As an owner of a small label I can say you are absolutely right.
On 4/22/2010 3:14 PM, Tom Fine wrote:
> Just got an e-mail from Deutsche Grammophon's DG Web Shop online store
> that they are moving into
> Universal's company-owned online store system, moving away from the
> 3rd party operator who had
> handled the store backroom and fulfillment operations. I interpret
> this as proof that Universal has
> become comfortable with selling downloads directly to consumers,
> cutting out the middleman. This is
> probably necessary for survival as the CD format dies off. If a
> download song can only be sold for
> 99 cents, and most songs don't get downloaded very often (the "long
> tail"), then the smart music
> megaglomerate must capture as much of that 99 cents as possible.
> Paying Apple or Amazon a large
> percentage to handle marketing and backroom doesn't produce enough
> cash to justify the
> megaglomerate's existence. My bet is, going forward, iTunes store and
> Amazon will lose most of the
> major-label content or will have to take a much-reduced cut of sales,
> with most of the pie returning
> to the copyright owner. In the case of Amazon, an argument can be made
> that it costs less to
> provide a download service than to pay people to warehouse and ship
> CD's, so therefore the copyright
> owner is due a better cut -- unknown whether this will wash with the
> business-savvy Amazon.
> Which makes me wonder -- perhaps someone who owns or works for a music
> label on-list can answer
> this -- does Amazon take the same percentage for digital downloads as
> for physical CD's? Someone
> told me, years ago, that the markup on CD's is about double, so the
> label gets about half the retail
> price. This might have changed, because I think I heard this during
> the collusion years when CD
> prices were higher. I think I read somewhere early in the iTunes days
> that Apple takes a 1/3 cut for
> iTunes downloads, maybe more.
> Anyway, it's interesting (to me at least) how far the market has
> evolved since iTunes hit the scene.
> 1. phase one - MP3 downloads were unsanctioned by the copyright
> owners, and almost all were piracy,
> the Napster heyday.
> 2. phase two - Napster shut down, crackdown on consumers, DRM formats,
> eMusic and other small
> operations emerge offering legit downloads of DRM-free MP3, but not
> from Universal, Sony or Warner.
> Content mainly from Fantasy Group and smaller labels.
> 3. phase three - iTunes hits the scene, complete with distribution
> deals with most major labels,
> everyone on board soon after. Original format is DRM proprietary and
> very lossy, but evolves to
> DRM-free less-lossy Apple proprietary format. Amazon soon joins the
> party with DRM-free less-lossy
> MP3 downloads, usually for less money than iTunes when priced on a
> whole-album basis. There is much
> overlap between Apple, Amazon and eMusic, but not 100%, and some
> eMusic downloads are still very
> lossy (not upgraded from original 128kbps offerings).
> 4. phase four - the labels dip their toes into selling directly or at
> least directing consumers
> directly to download sites. I would assume this coincides with the
> death of brick and morter retail
> stores, so labels no longer have to worry about teeing off
> distributors and rack-jobbers.
> Universal/Verve was early with this, with the Verve Vault website
> where you could click and buy the
> out-of-print albums right from iTunes. Other models are like DGG's,
> where consumers can buy
> high-bitrate MP3 directly from the company's website. Smaller labels
> got early into offering
> downlaods direct to consumers, sometimes including booklet materials,
> and I now notice that some
> small labels like Daptone are offering FLAC downloads of full CD
> resolution at a decent discount to
> buying the physical CD. This makes total sense for anyone who doesn't
> own CD plants -- the margin is
> probably better than paying to have CD's made and then distributing
> and holding inventory.
> 5. phase five - around the same time as phase four, a niche market
> emerges for better-than-CD
> resolution PCM downloads. HDTracks and Linn, plus some others, are
> first in this market. Pricing is
> comparable to suggested retail for SACD. My bet is that this absorbs
> the SACD niche as the physical
> format submerges.
> I think the end of 5" optical discs is inevitable, but it will be a
> slow fadeout. Also, it seems
> obvious that there's a lot of excess inventory in warehouses and in
> the retail pipeline, so it will
> take years for most titles to completely disappear (much less time for
> popular titles). Also, it
> will probably make sense for megahits to be issued on CD for quite
> some time. I think the back
> catalog stuff is definitely headed out of print, though.
> One man's analysis ...
> -- Tom Fine