Steve Jobs demonstrated on Wednesday why Apple is snatching away the music business out from under the record labels.
Just days after Rick Rubin, Columbia Records' co-chairman, outlined some of his ideas for saving the music business--several that are dated and ignored by the public--Apple blows in with a new distribution model.
Apple announced at the company's press event on Wednesday that it launched a new Wi-Fi store in partnership with Starbucks. Each time an owner of an iPhone, or new iPod Touch enters a Starbucks, a button will appear on their device that enables them to buy music from the Wi-Fi library. They can download a song--without having to log in--by whatever artist Starbucks is featuring at the time, or music playing on the store's sound system or any other they can find in the library.
The service, scheduled to start in Seattle and New York on Oct. 2, is apparently designed to boost song sales. Much has been written about how iPod owners typically buy about 20 songs after first obtaining an iPod and then it's all about ripping music to the device.
Here's the beauty of the partnership with Starbucks: some investment banker or dog walker enters their favorite Starbucks, hears a song they like and with a few button pushes, it's on their iPod. It's an impulse buy. Cool song, only 99 cents, I can listen to it again as I sip. And the very next day, that banker or dog walker is likely to return, handing Apple another chance to market music to them.
That's partly why Starbucks has become a music-retail power. According to a story last month in the Financial Times, the coffee chain was responsible for nearly half of the 511,000 units sold of Paul McCartney's Memory Almost Full.
At the end of 2006, Starbucks operated more than 12,000 stores worldwide and generated $7.8 billion for the year, of course most of that is from coffee sales.
So Jobs has plopped iTunes down in physical stores all over the world and makes it easier than ever for consumers to buy music.
Meanwhile, Rubin, a music producer who has worked with the Red Hot Chili Peppers and Jay-Z and who has recently turned record executive, is pinning his hopes on music lockers, according to an interview that appeared on Sunday in the The New York Times Magazine. Music lockers have been called jukeboxes in the sky.
They allow users to store their music on host servers which can then distribute songs to wherever a listener can connect to the Web.
Companies like MP3tunes.com have tried this and have yet to attract a significant audience.
Rick Rubin, the man who coaxed some of the best studio performances out of the Beastie Boys, L.L. Cool J and the Red Hot Chili Peppers, threw the curtain open on the music industry this weekend. What was exposed was perhaps more uncertainty and frustration than many may have expected.
A celebrated record producer who was recently named co-chairman of Columbia Records, Rubin made startlingly candid statements in Sunday's edition of The New York Times Magazine about the effects of the iPod, digital downloads and piracy on the music industry.
"Columbia is stuck in the dark ages," Rubin told the Times. "I have great confidence that we will have the best record company in the industry, but the reality is, in today's world, we might have the best dinosaur. Until a new model is agreed upon and rolling, we can be the best at the existing paradigm, but until the paradigm shifts, it's going to be a declining business. This model is done."
I repeat: the man making these statements is co-chairman of Columbia Records. He's kicking dirt on the music industry's business model before the industry has come up with a replacement. His statement couldn't have been more shocking had he picked up a bugle during the interview and blew "Taps."
What this means is that Rubin doesn't think the record business can survive unless it reinvents itself into....into what exactly?
Rubin spoke about an industry-saving technology that will render the iPod obsolete by allowing people to hear their digital music from cars, TV sets, cell phones--almost anything--for a $20 monthly subscription fee.
Sounds like a music locker to me or some version of the so-called jukebox in the sky. This is an idea that several companies have been pushing for a while--including Michael Robertson and his MP3tunes, which lets people store songs on the company's servers and then access them from any Web-enabled device.
Somebody should tell Rubin that the public has largely ignored such offers.
Another jaw-dropping revelation in the piece is that Columbia is flirting with the idea of asking artists to cut the label in on as much as 50 percent of their touring, merchandise and Internet revenue. Performers have typically been allowed to pocket concert and T-shirt money. As for revenue generated from digital downloads, I did a story recently about how a growing number of artists and music publishers want a larger share of Internet profits, not less, and are girding for a fight.
I cringed at some of Rubin's quotes. I appreciated his honesty but I'm guessing the suits at Columbia will probably castigate him for going public with his doubts. While it's no secret that CD sales are falling and Internet revenue isn't making up the difference, his statements won't do much for morale at Columbia.
Rubin's interview also underscored the music industry's determination to reduce its dependence on Apple and iTunes. The good news for Apple CEO Steve Jobs, judging from Rubin's comments, is that the record labels appear clueless as to how to make that happen.
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