We've been hearing more and more about Apple going after a new deal with record labels: A stream based fee. Looking at Pandora, a record company gets about 12.5 cents per 100 streams. Apple was in negotiations and allegedly offered 6 cents per 100 streams. This 50% difference is really big, and usually when i see big changes I think there might be something more brewing under the surface. I was wondering what would change if Apple became a Record Company.
Music was traditionally sold through brick and mortar stores. An artist would be picked by a record company, they got a bag of money to record their album, CD's would be pressed and shipped to stores to be sold. Record companies got a dollar, 2 dollars tops and the artist would get up to a dollar. The rest of the money went to the physical creation of the CD and all stops in the retail channel. Apple iTunescomes in, where Apple promised record labels a bigger cut of the music sale. Apple would give the record labels approximately half of the $10,-, the artist still got about a dollar and the rest of the money went to Apple, for distribution and marketing. Where we are now - with Pandora, Spotify and the new Google Play Music All Access - the record companies are pushed so far into a corner that they're starting to get scared of new 'interesting' deals. What if Apple took the music industry by storm again by cutting out that middle man and becoming the record company itself?
A record company does multiple things: Recruiting new talent, promotion and marketing and giving the artists the means of recording music. Promotion and marketing is something they've been doing for years. The iTunes Store has been the shop window for all sorts of music. Apple knows what people like, how many times they've listened to a song and what they're willing to spend on music. They have the means of distribution, the catalog, the server backbone of storing and facebook-integration for sharing. They sell multiple tools to record music. GarageBand for iPhone/iPad to discover your talents and quickly record ideas, GarageBand for Mac to record your first Guitar Riffs or piano chords and fullfledged Logic Pro; tools that even the professionals use. So how would they take this on?
Let's look at a different market that Apple's completely revamped: Apps. The App Store was a new idea that gave a completely new group of people the means to program their first app. Xcode showed them the way and the App Store took everything you wouldn't want to be concerned with: Storage, bandwidth, distribution, sales, aftersales. Why can't this be applied to audio? Your new podcast is easily recorded with your Mac and a nice mic, then uploaded to iTunes and let the iTunes Store ditribute it for you. You're in a band and have a demo CD? Upload it to iTunes and maybe you'll be the next indie band. You're a professional band like U2, have the money to record your album in a big studio but don't want to pay half of the profit with your record company. All you have to do is sign with Apple and the deal is done. Apple still takes it 30% of the deal, and they would sell your music for a lower price in iTunes. A single song for 50 cents instead of 0.99 would certainly drive your sales. Normally they would get 10% of the buck, now they get 70% of 50 cents, which would be 35 cents. Interesting for the artist, to say the least. But what could Apple include in this deal? One thing would most probably be that Apple gets exclusive rights to selling your music, just like with iBooks.
So how would this work in practice. Famous bands probably have contracts that take multiple years to expire. It could take awhile for these bands to jump ship and join Apple. A few bands would probably make an exception. Apple has good a lot of goodwill in the music industry because of the user friendly tools they provide. These few bands would become the leaders of the revolution and would instantly get of lot of media attention. I think bands like these could be U2 (looking at their U2 iPod) and Linkin Park, who even played a live show in Apple's Soho Store. Indie bands would immediately join Apple Records because it's an easy way to make a name for yourself without signing a multi-annual contract with the devil.
Depending on the attractiveness of Apple's offer this could grow very rapidly, and Apple could have a big catalog of big names. When these bands signed a contract, Apple is (relatively) free with the music rights, free to create their streaming service.
In the end this idea boils down to one cohesive plan: cutting out the middle man, giving credit where credit is due, the artists. For Apple the idea is crystal clear: Getting as much bands as possible on board for a new generation of music, streaming.