The J Curve

Thursday, August 19, 2004

iTunes Licensing Model

I just received a call from one of my favorite musicians. He told me that when Apple sells one of his songs for 99 cents, EMI gets 66 cents and he gets 5 cents.

EMI just ported the business contract of physical distribution (which presumes manufacturing costs, breakage, inventory and other real costs). So the music label unilaterally captured 100% of the upside from moving the business online and shared none of it with the artist.

Having just finished reading Free Culture, I guess I should not be surprised by this habitual behavior. But it seems so old school.

My channel and fulfillment relationship is now with Apple. EMI provides no value to me in this modern context. Yet they take more than 10x what they share with the artist.


  • The music publishing industry is similar to the VC business. A label backs dozens of new artists each year, spending millions of dollars in the process. Most of them flop. Some of them make it. That's the largest cost of the industry. The physical distribution costs are relatively small and there is not a lot of savings when going online - especially if you assume that an online song sale cannibalizes the sale of a physical CD, whose marginal cost is close to 0. In addition, the music industry used to be able to sell one hit song for $10-$20 by bundling another 11 crappy songs on the CD - now you buy just the hit song for $0.99 and don't bother with the rest.

    On first sight it might seem "unfair" for the music label to not change the revenue split, however, most of the cost base is fixed and not variable.

    By Anonymous Anonymous, at 9:35 PM  

  • Geez.. thanks for the heads up... sort of looks like a waste of time signing up with a major company if you're expected to foot the bill for their unsucessful business decisions.

    By Blogger May East, at 10:12 PM  

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