Peter Kafka

Recent Posts by Peter Kafka

Don’t Blame Apple for Its Music Monopoly. Blame the Big Labels.

Federal regulators are looking at Apple yet again: This time it’s members of the Department of Justice’s antitrust staff, poking around the company’s longstanding dominance of digital music.

The New York Times, which first reported the inquiries, thinks they’re aimed at Apple’s muscle-flexing this spring, when it reportedly convinced the big music labels to stop giving Amazon exclusives for big releases. People I’ve talked to in the industry aren’t convinced that’s the case, and tell me the chats they’re aware of have been wide-ranging talks about digital music sales in general.

But regardless of what the Feds are looking for, it won’t take much digging for them to figure out that Apple (AAPL) runs the digital music market. If you want to sell songs on the Web and you’re not on iTunes, you’re going to have a very difficult time.

So that answers the first part of the “Does Apple have a problem?” test that antitrust expert Harry First set up for my colleague, John Paczkowski this month: Yes, Apple has a monopoly, or close to it. And the company has had it since 2003, when iTunes started selling music.

Next question: Does Apple maintain its power by stifling competitors?

Tricky. Because the people most responsible for Apple’s market power are the ones who gripe about it most often: The big music labels.

They’re the ones who insisted on locking their songs up with digital rights management technology. Which meant that anyone who bought digital music was forced to choose between Apple’s iTunes/iPod platform or the lousy one promoted by Microsoft (MSFT) and others, which you can’t even recall anymore. Not really a choice at all.

The labels eventually wised up and started selling their stuff as unencrypted MP3s, meaning anyone could sell music that plays on Apple’s devices. But that was years too late. Even Amazon (AMZN), with all of its marketing savvy and clout, has managed to claw out only eight percent of the market in the last three years. Apple still commands 69 percent. UPDATE: New data show Amazon’s share moving up, though not at Apple’s expense.

But here’s the thing: If the labels really want to break Apple’s grip on their business, they could.

All they need to do is license their stuff at dirt-cheap rates to all-you-can-eat subscription services like Spotify and MOG. Sell that stuff at the right price–a buck a month? two bucks?–and everyone buys in, and no one ever thinks about buying songs from iTunes again. Poof!

The labels won’t do that. At least not now. We’re a decade past Napster, but they still prefer to sell compact discs, and failing that, individual songs. And they prefer to put up with Apple’s dominance than risk those sales.

But sales continue to shrink anyway. Even digital downloads seem to have petered out, at least in the U.S. And there’s nothing an antitrust regulator can do about that.


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