    The other thing I’m surprised at is the cost of single vs album. I think a single at 79p is pretty good value really (whatever you say about it being a bit less in Euroland). However, albums at £7.99 are not really good value except for new stuff (or longer albums). I would be interested in a lot of older stuff as albums if they were, say, £2.99 – £3.99. I would accept the (slightly) lower quality and DRM limitations over a CD for this. Otherwise, I will cherrypick the best tracks at 79p (or more likely, delude myself that one day I’ll REALLY convert that vinyl album over!). Many of these CD’s are available in the stores at low prices. The economics of distribution and storage for physical lower-volume older material cannot be good. On the other hand, storing it on a server once must be brilliant. Also, as a consumer, it’s there – I don’t have to go in and order it (currently I’m waiting for 3 weeks on an Amazon order for a popular CD of just 3 years ago, the logistics of providing this must be quite expensive).

    The economics of this also for Apple would be much better (eg the credit card charge), so why aren’t there more (any?) older albums at attractive prices?

    Ian

  9. my husband has a 45 of the skyliners but the record has an unknown on it . it’s label is the skyliners but we don’t know who is on it.have you ever heard of this

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