Apple Is Now the #1 US Music Retailer

Quantrell writes "A leaked e-mail shows that Apple hit the #1 spot for music sales in January. The article speculates that consumers cashing in their holiday gift cards may have played a role; but of course Wal-Mart and the other retailers sold gift cards too. The news is a mixed bag for the record labels. 'For the music industry, there is a dark side to Apple's ascension to the top of the charts. Buying patterns for digital downloads are different, as customers are far more likely to cherry pick a favorite track or two from an album than purchase the whole thing. In contrast, brick-and-mortar sales are predominantly high-margin CDs.'" We recently discussed Wal-Mart's role in the music business, back when they were selling nearly 20% of US music. For January Apple was at 19% and Wal-Mart at 15%.

Hopfully

Now that Apple has replaced Wal-mart as the 1000 pound gorilla in music retail, maybe the company will be able to drag the music industry into the new millennium.

Except Walmart is now the #1 US Music Retailer

Aside from a very brief period months ago, all data this year indicates Walmart is the current leader. The headline that Apple is "now" the leader is simply not true, and I don't see how that can go uncorrected, but it probably will. Every tech site picked this up today. Either they all made the exact same (difficult to make) mistake, or this is an advertisement masquerading as news.

I hope you're right and Apple manages to positively influence the market. Probably some truth to it, but Brick and Mortar is still king.

Re:Hopfully

Sure, you can vote for Amazon, but that would just be throwing your vote away.

How on earth is it throwing your vote away? It's not a winner-take-all system, you get exactly what you vote for. I vote for DRM-free music from Amazon, a company that I like and has almost never significantly pissed me off. And you know what? I get that DRM-free music from Amazon. It would be like voting third-party if you could only play the music on certain, doomed-to-fail devices, but, once again, it's DRM-free. Apple and Walmart are indeed the two big players, but Amazon is only like a third-party in that they're less well-known (as a digital music retailer).

Correlation and Conjecture

"The news is a mixed bag for the record labels."

Not so much a mixed bag as it is further evidence that the RIAAs business model is flawed.

Here they have the worlds largest brick-and-mortar store and the most influential online music retailers moving ungodly units of their crappy products and still they cry poverty.

Dark Side for Both Apple & Wal-Mart

'For the music industry, there is a dark side to Apple's ascension to the top of the charts. Buying patterns for digital downloads are different, as customers are far more likely to cherry pick a favorite track or two from an album than purchase the whole thing. In contrast, brick-and-mortar sales are predominantly high-margin CDs.'

Don't forget that the $1 per song pricing scheme just seems to be something that Steve Jobs decreed from his high perch. I'm not saying I want this but I'll bet the music industry would favor a variable pricing per song to alleviate the cherry picking phenomenon. Frankly, I could care less about the top 40 or flavor of the week singles as that is not something I'd ever want to listen to. But I could see how someone like Britney Spears would feel the punch of fans just getting "Oops, I Did It Again" and not being forced to pay for the filler crap that barely passes as music on the rest of the album.

Furthermore, Wal-Mart has also done the same thing by basically dictating that it will start selling CDs at $9-$10 or it won't sell them at all. I'm kind of shocked the music industry just sat back and let that happen (even though it joys me to see people able to buy Beatles albums at a decent price). I mean, why should Wal-Mart be able to dictate MSRP? Oh, that's right, they are the all-encompassing Wal-Mart ... they probably dictate how much I pay for milk at the local grocery store some how.

Either way, I find it humorous that what seems to be a 'dark side' for the RIAA is actually beautiful for the end consumer. I wish the RIAA would step back and look at how they could maximize profits now that distribution could be digital. Would I still be spending ~$20 a month on music if each song were ten cents? No, I'd probably go nuts and be spending $50 a month and I bet people that spend no money on music would start to slowly $5 or $10 for some popular albums. Just a though, I really wish they would look more at maximizing profits by lowering cost on something that can be copied for free and distributed cheaply.

Article is wrong .. M

As of Feb 26 2008 iTunes is the #2 retailer in the US. http://www.apple.com/pr/library/2008/02/26itunes.html [apple.com]

What the article is talking about is a 1 week period in January (most likely caused by all the people using their Christmas gifts of iTunes gift cards) where the store sold more music. Overall though, it still remains number two.

Uh-oh

Apparently the concept of the market rejecting DRM is overblown?

Re:Uh-oh

As long as the market can play the tracks on their ipods, they'll let it slide.

For all of you griping about Apple's DRM

Have you heard of iTunes Plus? No? Then investigate it and then kindly STFU.

It's the recording industry, stupid.

One huge reason for Walmart's fall is their unthinkable lack of choice. If you want the top 100 pop songs from the last five years, or the top 100 pop songs from the past 20 years, then Walmart is for you. Otherwise, the only choice seems to be on-line services, like Apple's wildly popular iTunes.

Apple's sales are so high because it is simply selling a lot of music that isn't available in any Walmart - the recording industry has no idea how to sell less popular tracks in a brick-and-mortar store. So they go unsold. Stupid.

No wonder Walmart is thinking less and less of the recording industry.

Re:And that means

The only reason apple don't offer all their music without DRM is because the record companies won't let them. They are allowing amazon to have DRM free music in order to try and reduce apple's marketshare and thus reduce apple's chips at the negotiation table with the record companies.

Re:So what?

Has Apple even been able to break the RIAA, "our way or the highway" rule and sell both RIAA music and independent music?

Apple will sell just about anything. Several talk radio hosts have regular iTunes paid downloads, and none of them have RIAA contracts.

Re:So what?

Right now, the artist still gets the RIAA shaft from Apple the same as they do any other music store money wise.

Actually, artists got it worse. Theoretically artists should have benefited financially from digital downloads but the opposite is occurring thanks to the labels. Apple takes their $0.29 from every $0.99 track to pay for the hosting, distribution, credit card fees, etc. The remaining $0.70 goes to the label to take their cuts before passing the royalties to the artists. However, the labels are taking their cuts as if the sale was a physical medium and are still charging the artists for manufacturing and distribution costs. Manufacturing costs no longer apply, and Apple handles the distribution. But I'm sure somewhere in the fine print of the record deal that allows the label to charge for whatever they want.

Has Apple even been able to break the RIAA, "our way or the highway" rule and sell both RIAA music and independent music?

I'm not sure the amount of independent artists that Apple has but a few years ago they signed some major indie labels. [apple.com]

Re:So what?

"I'm not sure the amount of independent artists that Apple has but a few years ago they signed some major indie labels."

Independent artists get what their distributor gives them. If you go through CD Baby, which anyone can do and is non-exclusive, you get about $0.63 per download.

iTunes sales through CD Baby are very, very favorable to the artist. But then, that's just the way CD Baby's always been.

I am an indie musician with music on iTunes

I get $0.87 to every $0.99 download, and all I did to get my independently released tracks on iTunes was register with a distributor, who handles it all for only a piece of that 12 cents.

Re:So what?

Vinyl records are much more rugged and CDs even more so, but the percentage for breakage doesn't reflect that.

Spoken like someone who never ever worked in the record business, specifically retail & shipping. Ever heard of warpage, bro'? Like, due to 60 shrink-wrapped'records being jammed in every box (standard), high heat, back of the UPS truck? No? Well, back in LA and all over the South we had tons of records that never made it to the shelves. Did they 'break'? Well, no, not exactly. They warped, to an unplayable state. Period. In the early 70s some of the Indie labels and European exporters started using 'loose' wrap, to avoid a a lot of the warping. But that took up space in the standard boxes, so the Big Labels (in the US, UK & Germany) never did get on board with that.

CDs? I wouldn't know, I went back into stagework and studios about 3 seconds after CDs started moving in the shops.

Don't get me wrong, the labels are the most organized gang of corrupt cocksuckers you ever want to know, but the 'breakage' thing did have real relevance after the vinyl content dropped, and the use of tight shrinkwrap became dominant.

I know the allowances for 'returns' on cassettes was much lower than the percentage on LPs, also.

"Breakage" was a concept that retailers had to fight for. The Big Labels didn't just cough it up out of the goodness of their hearts, and it was only after the fact that the Labels realized they could cut corners on inventory & accounting, by just giving all the jobbers and retail chains the same deal. But the retailers were 'caught' between US, the music fans, and THEM, the artists... and as a result, people used to hate the retail chains (I know I did, I worked for a few big ones), but the reality is, we the fans, AND the artists, had the same, common enemy: The Labels... not Sears, or Tower Records... not The Whorehouse (Oops, I meant 'Warehouse'), and not even Apple or Amazon.

Re:And that means

Please. Remember Apple, like Walmart, is a reseller. They have to abide by the vendor (music labels) on their product. One of the restrictions of Apple reselling is that they have to use DRM for music the labels insist on having DRM. If Apple was so keen on locking you into their product, they wouldn't be selling DRM free tracks at all, and the iPod wouldn't play AAC or MP3. In fact, they would have created their own proprietary music format instead of extending AAC to include DRM. I wonder which company would do that?

Re:And that means

Last I checked that other company would license their embedded codec with DRM to any manufacturer. Name one player besides Apple's that plays iTMS protected AAC.

Apple sells DRM free tracks. But how many people do you know that buy from iTMS that have a DRM free collection? Even if you bought just one DRMed album, you'd have to keep using Apple's products to maintain that investment.

Don't get me wrong. I have an iPod. But I refuse to buy from iTMS. I'd rather give the same money to Amazon and get my tracks in plain unencumbered MP3.

Re:And that means

The problems with kids like you today, is that you can't be bother to find out anything for yourself so you just regurgitate what you hear from your friends.

If Apple licenced their DRM it would only have the affect of PROMOTING it. Look what's happening now - more and more tacks on iTMS are drm FREE, and will work with any music player you want.

Re:And that means

It's Apple iTunes with DRM Forever!

You should be thankful for Apple and the fact that they are #1. It's because of Apple that the labels have allowed Amazon to sell MP3's without any kind of DRM whatsoever. If Apple had never gotten such a stranglehold on the digital marketplace, most of the labels would have never allowed Amazon to sell DRM free music. I'm glad that Apple is where it is and I hope that people continue to buy music from them. I won't be among them but as long as Apple keeps doing what it's doing, the labels will allow Amazon and others to sell music without DRM as a counterweight and smart consumers will be able to purchase legit, DRM free music.

Re:And that means

I think that's a good thing. I think Apple has, ironically, killed DRM on music forever.

There's nothing ironic about it: it's one of their stated goals. Simply because they have better gamesmanship than to outwardly admit that restricting their DRM has this effect doesn't mean it hadn't occurred to them.

Re:Could be.

"It will be like going back to pre taping life where only special people with expensive equipment could make and sell recordings."

No, no it won't.

You or I can still make recordings and distribute them with or without DRM if we wish.
It'll just mean we can't (easily) make copies.

I agree, it's a worse situation than what we have now, but it's not like pre-taping days in that the tools are available to all to distribute media.

Re:one future of music distribution

"more importantly though this "cherry picking" shows the record labels that consumers are tired of the same market drivel and if you give us good content that we like we'll pay."

Do you really think it shows that? I don't.

I think it shows that people are ever more shallow in their music tastes and now only want those one or two big hits, ignoring the rest of the material. How many times have you listened to an album, or an artist's entire catalogue, and come to love one of the b-sides or album tracks more than the one or two big hits? For me it's a lot.

But then I suppose I'm not buying Britney or whatever the big thing is that the idiot children listen to these days.

Re:one future of music distribution

Remember that this "cherry-picking" of material played on the radio is FAR from being a new phenomena. In fact this used to be the record industries model. They'd play a song on the radio over and over and then consumers would buy the 45 at the store, and listen to it and one other track. Bands also had albums, but often times the albums wouldn't have the single, or just weren't important compared to the singles. Then, after CDs started to dominate, the record industry decided to stop trying to sell singles, and ONLY sell full albums. That way the consumer would be forced to pay the full $15 rather than be able to buy a cheap single. They still kept singles, but added extra b-sides, and charged ridiculous prices ($5-$10), and so they became more of collectors items, before they were basically stopped altogether.

The industry grew used to being able to bully consumer, and now digital music is forcing them to accept that many consumers want to buy singles again. However, this means that their profits are going to be lower. Possibly on the level of what they used to make before they stopped selling singles.

For all of this, this does not mean the death of the album. Bands that want to produce albums still will. Most people who truly appreciate music and don't want to hear the stuff on the radio, or whatever their friends like will likely not have a problem finding albums of songs. However, those people are rarely the huge money makers for the industry (there are exceptions). Most of the money makers are the flavors of the week that they market endlessly, and end up selling millions of CDs. This practice of the industry's will end up being hurt as the sales end up being reduced due to "cherry picking".

Phil

Re:That's what Amazon is for

I just checked the ten most recent albums I've bought to see how many of them are available through iTunes Plus PJ Harvey, White Chalk - NO Kathleen Edwards, Asking for Flowers - NO Rilo Kiley, Under the Blacklight - NO You Say Party We Say Die, Lose All Time - YES The New Pornographers, Challengers - NO The Kills, Midnight Boom - NO The Killers, Sawdust - NO Besnard Lakes, Besnard Lakes Are the Dark Horse - NO Marissa Nadler, Songs III - NO Keren Ann, Keren Ann - YES That's only 20%. 100% are available from Amazon DRM free. Conclusion - iTunes Plus is an inferior store for anyone who doesn't want to be locked in to iPods.