Some music artists rethink iTunes

10/12/2008

- The Wall Street Journal

iTunes has been the runaway hit of the music business, selling more than 5 billion song downloads since it started five years ago. But a growing number of record companies are trying to steer clear of Apple Inc.'s behemoth music store, because they say selling single songs on iTunes in some cases is crimping overall music sales.

Kid Rock's "Rock 'n Roll Jesus" album was kept off iTunes' virtual shelves. It has nonetheless sold 1.7 million copies in the U.S. since its release last year - a sizable number for the depressed music industry. For a period this year, sales of the album have increased in 19 out of 22 weeks, according to Nielsen SoundScan, vaulting it at one point to No. 3 on the Billboard 200 sales chart.

After witnessing the album's performance, his label, Atlantic Records, yanked an album by R&B singer Estelle from the iTunes Store, four months after it went on sale there - even as one of its songs entered the top-10-selling tracks on Apple's download service.

Growing discomfort

Avoiding iTunes runs against the conventional logic of the music industry, where it's now taken as an article of faith that digital downloads will eventually replace CDs.

But there is growing discomfort with the dominant role iTunes already plays: The store sells 90 percent or more of digital downloads in the U.S., according to people in the music industry.

At the start of this year, iTunes become the largest retailer of music in the U.S., surpassing Wal-Mart Stores Inc., according to research firm NPD Group Inc.

Label executives, managers and artists chafe against the iTunes policy that prevents them from selling an album only. ITunes, with few exceptions, requires that songs be made available separately. Consumers strongly prefer that, though Apple also typically offers a special price for buyers who purchase all the songs on an album.

Some artists see their albums as one piece of work and don't want them dismantled. Their handlers believe they can make more by selling complete albums for $10 to $15 than by selling individual songs.

"In so many ways it's turned our business back into a singles business," said Ken Levitan, Kid Rock's manager.

Levitan said the rise of iTunes is far from being a boon to the industry; instead, he calls it part of the death knell of the music business.

An Apple spokesman declined to comment.

ITunes' rapid growth

Music sales have been in free fall since 2000, the year file-sharing networks made online copying of music widespread. The launch of Apple's iTunes service in 2003 was hailed as a potential savior for the industry: It allows consumers an easy, legal way to buy music online, while still cutting record companies in on a portion of the sales.

But iTunes' rapid growth has turned it into a Goliath, music executives complain. It often asks for exclusive sales rights for songs in exchange for prominent placement on its home page.

Apple isn't willing to sell songs for more than 99 cents. Most record labels see higher prices as critical to increasing revenue. But no other online music store has been able to mount a serious challenge to iTunes.

Apple keeps about 30 percent of the price of each music sale, whether it's a 99-cent track or a $10 album, according to people in the music industry. Apple has said it makes little profit from iTunes because of the costs of running the online store.

Irving Azoff, manager of numerous high-profile acts including the Eagles, said that a few years ago he presented the band with a financial analysis showing that their royalties to date from iTunes sales were far lower than anyone expected.

Guitarist Glenn Frey did some back-of-the-envelope math of his own.

"His comment was that it amounted to 39 minutes on stage in Kansas City," Azoff recalled.

Though Azoff didn't disclose the royalty figure, Frey's off-the-cuff analysis implies the band had received less than $500,000 from its iTunes sales at that point. The band's iTunes income has increased since then, Azoff added.

Nonetheless, he said: "I'm underwhelmed by the number of sales I see on iTunes for the classic bands."

That sentiment was a factor in the Eagles' decision to sell their latest album, "Long Road Out of Eden," only through Wal-Mart.

Before Apple launched the service in 2003, Apple Chief Executive Steve Jobs appealed personally to Azoff for the band's participation, telling the manager that he couldn't imagine launching a music store without his favorite rock group.

Last gasp for album format?

Shunning iTunes carries risks for the labels. Not only is it the biggest force in music sales, but keeping songs off the service could prompt listeners to look for illegal downloads instead.

In addition, customers have demonstrated a clear preference for buying singles instead of entire albums. Only in a few cases have record labels been able to boost album sales over those of individual songs.

"This is a last gasp for the album format," said Aram Sinnreich, a media professor at New York University, who says most albums have only one or two good songs surrounded by little more than filler material.

Kid Rock has had a massive radio hit with "All Summer Long" - a nostalgia-soaked rocker built on riffs sampled from two iconic songs in classic rock: Lynyrd Skynyrd's "Sweet Home Alabama" and Warren Zevon's "Werewolves of London."

Levitan, his manager, points out that if his client's album were sold the way iTunes wants, many of his 1.6 million U.S. album sales to date would instead have shown up as 99-cent downloads of "All Summer Long."

Pop singer Katy Perry has sold 2.2 million downloads of her hit song "I Kissed a Girl" in the U.S., nearly 10 times the 282,000 copies she has sold of her "One of the Boys" album. Rapper M.I.A. has sold 888,000 downloads of her surprise hit "Paper Planes," compared with 272,000 copies of the album "Kala."

David Goldberg, a former head of Yahoo Inc.'s digital music initiatives, says the grumbling from record industry executives is unlikely to lead to widespread shunning of iTunes, unless a number of top-selling artists of the caliber of Coldplay and U2 were to abandon the Apple site.

Even then, Goldberg said he believes many artists would be hurt by such a move as consumers try illegal alternatives.

After witnessing the sales performance of Kid Rock's album, Atlantic executives decided to look for other albums whose sales might get a boost from being taken off iTunes, according to people close to the company.

They settled on Estelle's "Shine," which had sold 95,000 copies; the song "American Boy" was just taking off as a single, and had recently become one of the 10 best-selling songs on iTunes.

Estelle's album remains available on Amazon.com Inc.'s MP3 download store, which gives labels and artists the option to sell their music as intact albums only.

Last year, U.S. consumers downloaded 844 million individual songs from digital-download stores, according to Nielsen SoundScan. By contrast, they bought only 50 million digital albums. Most of these transactions took place on iTunes.

AC/DC bucks the trend

Like Kid Rock, AC/DC has never licensed its music to iTunes. The Australian hard rockers sold an estimated 2.7 million CDs last year, up from 2.55 million in 2003. The band has consistently sold more than 1 million CDs in the U.S. alone, year after year. Overall U.S. album sales - of both CDs and digital downloads - declined 21 percent to 500 million copies in 2007 from 2003, according to Nielsen SoundScan.

Since the beginning of 2006, only the Beatles have sold more older albums in the U.S. than AC/DC - also without licensing their music to iTunes. Among the six best-selling catalog artists during that period, the act that sold the most individual songs digitally - the Rolling Stones - sold the fewest albums, digital or physical.

That is important because while the Stones' 6 million single tracks sold may seem impressive, they represent low-cost, low-profit transactions. Album sales, on the other hand, are much more profitable.

"Levitan said the rise of iTunes is far from being a boon to the industry; instead, he calls it part of the death knell of the music business."

By "music business" of course he means -- THE RIAA. We can only hope.

Let the Artists make 100% of their profits from now on. RIAA -- your services are no longer required. Roll over and DIE!

-Dave

Big labels' excessive GREED was what became the "death knell of the music business." No one to blame but themselves, though they'll never admit that.

"RIAA, roll over and DIE!
Yes, sir. Indies don't need you at all; you have just been a stumbling block.

Most of the artists would improve their take from iTunes if they didn't have a label eating 75% of it.

customers have demonstrated a clear preference for buying singles instead of entire albums.

Why is the music "industry" (and some artists) so intent on denying customers what they really want?

Pop singer Katy Perry has sold 2.2 million downloads of her hit song "I Kissed a Girl" in the U.S., nearly 10 times the 282,000 copies she has sold of her "One of the Boys" album.

I think if you're a performer under the age of 25 (just guessing), a vendor sells 2.2 million of anything for you, and you're complaining about it, someone needs to whoop you upside the head. Maybe more than once.

Album sales, on the other hand, are much more profitable.

Then make me WANT to buy one. There are seven easy steps for the industry to re-earn my trust.

Step One: Stop Suing People.

Step Two? Let's see how they do with Step One before we worry about that.

"Most of the artists would improve their take from iTunes if they didn't have a label eating 75% of it."

It's awful damn hard to get on iTunes without going through a label George. (I know that you did finally manage it thru Tunecore or Amie-Street or some-such.)

Kudos!

But,

(*sigh*, I know, I know. ALWAYS comes the Shmoo with his "butt"...)

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naw, fuggit.

Not gonna rain on parades no more. So what if iTunes is the next gate-keeper. So what if MySpace is what it takes to break an act these days.

At least they are NOT yet quite the same as the RIAA labels.

------------

I'm happy for you!

We gotta step back a bit sometimes and live in the real world. Idealism only gets you so far. Sometimes pragmatism must come into play.

"It's awful damn hard to get on iTunes without going through a label George."

No, it's not. It used to be. That is no longer true. Here is the new truth:

The world's largest music retailers have invited us in to erode the RIAA's market share. And they pay honestly.

NOT having a record label is simply no longer an issue. Having the record labels take the stance that their largest retailer is somehow the enemy may have something to do with that.

In addition to tunecore, there is reverbnation, which has a link at the bottom of this page -- so there's competition. You pay them $35-$40 and they put your album in the retailers for a year. And that got me into AmazonMP3, eMusic, AmieStreet, Napster, Rhapsody, and a few others, so it's not just an iTunes thing. If you only have a single song, it's $10. It was not much more difficult than adding songs to a DMusic page. You upload the song once and it gets to all of the services at the same time.

None of these services is a gatekeeper. No one is going to tell you that you can't sell your tunes because they don't like them, or your production isn't good enough, or too this or not enough that.. That is up to the audience to decide.

The retailers are offering better than the proverbial level playing field. The current deal is actually tilted in our favor.

Katy Perry's song sold 2.2 million copies. Apple keeps 35 cents, but they pay the publisher/songwriter a dime. The label gets 65 cents. Out of that, Katy is lucky if she got 15 cents. But if she wrote the song, she gets a nickle. So maybe 20 cents.

Apple -- 25 cents
Publisher -- 5 cents
Songwriter -- 5 cents
Label -- 50 cents
Artist -- 15 cents

So Katy earns $440,000.

Since I have declared myself to be a publisher and a record label (this is apparently the only requirement other than a unique name), my income breakdown is more like:

Apple -- 25 cents
Band -- 75 cents

In the unlikely event that we sold 2.2 million copies of a single song, our take would be $1.65 million, just shy of four times what the signed acts are going to make.

Not that I expect that to happen. My goal is 5 albums or 50 songs, which is enough to pay for the fee. Anything beyond that is gravy. I'm thinking I should be able to sell five copies just because the cover is cool or by total accident.

All I know is that the door is wide open, there's no gatekeeper, the fee is reasonable, I get a better per-copy rate than Tom Petty, AND all of us that do this will be counted for the first time.

To repeat myself, the world's largest music retailers have invited us in to erode the RIAA's market share. It's an actual free market situation and your product is self-replicating. You only ever have to make one WAV file.

The RIAA is no longer is the way. They are irrelevant. And everything they've lobbied for to protect "the creators" applies to us as well, except we don't have to let someone take 85 percent of it just to be allowed to play the game.

That's the old way. No good reason for it now.

This is our time. This is our opportunity. My greatest concern is now the contents of the next album.

That's good to hear!

"because they say selling single songs on iTunes in some cases is crimping overall music sales."

Really? Like selling 45's rpm SINGLE records hurt the music industry in the 60's and 70's? Singles are what people want. Singles promote artists and help move LP's (now CD's), especially in the 60's/70's/80's. Perhaps if the music on the rest of an LP/CD was as good as the single, maybe you wouldn't have so much trouble selling CD's.

"But there is growing discomfort with the dominant role iTunes already plays: The store sells 90 percent or more of digital downloads in the U.S., according to people in the music industry."

Perhaps if the music industry spent less of its resources suing dead Grandma's, disabled moms, 12-year-old girls, college students, and Mac owners that could have never used PC-only Kazaa, and spent more of its resources developing their own downloading websites, maybe iTunes would have had some real competition. It's the record labels' (RIAA) own fault.

"Some artists see their albums as one piece of work and don't want them dismantled. ... "In so many ways it's turned our business back into a singles business," said Ken Levitan, Kid Rock's manager."

Excuse me? Your business has ALWAYS been a singles business. Your business just got greedy and failed to meet the demands of its customers. Upon doing so, the customers found other ways of getting singles (Napster) and the rest is history. Some works are generally better enjoyed as a full CD. That still shouldn't prevent people from enjoying individual tracks, if they choose to do so.

"It [iTunes] often asks for exclusive sales rights for songs in exchange for prominent placement on its home page."

Wow, I point I can agree on. Exclusive sales rights violate the Sherman Anti-trust act, unless they are for very limited times. I agree that iTunes shouldn't be given exclusive rights for more than 30 days at a time.