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Number crunching: CD giveaways

An interesting snippet in the current issue of Private Eye magazine:

2.5m CDs sold in a week in the UK
10m CDs given away free with weekend papers in the UK

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Who gets what when you buy a CD?

Some interesting figures buried in Rolling Stone’s article about Wal-Mart’s quest for $10 CDs:

This breakdown of the cost of a typical major-label release by the independent
 market-research firm Almighty Institute of Music Retail shows where the money
 goes for a new album with a list price of $15.99.

 $0.17 Musicians’ unions
 $0.80 Packaging/manufacturing
 $0.82 Publishing royalties
 $0.80 Retail profit
 $0.90 Distribution
 $1.60 Artists’ royalties
 $1.70 Label profit
 $2.40 Marketing/promotion
 $2.91 Label overhead
 $3.89 Retail overhead

Putting that into UK money at the current exchange rate (£1 = $1.80), that works out as:

Retail price of CD: £8.88

£0.10 musicians’ unions
£0.44 packaging
£0.44 publishing royalties
£0.44 retail profit
£0.50 distributor
£0.89 artists’ royalties
£0.94 label profit
£1.33 marketing and promotion
£1.62 label overhead
£2.16 retail overhead

Of course, things are different in the UK – VAT is higher than US states’ sales tax, although while UK firms charge VAT they can claim back the VAT on their spending – and the average retail price of a CD is currently £10.50, not £8.88. I suspect retailers’ profit margins are higher, too.

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An iPod for U2?

U2’s iPod ad is doing big business on the Apple site, but there’s also speculation that the partnership will go further: according to rumours, there may be a limited edition black “U2 iPod” released soon. The rumour may well be bollocks, and I’ve lost the link to the article talking about it. Not the best blog entry I’ve ever written, then.

Update, 18 Oct

Think Secret reports on the rumour:

While Think Secret has been unable to confirm this with one-hundred percent certainty, sources say that Apple is planning to release the U2-edition iPod around the week of November 21, when U2’s new album will hit stores. For a small premium over the regular iPod, said to be around $30, the U2-edition iPod will feature a distinctive enclosure and will come pre-loaded with all the band’s major album releases.

Update, again

Macminute reports that something is afoot:

Apple has sent out an invitation to select media announcing a special event to be held next week at San Jose’s California Theater. The event appears to be music related as the invite reads: “Steve Jobs, Bono and The Edge invite you to a special event.” Bono and The Edge are of course members of the popular rock band U2. The band and their new signle “Vertigo” are featured in Apple’s latest commercial for iPod and iTunes. More to follow…

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Attack of the clones

Is it time to open up the iPod and iTunes, letting people play Napster downloads on their iPods or iTunes downloads on their Creative Muvos? Writing in Business Week, Alex Salkever suggests that if Apple doesn’t start licensing, Microsoft’s going to give it a serious wedgie. He says:

If past is prologue, Apple should expect a relentless marketing attack tightly integrated with offerings from Windows PC makers. Moreover, time is on Microsoft’s side. The digital-music-player market is still nascent. The prices remain high and penetration low. Apple may have the lion’s share of business right now, but the market will grow quickly.

As you’d expect, the Mac faithful aren’t convinced. The unofficial Apple weblog, writing about the latest raft of Microsoft media announcements, says:

The people have made their choice already. Microsoft just doesn’t want to admit that like the choosy moms who choose Jif, choosy consumers choose iPods. Deal with it!  92% of all hard-drive-based music players sold are iPods. More than 65% of all digital music players sold are iPods.  Sure looks to me like people have made their choice and are really quite pleased with their choice.
The MSN Music service is destined to fail – at the very least it will pale in comparison to the iTunes Music Store, which will continue to dominate the market. Microsoft is out of their league on this one. Too little, too late.

You’ve got to admire the blog’s enthusiasm, if not its accuracy: the NPD report that it’s talking about says that Apple has 82% of the hard disk player market and 42% overall. The blog also makes the (understandable) mistake of confusing market share with actual units sold, when they’re two different things. Market share is based on money, not units: for example, if Apple sells 1 million $399 iPods and the competition sells 4 million $99 flash-based players, Apple would have 50% market share and the competition would have 50% market share, even though the competition was outselling iPods by a factor of four.

Don’t get me wrong, 82% market share for hard disk players is impressive stuff (and 42% overall is nothing to be sniffy about), but reading those figures as “92% of all… players sold are iPods” is plain wrong.

Let’s throw a few more figures into the ring, this time from The Register:

US research company In-Stat/MDR reckons some 10.4m hard drive-based music players will ship in calendar 2004, up from 2.1m last year. Apple is likely to account for at least 3m of those, based on Informa’s forecast and existing Apple’s sales, giving it at least 28 per cent of the world HDD player market. In-Stat/MDR reckons a further 7.6m Flash-based music players will ship this year, for a total volume of 18m digital music players. That figure will grow to 52.4m by 2007, the company forecasts.

Of course, there are lies, damn lies and statistics, but I’ll summarise: Apple sells a lot of players (but not as many as some of the Mac evangelists think), and the market is growing very quickly. Enter Microsoft.

Microsoft is gearing up to “do a Netscape” to Apple in the digital music arena, and I wouldn’t like to bet against them. Anyone with even a passing interest in technology knows that the market is rarely dominated by the most innovative or most stylish firms; what happens again and again is that someone comes out with something interesting, then the competition comes up with their own version. Look at Apple: the digital camera, the laser printer, the PDA… all businesses where Apple innovated, and all businesses where Apple is no longer a player.

So let’s look at what’s happening with the iPod. Manufacturers of Windows Media players are targeting the weaknesses in both the iPod and iPod mini, so already they’re offering much better battery life and slightly increased storage. They realise that iPod accessories are a big part of the appeal, so they’re linking up with third-party firms to release accessories for their players. They’re adding fancy features such as built-in FM radio (why isn’t that in the iPod now?). The MSN Music Store may be an iTunes music store clone, but Windows Media Player provides a front-end MSN, for Napster, the Wal-Mart music store, etc etc etc. Taken together, the Microsoft package is likely to be more compelling for many people: a bigger choice of hardware, a bigger choice of music stores. Sure, it’s a closed system just like the iPod/iTunes system is, but it’s a closed system with a much, much wider range of options.

Writing in Forbes, Arik Hesseldahl hits the nail on the head:

Apple Computer defied expectations and proved a viable business could be built around digital music. And, so far, the company has done better in this arena than anyone else has. But now the copycats are on the march, and in time they’ll have the numbers on their side. If competitive offerings gain market share or an industrywide standard is imposed, Apple would either have to adapt to market realities, making its two-part music offering less special, or leave it unchanged and watch iPod sales–and profits–erode.

I’ve heard this story before. I didn’t like how it turned out the first time.

As Hesseldahl points out, the record companies (and lots of hardware manufacturers) are pushing hard for a single, standard format for digital music; not necessarily a standard file format, but a standard form of Digital Rights Management technology. You can bet your bottom dollar that Microsoft will be willing to help them with that, because unlike Apple, Microsoft doesn’t care about selling hardware: it’s only interested in licensing its technology.

Apple has done a wonderful job with the iPod and iTunes, and the iPod is still the must-have MP3 player – something that you’ll no doubt see reflected in the sales figures for MP3 players over Christmas. However, part of Apple’s success is due to the fact that competitors’ products have been crap, and that is definitely changing. I’ve been playing with some of the new “plays for sure” Windows Media devices and they’re bloody good, and getting better with each iteration.

The iPod is still the best music player on the market (I’ve got two and I’m about to buy a third), but if lots of competing devices are almost as good and come with a cheaper price tag, lots of people will buy them instead – the same way lots of people might want a 17″ PowerBook, but buy a cheap Toshiba laptop, or the way I want an Aston Martin but drive a Renault. The market for digital music players is becoming a commodity market, just like the PC market has become, and it’s going to treble in size over the next four years. That’s an awfully big pie, and Microsoft wants a slice.

The Unoffical Apple Weblog says “Microsoft still doesn’t get it”. I think Microsoft gets it very well. Get ready for the Attack of the Clones.

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Outside it’s America

It’ll be another few days before I’ll be doing any blogging: I’m in America for work just now, and won’t be back in Scotland until Friday (and thanks to jet lag, it’ll probably be a few days after that before my brain starts working again).

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The economics of digital music

I know I’ve linked to his blog in the “you may also enjoy” section of this site, but it’s worth highlighting Mark Mulligan’s recent comments on copyright extensions, the economics of digital music and whether EasyJet can make money from getting into the music industry. Mark’s one of the industry analysts who’s definitely worth bookmarking, whether you’re in the industry or just on the outside looking in.

Link: Mark Mulligan’s blog

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I trust they can rely on your vote

The BT digital media awards are back again (is it a year already?) and far be it from me to suggest how you should vote, but if you’re considering a vote for the Best Music Website then I’d heartily recommend No Rock N Roll Fun.

If you’d like to vote for that particular site, you can do it by clicking this link.

[Yeah, I know I said I wouldn’t blog for a bit – but I did say I’d post if I was feeling opinionated ;-)]

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The umbrella project

Paul Douglas’s blog is a collection of photos of people with umbrellas. And that’s it.

It’s either the best or worst idea I’ve seen for a long time :-)

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I travel

I don’t think I’ll be updating this blog again until the second week in October: I’m away for a short break all of next week, and I’ve got a mountain of deadlines to shift before I go. So unless I feel really opinionated about something between now and Friday night, this blog will be quiet for the next week or two.

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I’ve got Vertigo

It pains me to admit it, but Vertigo, the new U2 single, is really good.

Damn.

[Available from the iTunes music store]