Wednesday, April 20, 2005

Frustrated at what they see as Apple CEO Steve Jobs' intransigence on song pricing and other issues, some record executives are now turning their hopes toward other partners, particularly mobile phone carriers eager to get into the business of selling music. They see this new focus as a way to broaden the digital music business, and lessen Apple's dominance over their market in the process.

"The [mobile networks'] economics are aligned with us much better than Apple is aligned with us," said one senior executive at a major record label, who asked to remain anonymous because of his company's ongoing relationship with Apple. "The mobile market is very important, as important to us as the PC."

The labels complain that Apple's policies are insensitive to their goals and limit their ability to grow their digital business even faster.

For example, Apple wants to sell all its songs for 99 cents each, a single price point that's easy for consumers to understand. But the record labels have pressed for the ability to vary prices to maximise their own sales. They want to sell older titles at a discount — like the $9.99 CDs available in most record stores — and charge more for popular songs to take advantage of market demand.

Jobs also has refused to license Apple's DRM technology, called FairPlay, to rival MP3 player makers, and has blocked music formats from other companies, such as Microsoft, from the iPod. This makes iPods and the iTunes store incompatible with rival digital music devices and stores, fragmenting the market in a way the labels fear ultimately limits sales.

"We hate the current situation," one top record industry executive said, referring to the issue of incompatibility between different companies' music devices and services.

The labels are turning hungrily to the mobile phone market, where phones are slowly gaining the capacity to play music. Executives note that there are many times more mobile phones than iPods in the world, potentially offering a far larger digital music market. Already full-song download services for mobile phones are operating in Europe and Asia, and are expected to reach the United States this year or next.

Part of the mobile market's attraction comes in pricing. Consumers around the world have shown they will eagerly pay $2.50 or more for a ring tone, a mere snippet of a song that costs just 99 cents for the full version at iTunes. Labels see these consumers as receptive to variable prices for different songs.

But some music executives also describe mobile carriers as simply better potential partners than Apple. Like the labels, the carriers' bottom line depends directly on selling content, while Apple's profit sheets depend on hardware sales.