iCloud & Apple: Flattening Routes to Market

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Yesterday Apple officially announced the availability of its new cloud-based music service. There have been weeks of speculation as industry insiders became aware of payments made to various record companies and labels for the licensing of music to power Apple’s new cloud offering. But there’s a lot more at stake here: the music industry devoid of its past marketing and sales outlets (Apple, Wal-Mart and Best Buy are the dominant sales points) can now count on increased revenue from their users of the iTunes hosted service. What remains to be seen is how this additional revenue filters down to the artist..

Today artists are paid based on units sold and also make money based on the licensing of their works. The licensing of these works are generally managed outside of the record label via ASCAP, BMI and the Harry Fox agency. Apple hosting music in the cloud that has been already “purchased” by iTunes user means that the number of units sold is now in contention. For instance an artist can sell 50,000 copies of her latest album but because of illegal downloads that same artists could be available to 100,000 iCloud users. It can be assumed that Apple will pay the respective record companies for these instances but will the record companies see this instance as units sold? Will they compensate the artists accordingly? And if they do, what stops in the artists from just giving away their product especially if ultimately they get paid from the record companies via Apple?

In the early 2000s advancements in Internet distribution, consumer broadband and storage leveled out the playing field between the brick-and-mortar record labels and the new independence Internet-based independent labels. It’s my contention that what was once a level playing field is no longer as level as some would need it to be. The day before Apple’s announcement I had a reasonable comfort level giving counsel to up-and-coming artists that there were numerous opportunities and routes to market with their product. Today I have a comfort level and telling them they need to strongly consider aligning themselves with one of the brick-and-mortar record labels. Is this the end of the end of the independent record label? No it isn’t there are plenty of people on the planet that do not use Apple products. But when more and more credence is put on iTunes charts, downloads and overall market presence, the independent record label suddenly has a steeper hill to climb.

These are questions that remain as we see more and more of this new product offering coming to market. What’s clear is that the biggest message from Apple is that the traditional buying selling models have changed and the role of the broker or intermediary immediately changes the routes to market.

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