Universal’s spin is that they’re going to give away music downloads to defeat the file sharers. It’s not true.
To understand why the Spiral Frog announcement is important you need to understand what Apple’s iTunes Music Store has done to the music industry. iTunes is important for all sorts of reasons, obviously but – as far as the labels are concerned – for one really big reason: Apple robbed the record companies of their pricing power.
Steve Jobs stepped in, chucked his weight around a bit and cheekily took away the labels’ right to set prices and thus any meaningful control over their own profitability. The big fights between the labels and iTunes during these vital first three years have all centred on Apple’s stubborn insistence on a single, fixed price per track with no variation for fame, historic sales, up-to-dateness, trendiness… anything really.
You don’t need to be an economist to understand that pricing power is fundamental to a sector’s success. If the biggest players in an industry can’t set their own prices they are effectively reduced to dependent status. For an outsider to enter an unfamiliar industry and, in short order, to seize ownership of the most fundamental economic lever – the big red one marked ‘don’t touch . Not ever’ – from under the noses of the industry’s biggest players – is a feat of quite awesome self-confidence and one never attempted by a Tech firm before.
Universal (and, presumably, other labels as yet unannounced) have decided they’re not going to wait around while Apple reduces their hundred year-old industry to a blackened shell. They’re going to take the fight back to Apple, do something really unexpected and attack them where they are least able to respond. Giving away music (no matter how onerous the embedded DRM scheme is) is the most radical thing the industry has decided to do in that whole Century-long history.
It requires trashing the business’ only stable, continuously-profitable business model and jumping aboard the advertising train. Of course, they won’t be alone – they’ll join the respectable roster of media businesses whose only or principle source of income is advertising: radio, network television, newspapers. For the music industry, this shift will surely mark the beginning of the end of the battle with Apple and, overnight of course, the battle with the file sharers.
