They shouldn’t be.

Pandora has always been up front about the fact that royalties are its biggest expense. And that those fees increase in lockstep with the music service’s popularity.

But while spending half of every dollar it brings in on royalties is a burden, it could be worse. A lot worse.

Prior to the summer of 2009, when Pandora and other Web services negotiated a new royalty deal, Pandora’s music bill was more than 100 percent of its revenues.

Check out this table from Pandora’s S-1, which breaks out each line item in its P&L as a percent of revenue. Notice how brutal the first two quarters of 2009 were. And see how much more tolerable (or at least less awful) they became after July 2009, when Pandora got its new rates (click image to enlarge):

See? Now 50 percent doesn’t look that bad.

And while Pandora’s music fees are hefty, the system that generates those bills is really one of the company’s strengths.

That’s because unlike other music services, from Apple’s iTunes to Spotify, Pandora doesn’t have to negotiate with individual labels and publishers to use their stuff.

Instead, it takes advantage of a U.S. law that created a “compulsory license” for Internet radio. That allows anyone to stream any recorded music they want, as long as they’re willing to pay for it. And as long as they’re functioning as a “Webcaster” and not an on-demand “interactive service.”

The advantages of using the compulsory license are huge. It means Pandora never had to ask the big labels for permission to use their stuff, or pay out giant advances or equity stakes to get a deal done.

While the licenses do come with restrictions–that’s why Pandora doesn’t let listeners request individual songs, and limits the number of times users can skip a song per hour, etc.- they haven’t dissuaded some 80 million people from using the service.

Those licenses don’t exist outside of the U.S., which is one reason Web radio services are such a rarity everywhere else, and why Pandora may struggle with international expansion.

And the fees that Pandora does pay will escalate each year until 2015, when it has to negotiate a new royalty agreement with the music industry.

It’s always possible that the rates will get significantly worse for Webcasters then, and that Pandora ends up in the shape it was in prior to the summer of 2009.

But for the next four years, at least, Pandora thinks it can work with the music bills its users are generating. Now we’ll see if investors agree.

“Our network will continue to keep pace with the growing demand,” said T-Mobile CEO Phillip Humm, who said the company is embracing its status as a challenger brand (marketing speak for “the little guy”).

T-Mobile used a press conference on Thursday to announce the network and show off the LG-built G-Slate tablet that it plans to introduce in the first half of the year. T-Mobile also said it expects to offer a 7-inch Dell Streak tablet in the coming weeks.The Streak has a dual-core Nvidia Tegra processor along with support for Adobe Flash and a Gorilla Glass screen. T-Mobile said it will be sold at a “consumer-friendly price,” but didn’t share details.

Humm told reporters that the company has now sold 900,000 devices that run on its HSPA+ network, which it bills as America’s largest 4G network.

“This proves the rapid adoption,“ Humm said, adding that the carrier expects to be offering more than 25 4G devices by the end of the year, ranging from smartphones to mobile broadband.

T-Mobile Chief Technology Officer Neville Ray showed a slide that he says shows that HSPA+ has a strong road map to get faster in the coming years, though he said that T-Mobile does believe in moving to LTE in the future when the time is right. (T-Mobile currently lacks the spectrum to build such a network, among other issues.)

Ray said that T-Mobile has been testing T-Mobile’s new HSPA+42 network in Las Vegas and said its average speeds are on par with those provided by Verizon’s LTE network, even before that network has much load on it.

Google’s view is that voice will be critical in making mobile devices with small screens and keyboards more useful. Already, it’s launched a number of services that let people use their voice to conduct a Web search, compose emails, play songs on a phone or get directions.

The acquisition of Phonetic Arts will help in the reverse situation–when the computer speaks to you, a.k.a. voice output, the company said in a blog post.

Voice interaction is a field in bloom. There are safe-driving applications that speak your text messages to you, so you can keep your eyes on the road, and Google’s own translation “speaks” text in multiple languages. Currently, Nuance Communications is one of the leaders in the voice-recognition space.

Google says Phonetic Arts’ team of researchers and engineers will focus on making the interactions less robotic and more natural by using small samples of recorded voice.

Terms weren’t disclosed, but Phonetic Arts will be joining Google’s engineering center in London.

Beatles songs are finally available in Apple’s iTunes store. But ATD’s Peter Kafka says that iTunes is all about apps these days, while digital music sales have flattened out–and even the Fab Four may have a hard time changing that.

The deal was outlined by Jeff Jones, chief executive of the Beatles’ corporate entity, Apple Corps Ltd., and Roger Faxon, CEO of EMI Group Ltd., which owns and distributes the band’s recordings. The meeting took place at EMI’s London headquarters this past July 14, less than a month after Mr. Faxon took the reins at EMI.

Under the terms, Apple Inc.’s digital media store is the Beatles’ exclusive online retailer at least until January, Mr. Faxon said in an interview Tuesday, after the much-awaited deal was announced. It marks the first time that Beatles songs have been available for digital-download sales.

“Jeff and I sat down shortly after I arrived” as CEO of EMI, Mr. Faxon recalled. “We agreed this really was the moment to do this. After that it was very easy to cut a deal.” They code-named the initiative “Bastille,” as it coincided with Bastille Day.

Read the rest of this post on the original site

For the music industry, the mobile phone, not the Internet, is becoming a huge driver of sales as India’s 670 million wireless subscribers slowly become accustomed to using their handsets for more than just calls. Mobile phones aren’t as susceptible to digital piracy as PCs, because wireless carriers can tightly control what content they sell.

Sales of ringtones and songs on phones already make up about 30 percent of the Indian music industry’s 7.5 billion rupees ($168 million) in total revenue and are expected to account for two-thirds of an 18.7 billion rupee market in 2012, according to PricewaterhouseCoopers. At that time, Internet music will still only be a 400 million rupee market, or about $9 million. The rise of mobile music sales is happening as sales of CDs and cassettes are declining sharply year after year.

Read the rest of this post on the original site

Which means those acts need to create a “profile” for Steve Jobs’s social network. An Apple (AAPL) document making the rounds (Apple has confirmed its authenticity to me) explains how. You can read the whole thing at the bottom of this post.

Most of it concerns technical specs about things you don’t care about, like video formats. Here’s one part you might be interested in–some of Apple’s edicts regarding the content of artists’ profiles:

• Videos, photos, and text posts should not contain pornography, hate speech, racism, nudity, or any references to or depictions of drug use.
• Posts should not include advertisements or links to sites outside of iTunes.
• Posts should not contain links to other content providers.

The first item is sort of obvious, but still worth noting. Because theoretically, if the Beatles ever do make it to iTunes, they’re going to have a hard time promoting some of their songs. Like this one.

But that rule seems like the kind of thing that Apple can change or ignore at will–just like its “no porn except sometimes” ban in the iTunes app store. And anyway, artists have always found ways to put up with, or ignore, these kinds of restraints.

The rules about not posting to links outside of iTunes are more worrisome. Because it’s telling music acts to ignore the digital assets they’ve painstakingly built up on MySpace, Twitter, Facebook and anywhere else on the Web.

Makes sense for Apple, but not for anyone else.

artist_bestpractices_1.0-1

The distinction is hardly academic. Under most recording contracts, artists are entitled to 50% of revenue from licensed uses of their music. That usually means soundtracks for movies, TV shows and ads. Sales, on the other hand generate royalties for the artist at a much lower rate–generally in the low teens, and rarely more than 20%.

Read the rest of this post on the original site »

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.

Nielsen SoundScan says the drop was either one percent or .09 percent, depending on how you count, so this isn’t the bottom falling out. But it does look like a peak, and it has been in the works for some time.

Earlier this year, Warner Music Group (WMG) pointed out that it was seeing its digital sales slow and argued that one reason was because the industry had raised prices on most of its songs at Apple’s (AAPL) iTunes store in 2009.

That thinking is now pervasive across the industry, Billboard notes: “While consumers will still buy hit songs for $1.29, it seems that catalog tracks priced at that level are not selling as well as they were at 99 cents.”

But you could also make the case that digital tracks were going to decline anyway and that the industry is better off squeezing every penny it can.

And if you want to try to find a silver lining here, you could argue that since song sales are slipping, there’s no reason for the industry not to support rental/subscription models like Spotify, Rhapsody and MOG by cutting their licensing fees. But I wouldn’t bet on that happening soon.

Below, a handy table (click to enlarge) from Broadpoint.AmTech analyst Brian Marshall breaking out the providers of e-books, magazines and newspapers, which now include most major book publishers and a lengthening list of their magazine brethren.

[Image credit: Broadpoint.AmTech]

A ruling in the band’s lawsuit against EMI Music Group may mean that the band’s songs will only be available online in album form. BBC:

The rock legends, signed to EMI since 1967, said their contract meant their albums could not be split up without their permission.

A judge agreed, saying the contract contained a clause to “preserve the artistic integrity of the albums”.

EMI has been ordered to pay £40,000 ($60,000) in costs, with a further fine to be decided.

…In court, Chancellor Sir Andrew Morritt declared that the contract means EMI is not entitled to exploit recordings by online distribution or by any other means other than the complete original album without Pink Floyd’s consent.

As of this morning, you could still buy much of the band’s output on a track-by-track basis at the online music stores that Apple (AAPL) and Amazon (AMZN) run.

And just because the band has won the ruling doesn’t mean that’s going to stop–its entirely possible, for instance, that a check of a certain size could allay the band’s concerns. Other album-only holdouts like Metallica and Radiohead eventually held their noses and allowed their stuff to be sold by the song on iTunes, too.

But if you really want to buy “Pigs on the Wing Pt. 1,” but not all of “Animals” (apologies to fans of the album I offended earlier in the week), you might want to buy now, just to be safe.

UPDATE: EMI says it hasn’t been ordered to stop selling individual tracks, adding that this will be hashed out in the courts for a while. Here’s the full text:

Today’s judgment does not require EMI to cease making Pink Floyd’s catalogue available as single track downloads, and EMI continues to sell Pink Floyd’s music digitally and in other formats.

This litigation has been running for well over a year and most of its points have already been settled.

This week’s court hearing was around the interpretation of two contractual points, both linked to the digital sale of Pink Floyd’s music. But there are further arguments to be heard on this and the case will go on for some time.

But from a writer’s perspective, it’s always nice when the plaintiff is a well-known act whose catalog includes a hit called “Money.”

Pink Floyd’s suit against EMI is technically about online royalties and the fact that EMI has been selling the group’s work as singles instead of albums at Apple’s (AAPL) iTunes store.* This detracts from the fact that much of the band’s output consists of “seamless pieces,” in which “many of the songs blend into each other,” the group’s lawyer told Bloomberg.

The band isn’t always opposed to people picking and choosing its songs, though. Tune into “Cold Case” on CBS (CBS) on March 21, and you’ll be treated to the following: “Hey You,” “Comfortably Numb,” “Mother,” “Marooned,” “Time,” “The Thin Ice” and “Wish You Were Here.”

In any case, EMI has much bigger problems to worry about. Like staying out of the clutches of rival Warner Music Group (WMG).

“We’re huge fans of Pink Floyd who we have been working with for 40 years and whose great catalog we continue to represent and work for internationally,” says a shy EMI spokesperson.

*We should note that much of “Animals,” which has a great cover but crummy songs, is only available if you buy the entire album.

The biggest hit so far: An ambitious novelty called “I Am T-Pain,” which allows users to record songs using the rapper’s sort-of-trademark “autotune” voice processor. If you don’t know what that means, best to check it out here. (Or check out the demo clips of T-Pain and other Smule apps at the bottom of this post.)

All this success has translated into real money–more than four million paid downloads, at something like $2.50 a pop. And this has allowed Smule to quickly raise $13.5 million in venture money from the likes of Shasta Ventures and Bessemer Venture Partners.

I assumed that some of that money would be earmarked for moving apps to other mobile operating systems, particularly Google’s (GOOG) Android OS. Nope, says Smith–he’s working exclusively through Apple (AAPL).

Smith is part of a small but vocal chorus of app developers who say they don’t want to move to Android, even though it is growing quickly. His complaints: He doesn’t like the way the store merchandises its wares, and he doesn’t want to have to create different apps for each handset Android supports.

In fairness, Apple has its share of vocal app developer critics as well, and that group got louder this month during the iPorn imbroglio.

And if you wanted to be overly cynical, you could point out that Smule has been a featured Apple partner for some time. Smule’s products have gotten stage time during Apple product announcements and have been highlighted in the company’s press releases.

But Smith isn’t betting the future on Apple, either. His business plan involves generating revenue from other places besides the iTunes app store. I’ll let him explain in this interview, which we taped during Billboard’s Music & Money event yesterday.

]]> http://allthingsd.com/20100305/an-apple-app-star-explains-why-he-wont-work-with-android/feed/ 0 http://allthingsd.com/20100305/ipad-goes-on-sale-april-3-pre-orders-begin-march-12/ http://allthingsd.com/20100305/ipad-goes-on-sale-april-3-pre-orders-begin-march-12/#comments Fri, 05 Mar 2010 13:29:52 +0000 John Paczkowski http://digitaldaily.allthingsd.com/?p=36177 So much for those rumored iPad delays and production bottlenecks. Apple said this morning that its new tablet device will arrive at market on Saturday, April 3, with pre-orders beginning March 12.

Initially, only Wi-Fi models will be available, with their 3G counterparts to follow later in the month. Late April will also see the device going on sale in Australia, Canada, France, Germany, Italy, Japan, Spain, Switzerland and the U.K.

Given the time between the launch date of the Wi-Fi-only and 3G versions, will any early adopter be patient enough to wait for the latter?

Below, the press release announcing the iPad’s on-sale and shipping dates (Caution, Press release: May contain unnecessary superlatives, profound lack of objectivity).

iPad Available in US on April 3

Pre-Order on March 12

CUPERTINO, Calif., March 5/ — Apple® today announced that its magical and revolutionary iPad will be available in the US on Saturday, April 3, for Wi-Fi models and in late April for Wi-Fi + 3G models. In addition, all models of iPad will be available in Australia, Canada, France, Germany, Italy, Japan, Spain, Switzerland and the UK in late April.

Beginning a week from today, on March 12, US customers can pre-order both Wi-Fi and Wi-Fi + 3G models from Apple’s online store (www.apple.com) or reserve a Wi-Fi model to pick up on Saturday, April 3, at an Apple retail store.

“iPad is something completely new,” said Steve Jobs, Apple’s CEO. “We’re excited for customers to get their hands on this magical and revolutionary product and connect with their apps and content in a more intimate, intuitive and fun way than ever before.”

Starting at just $499, iPad lets users browse the web, read and send email, enjoy and share photos, watch videos, listen to music, play games, read ebooks and much more. iPad is just 0.5 inches thick and weighs just 1.5 pounds-thinner and lighter than any laptop or netbook-and delivers battery life of up to 10 hours.*

iPad’s revolutionary Multi-Touch™ interface makes surfing the web an entirely new experience, dramatically more interactive and intimate than on a computer. You can read and send email on iPad’s large screen and almost full-size “soft” keyboard or import photos from a Mac®, PC or digital camera, see them organized as albums, and enjoy and share them using iPad’s elegant slideshows. iPad makes it easy to watch movies, TV shows and YouTube, all in HD, or flip through the pages of an ebook you downloaded from Apple’s new iBookstore while listening to your music collection.

The App Store on iPad lets you wirelessly browse, buy and download new apps from the world’s largest app store. iPad includes 12 new innovative apps designed especially for iPad and will run almost all of the more than 150,000 apps on the App Store, including apps already purchased for your iPhone® or iPod touch®. Developers are already creating exciting new apps designed for iPad that take advantage of its Multi-Touch interface, large screen and high-quality graphics.

The new iBooks app for iPad includes Apple’s new iBookstore, the best way to browse, buy and read books on a mobile product. The iBookstore will feature books from the New York Times Best Seller list from both major and independent publishers, including Hachette Book Group, HarperCollins Publishers, Macmillan Publishers, Penguin Group and Simon & Schuster.

The iTunes® Store gives iPad users access to the world’s most popular online music, TV and movie store with a catalog of over 12 million songs, over 55,000 TV episodes and over 8,500 films including over 2,500 in stunning high definition. All the apps and content you download on iPad from the App Store, iTunes Store and iBookstore will be automatically synced to your iTunes library the next time you connect with your computer.

Pricing & Availability

iPad will be available in Wi-Fi models on April 3 in the US for a suggested retail price of $499 for 16GB, $599 for 32GB, $699 for 64GB. The Wi-Fi + 3G models will be available in late April for a suggested retail price of $629 for 16GB, $729 for 32GB and $829 for 64GB. iPad will be sold in the US through the Apple Store® (www.apple.com), Apple’s retail stores and select Apple Authorized Resellers.

iPad will be available in both Wi-Fi and Wi-Fi + 3G models in late April in Australia, Canada, France, Germany, Italy, Japan, Spain, Switzerland and the UK. International pricing will be announced in April. iPad will ship in additional countries later this year.

The iBooks app for iPad including Apple’s iBookstore will be available as a free download from the App Store in the US on April 3, with additional countries added later this year.

]]> http://allthingsd.com/20100305/ipad-goes-on-sale-april-3-pre-orders-begin-march-12/feed/ 0 http://allthingsd.com/20100226/palm-agonistes-2/ http://allthingsd.com/20100226/palm-agonistes-2/#comments Fri, 26 Feb 2010 19:00:29 +0000 John Paczkowski http://digitaldaily.allthingsd.com/?p=35721

]]> http://allthingsd.com/20100226/palm-agonistes-2/feed/ 0 http://allthingsd.com/20100225/apple-billions-of-songs-billions-of-apps-not-much-profit/ http://allthingsd.com/20100225/apple-billions-of-songs-billions-of-apps-not-much-profit/#comments Thu, 25 Feb 2010 12:53:05 +0000 Peter Kafka http://mediamemo.allthingsd.com/?p=16713 Apple is patting itself on the back for delivering 10 billion songs from its iTunes Store. And it frequently boasts about the number of apps customers download from iTunes, as well–the tally is now past three billion.

But you won’t hear Apple boast about how much money it’s making from iTunes. Because there’s not much to boast about.

Even at today’s hyper volume, the digital store is still running at “a bit over break-even,” the company reminded analysts during its earnings call last month.

Here’s the relevant excerpt from that call, via Seeking Alpha (thanks to Venrock’s David Pakman for pointing this out yesterday at the Digital Music Forum East):

Maynard Um–UBS
We have seen a number of industry revenue forecasts for applications and just given kind of the expected explosive growth there I am just wondering if that is still a break-evenish type of business as you look forward over the next couple of years?…

[Apple CFO] Peter Oppenheimer
…Regarding the App Store and the iTunes stores, we are running those a bit over break even and that hasn’t changed. We are very excited to be providing our developers with a fabulous opportunity and we think that is helping us a lot with the iPhone and the iPod touch platform.

As Oppenheimer says, this isn’t a new development. Apple (AAPL) has always maintained that iTunes wasn’t a real money maker. It’s supposed to help sell iPods, iPhones, and soon, iPads.

For years, industry observers figured that as the iTunes business scaled, this would change. An alternate theory, held by some of Apple’s media partners–the company was being overly modest about its success.

Apple doesn’t break out iTunes sales, but lumps them into a category called “Other music related products and services,” which generated net sales of $4 billion last year. That’s an increase of 21 percent over 2008, and the company attributed this growth to “increased net sales of third-party digital content and applications from the iTunes Store.”

]]> http://allthingsd.com/20100225/apple-billions-of-songs-billions-of-apps-not-much-profit/feed/ 0 http://allthingsd.com/20100209/book-publishers-beware-at-itunes-expensive-music-equals-slower-sales/ http://allthingsd.com/20100209/book-publishers-beware-at-itunes-expensive-music-equals-slower-sales/#comments Tue, 09 Feb 2010 14:56:14 +0000 Peter Kafka http://mediamemo.allthingsd.com/?p=16092 After years of complaints, last year the music labels finally got what they wanted from Apple–the ability to raise prices on their songs. Last April, iTunes introduced a “variable pricing” scheme, which gave the labels the ability to move prices from 99 cents a song to $1.29 (and for some tracks, down to 69 cents).

The result? Music sales are slowing.

Warner Music Group (WMG) said this morning that it has seen unit sales growth at Apple’s (AAPL) iTunes decelerate since the price increase: Industrywide, year-over-year “digital track equivalent album unit growth” was at five percent in the December quarter, down sequentially from 10 percent in the September quarter and 11 percent in the June quarter.

And since iTunes sales make up the majority of Warner’s digital revenue, growth is contracting there, too. In the last quarter, digital revenue at the label was up eight percent compared with a year earlier, when that number was 20 percent.

The positive spin here is that music downloads are a “mature” business anyway. So by raising prices, the labels are simply extracting whatever value they can.

And indeed, Warner CEO Edgar Bronfman Jr. argued that the pricing change has been a “net positive” for Warner. But he also suggested that in hindsight, perhaps it wasn’t a great idea to raise prices 30 percent during a recession.

So here’s the question for the book industry, which has been working very hard to boost the price for its digital goods: Which lesson do you learn from this?

My gut is that the industry will see this parable the way Bronfman apparently does: If you can move prices up early in the digital adoption cycle, you’re much better off.

During the earnings call, Bronfman sounded a bit wistful as he noted the book industry’s apparent success, with the help of Apple, at raising prices above the $9.99 floor Amazon (AMZN) had set. “It’s interesting that the book publishing industry, on the iPad, has much more flexibility than the music industry had,” he noted.

The counter here is the one that seems obvious to everyone else: Lower prices and you can sell more stuff. Looks like we’ll be getting another real-world test of this economics lesson soon.

]]> http://allthingsd.com/20100209/book-publishers-beware-at-itunes-expensive-music-equals-slower-sales/feed/ 0 http://allthingsd.com/20100130/the-apple-amazon-book-war-heats-up-and-claims-macmillan-as-a-casualty/ http://allthingsd.com/20100130/the-apple-amazon-book-war-heats-up-and-claims-macmillan-as-a-casualty/#comments Sat, 30 Jan 2010 16:56:17 +0000 Peter Kafka http://mediamemo.allthingsd.com/?p=15691 Apple has yet to sell its first e-book, but it is already engaged in a bruising battle with Amazon for control of the market. The most recent salvo: Amazon has stopped selling all books–both digital and physical–from Macmillan, apparently in response to the publisher’s plans to sell its books at a higher price point through Apple.

UPDATE: That was quick: Amazon has conceded to MacMillan’s demands.

Amazon (AMZN) sells most e-books for $9.99 or less, and Apple (AAPL) plans to sell e-books for 30 percent to 50 percent more. How long can this disparity last? It won’t, Apple CEO Steve Jobs told Walt Mossberg on Wednesday: “The prices will be the same.”

The implication of that comment is clear: Jobs believes publishers will use Apple’s e-book store as leverage to force Amazon’s prices up.

As I noted earlier, this is an inversion of Apple’s relationship with the big music labels, whereby it demanded that those companies sell their songs as $1 singles instead of $15 CDs–and helped accelerate the industry’s demise along the way.

In that scenario, the labels had no option but to play along, because Apple controlled the digital music market. Here, Amazon has the clear lead in digital books, having sold “millions” of Kindles, but the market is still nascent, so the retailer’s lead alone isn’t enough.

But Amazon does own the market for physical books sold on the Web, so pulling those off its virtual shelves is powerful leverage indeed.

Next step: Keep an eye on books from the other four publishers Apple touted during Wednesday’s iPad launch: Pearson’s Penguin Group, News Corp.’s (NWS) HarperCollins, Hachette Book Group and CBS’s (CBS) Simon & Schuster.

All of them are selling their wares through Amazon for the time being. Wonder how long that will last.

Below, Kara Swisher’s video of Mossberg’s chat with Jobs following the iPad debut, in which the two men discuss the brewing book war.

]]> http://allthingsd.com/20100130/the-apple-amazon-book-war-heats-up-and-claims-macmillan-as-a-casualty/feed/ 0 http://allthingsd.com/20100127/the-music-industrys-cautionary-itunes-tale-resonates-with-publishers-and-apple/ http://allthingsd.com/20100127/the-music-industrys-cautionary-itunes-tale-resonates-with-publishers-and-apple/#comments Wed, 27 Jan 2010 14:41:25 +0000 Peter Kafka http://mediamemo.allthingsd.com/?p=15559 Look who has learned one of the most important lessons of the music industry’s love-hate relationship with iTunes: Apple.

The music labels love iTunes because it gave them a new revenue stream while CD sales withered away. And the music labels hate iTunes because it helped CD sales wither away by giving consumers the chance to replace $15 discs with $1 songs.

But now, as Apple prepares to launch e-book sales along with its new tablet, the company seems to be taking a different tack. It’s letting book publishers push their digital pricing up instead of down.

The Wall Street Journal reports that Apple (AAPL) was still haggling with publishers Tuesday night, but says the gist of Apple’s offer is this: Publishers can set their e-book prices at $12.99 or $14.99, well above the $9.99-or-less price point Amazon (AMZN) is pushing.

Apple’s terms would actually generate less money per sale for publishers than Amazon currently does, but publishers are so worried about digital cannibalization that they seem willing to take a hit in order to protect their paper-and-ink products. WSJ:

In adopting the Apple model, the balance of power would shift at least partly back to publishers, which regain control of pricing. In setting higher prices, they could provide a level playing field for all e-book retailers. The potential for publishers is that the device may generate greater volume for e-book sales.

But note that Apple isn’t offering publishers complete control of their pricing as it does with developers on its App Store. And while Apple is giving publishers more latitude, it is being more aggressive than ever with the TV business, reportedly by pushing the networks to cut prices for their shows.

The other big caveat is that if Apple does want to sell e-books for 30 percent to 50 percent more than Amazon, those e-books are going to have to be pretty special. Simply adding a dash of color and some graphics won’t cut it–these things will really need to be “enhanced” to justify the premium. Figuring out how to do that while keeping margins intact is a whole other story.

Plenty of time to hear about that later, though. For now, let’s see what Steve Jobs has to show us today.

Digital Daily’s John Paczkowski will be reporting live from the Yerba Buena Center starting at 1 pm ET; head over to his liveblog to catch the action in real time.

]]> http://allthingsd.com/20100127/the-music-industrys-cautionary-itunes-tale-resonates-with-publishers-and-apple/feed/ 0 http://allthingsd.com/20100113/sonys-e-reader-opens-new-chapter-in-kindle-rivalry/ http://allthingsd.com/20100113/sonys-e-reader-opens-new-chapter-in-kindle-rivalry/#comments Thu, 14 Jan 2010 02:03:18 +0000 Walter S. Mossberg http://ptech.allthingsd.com/?p=1145 Sony, the Japanese electronics giant, was a pioneer in the current wave of electronic book readers, introducing its first Sony Reader model back in 2006. But, it has been overtaken by Amazon.com, whose Kindle e-book reader, introduced in 2007, has become almost synonymous with the category. Now, Sony (SNE) is out with a much-improved model that could make it more competitive.

Unlike the Kindle, Sony’s readers weren’t wireless and their owners couldn’t download books or newspapers directly to the device, instead of via a computer. Now, that problem has finally been solved with Sony’s new Reader Daily Edition, a handsome $400 wireless model that I’ve been testing.

The Daily Edition can be bought at Sony’s stores; at its Web site, sonystyle.com; and at Best Buy’s (BBY) site, bestbuy.com. It was sold out for the holidays, but Sony says it expects new stock soon.

The Daily Edition isn’t a mere clone of the Kindle. It has a different design philosophy and is stronger in some areas, weaker in others. In general, I enjoyed using it, once I mastered its user interface, which took several days. I especially liked the fact that it packs a larger screen into a comfortably small device, and mostly uses touch navigation instead of all physical controls. For instance, while the Sony does have a small page-turning button, you can more easily turn pages by just swiping your finger across the screen. It’s also better at navigating digital newspapers, something I’ve never found very satisfying on the Kindle.

(Full disclosure: Sony has struck a special deal with Dow Jones, which owns The Wall Street Journal and this Web site. Under the deal, a special late-day edition of the Journal, containing updated news, will be available on the Daily Edition for an extra charge starting later in January.)

On the downside, the Daily Edition has three main flaws when compared with the Kindle. First, it’s much more expensive—$400 versus just $259. Second, it has only about half of the commercial, copyrighted digital books that Amazon (AMZN) does—around 200,000 versus the Kindle’s roughly 400,000. Sony also throws in a million out-of-copyright, old books, for a total of 1.2 million.

But many of these added million titles are obscure and of little interest to mainstream consumers. The Reader also has just eight newspapers, versus 92 for the Kindle, though Sony says 10 more are coming soon.

Third, the technology that makes the screen touch sensitive also dims it a bit, so the Daily Edition’s screen is darker than the Kindle’s. (Both are unlit monochrome screens with gray-scale graphics.) I found the Sony screen adequate, but it’s tougher to read in lower light.

The Daily Edition is a slender device with a black metal body that contrasts sharply with the wider, white plastic body of the Kindle. While both products use the same basic screen technology, and the same screen width, the Daily Edition’s screen is longer; it measures 7 inches versus 6 inches for the Kindle. In my tests, I found this a big advantage, because, when both devices were set for roughly comparable text sizes, the Sony could hold more text on a page, cutting down on the need for page turns, which interrupt reading.

In addition, the Daily Edition is narrower than the Kindle, because the borders around the screen are thinner, since they don’t have to accommodate the Kindle’s various large buttons or physical keyboard. (You can enter text for notes or searches on the Daily Edition using a stylus for handwriting or a virtual onscreen keyboard.) This longer, narrower shape gives the new Sony a nice feel in the hand.

I also preferred the Sony’s method for presenting newspapers, which allowed more headlines to be viewed at once and required fewer steps to navigate through the paper.

Sony’s new Daily Edition Electronic Reader

The Sony also claims more battery life with wireless turned off, comes with a cover included—an extra-cost item on the Kindle—and can handle more book formats, including the free digital books offered by public libraries. Built-in memory is the same, but the Daily Edition’s can be expanded while the Kindle’s can’t.

Like the Kindle, the new Sony also allows you to drag songs, pictures and some personal documents onto the device from your computer. I did this with no problems.

The Daily Edition has companion software for buying, reading and storing books on both PCs and Macs. But it has no app for a smart phone, and doesn’t synchronize your last-read place in your book among the reader and the computer.

Also, I found the Daily Edition required a harder learning process than the Kindle. First, it takes awhile to get the hang of the touch gestures, partly because they require much more pressure than on, say, an iPhone. Second, using touch to bring up features and menus can be a mystery until you consult the manual. For instance, it took days to discover that you could set a bookmark by double-tapping on the upper right corner.

But, all in all, despite its higher price, the Daily Edition is a big leap for Sony and adds another good choice for consumers.

Find all of Walt Mossberg’s columns and videos online, free, at the All Things Digital Web site, walt.allthingsd.com. Email mossberg@wsj.com.

]]> http://allthingsd.com/20100113/sonys-e-reader-opens-new-chapter-in-kindle-rivalry/feed/ 0 http://allthingsd.com/20091124/warner-music-earnings-out-of-tune/ http://allthingsd.com/20091124/warner-music-earnings-out-of-tune/#comments Tue, 24 Nov 2009 11:48:41 +0000 Peter Kafka http://mediamemo.allthingsd.com/?p=13228 Warner Music Group has a mixed bag of results for Wall Street this morning: The music label posted revenue of $861 million, a bit higher than the $820 million analysts had expected. But even after factoring out one-time severance charges of $14 million, the company lost three cents a share, and the Street was assuming it would earn four or five cents a share.

The breakdown: The company did well overseas, where revenue jumped 17.8 percent after factoring out currency effects, and poorly in the U.S., where sales dropped by 7.4 percent. Digital, which grew by 11.5 percent (excluding FOREX), now makes up 21.4 percent of Warner’s (WMG) revenue.

Operating income dropped by 18 percent, to $54 million, but all of that decline stems from the severance charges. Factor those out and operating income would be up slightly to $68 million.

For years, the music industry has watched music sales drop while music publishing–money generated by the underlying compositions of songs–has increased. But this time around that’s not the case. Warner says recorded music sales were up 3.7 percent (net of currency changes) and that music publishing revenue was up 11.7 percent.

But all of the publishing increase stems from a one-time gain of $25 million “from an agreement reached by the U.S. recorded music and music publishing industries, which will result in the payment of mechanical royalties accrued in prior years by record companies.”

]]> http://allthingsd.com/20091124/warner-music-earnings-out-of-tune/feed/ 0 http://allthingsd.com/20091118/court-kills-preposterous-pirate-beatles-site/ http://allthingsd.com/20091118/court-kills-preposterous-pirate-beatles-site/#comments Thu, 19 Nov 2009 00:05:15 +0000 Peter Kafka http://mediamemo.allthingsd.com/?p=13044 It’s official: You still can’t buy the Beatles’ songs on the Web, despite the efforts of a site that attempted to do so by rewriting copyright law on the fly.

A Los Angeles federal judge has issued a preliminary injunction against BlueBeat, a California-based site that had briefly sold the band’s music, arguing it used “psycho-acoustic simulation”–basically, making a note-for-note recording of the band’s recordings–to make the songs its own.

The same judge had already issued a temporary restraining order on behalf of music label EMI Music Group against the site earlier in the month and had scheduled a hearing for Friday, Nov. 20. But this ruling cancels out the hearing and by any reasonable standard should end the case.

Then again, this whole story has been a head-scratcher from the start, so who knows? Maybe the BlueBeat guys will try an even more preposterous argument down the road.

Part of me thinks that the whole thing may be some sort of Negativeland/U2 hack/stunt/performance art piece. Or maybe there were a lot of mood-altering substances involved. Or maybe it’s part of a conspiracy to create work for copyright lawyers.

Whatever. I’ve embedded the court ruling below, if you insist on reading it. But here’s a clip of Richard Pryor reading the alphabet on “Sesame Street,” which is just as edifying and much more entertaining.

bluebeat beatles suit –

]]> http://allthingsd.com/20091118/court-kills-preposterous-pirate-beatles-site/feed/ 0 http://allthingsd.com/20091021/google-steps-gingerly-into-music-with-one-box/ http://allthingsd.com/20091021/google-steps-gingerly-into-music-with-one-box/#comments Wed, 21 Oct 2009 14:50:31 +0000 Peter Kafka http://mediamemo.allthingsd.com/?p=12284 Google insists, over and over, that it has no intention of getting into the content business. So how is it finessing its way into the music business? Very carefully.

The search giant is working on a new service that will provide searchers with streaming music, which sounds a whole lot like a content play at first blush. But Google will only be offering limited bits of music, and it will be relying on other companies to actually provide the tunes.

Sources describe the service, which they refer to as “One Box,” as a refined set of answers for music queries. The idea: Punch in, say, “Madonna,” and you’ll be presented with one or more songs, which may be partial clips or full-length versions, then guided to other sites where you can purchase the music.

That is: If you’re looking for Google (GOOG) to launch a rival to Apple’s (AAPL) iTunes or to music streaming services like iMeem and MySpace Music, this isn’t it.

In fact, Google is actually partnering, in a way, with News Corp.’s (NWS) MySpace: iLike, the music start-up that MySpace purchased earlier this year, is one of the two services providing music to Google, industry sources tell me. The other is Lala.com, which has a novel streams-plus-cheap-songs concept. (This is presumably one of the “big announcements” Lala founder Bill Nyguen was referring to yesterday when I spoke to him).

UPDATE: Streaming music service imeem will also be providing songs for the new service, I’m told by people familiar with Google’s plans. It’s unclear to me whether the company will provide full streams in search results. No comment from Google, Lala, MySpace or Imeem. Or the labels, for that matter.

At this point I’m not clear how Google and the labels will determine how much of a song a searcher will be able to listen to. Last I time I checked, iLike didn’t have the ability to provide full song streams at all. And Lala’s licenses only allow the service to provide listeners with a full song once–after that, they have to purchase the track from the service.

One other note: “OneBox” is the name of an existing Google feature that offers up not just links, but actual answers to certain queries. (Think of weather, or stock results). So while it’s possible that Google intends to brand the service with that name, I wouldn’t be surprised if this was the term the company has been using internally and with the labels, and that the service will have a different name when it launches.

TechCrunch first reported about the service this morning.

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