Why record companies fear Apple

By | February 15, 2007 at 7:38 AM

“We have been wrestling with the issues around interoperability for
some years and have concluded that it is not so much a technology
problem as a business problem,” wrote the consortium to Jobs. No
kidding? And all along the world at large thought downloading DRM-free
MP3 files presented huge technical issues.

Seriously though, late last year Apple itself gave a few of us media
folk a glimpse of why record companies fear the computer turned
consumer electronics company.

At the Apple Australia Christmas party in Sydney, a young band treated
us all to a couple of songs. They were pretty good and in between songs
the lead singer gave the obligatory Apple plug. However, what he said
was actually pretty interesting.

It turns out that the band was unable to get a contract with a record
label but was able to sell its music through iTunes. “We want to thank
Apple and iTunes for enabling us to get our music heard,” he said – or
words to that effect.

And there in a nutshell is why record companies fear, or should fear,
Apple, Microsoft or anything other company with the resources to put up
an online music store with global reach.

Until recently, record companies were the only avenue for talented
musical artists to reach a global audience. In exchange for a contract
which gave a relative pittance to artists, recording companies would
handle the recording, distribution and marketing of the music.

Technology these days makes it easier and cheaper than ever for artists
to do their own recording and, as far as distribution is concerned,
iTunes and other download sites have a better reach than any physical
music store chain. The only leverage that record companies have left is
their marketing reach – and marketing prowess is something they
certainly don’t have a monopoly on.

Steve Jobs, the baby boomer, is known to be a music fan. His company
now owns the biggest legal online music store in the world, by far the
best selling portable music player and iTunes is starting to promote
artists that are unaffiliated with recording labels. How far away are
we from iTunes becoming a recording label?

The news that the powerful Coral Consortium, an elite group comprising
the world’s largest recording and movie studios, has issued an open
letter to Steve Jobs asking Apple to join its ranks shows how scared
the music companies are of his anti DRM statements.

Against this backdrop, the final sentence in the letter from Coral
Consortium to Jobs is interesting: “We offer Apple, Inc. a warm
invitation to join Coral’s ranks and help provide interoperability and
the increased choice that will bring to all of our customers.”

That sounds like an ingratiating attempt to get an adversary that has
become too powerful to step on side. The burning question is whether
Jobs feels confident enough to stick by his guns and ignore the bait.

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