Jon Bon Jovi slams Steve Jobs for 'killing' music

[amirm]

Now I know why it is so hard for high-end manufacturers to make a living. Sell hardware...... wait, isn't what you and I are trying to do?

We are trying to live in the last pocket of this space where there is still profit. As you know, video displays bit the dust. iPad is taking away all the margins for touch panels. Fortunately, expert-know-how doesn't get commodotized (sp?) easily.

 

[Steve Williams]

The analogy was that you know whether a medical claim makes sense to you vs to a person not privy to years of education, training and experience you have.

OK I'm with you now.

But seriously Amir if Apple and Steve Jobs hadn't seized the opportunity by being in the right place at the right time someone else could very well have done the same. In fact I would bet Microsoft is kicking themselves that they missed out on this one. If this boils down to a monopoly why doesn't the government step in like they did years ago with Microsoft and Windows OS being loaded onto every PC made

 

[mep]

Commoditized

 

[Phelonious Ponk]

Amir, you are postulating here and really do not know the complete business plan that Apple employs in regards to itunes. I seriously doubt that a company like Apple is in a venture that is continuing to lose money. If you believe that, well

If they are, now that they have dominant market share of the entire industry, virtual or bricks and mortar, one of two things will happen: 1) Apple will raise their prices 2) The record companies will take their business elsewhere and raise their prices. Or both. There really are no other options unless there are very stupid people involved who do not care a bit about shareholder equity, and I think we know that's not the case. So time will tell if Amir has some inside information that defies logic.

Or maybe time has already told it's tale: It looks like iTunes launched in early 2001 and the iPod came along a few months later...

http://en.wikipedia.org/wiki/Timeline_of_Apple_Inc._products

Do you suppose Jobs got a 10-year contract on that predatory pricing? Do you suppose ofter 10 years of the wreck of the rest of the recording industry, The Beatles signed on to be similarly abused? I remain unconvinced.

Tim

 

[amirm]

Do you suppose Jobs got a 10-year contract on that predatory pricing? Do you suppose ofter 10 years of the wreck of the rest of the recording industry, The Beatles signed on to be similarly abused? I remain unconvinced.

Tim

The initial contract was for 18 months. I don't know the length of the follow ons. I would guess 4-5 years. BTW, I don't know about the wisdom of Apple raising prices on music. They like the margins to stay small there to keep competition out. As long as they are making money on the hardware, I don't see them rattling the cage there.

 

[amirm]

But seriously Amir if Apple and Steve Jobs hadn't seized the opportunity by being in the right place at the right time someone else could very well have done the same. In fact I would bet Microsoft is kicking themselves that they missed out on this one. If this boils down to a monopoly why doesn't the government step in like they did years ago with Microsoft and Windows OS being loaded onto every PC made

Apple in all honesty, was much better situated to pull this off than Microsoft. They are a hardware company while Microsoft is a software company. They understand tactics in that space. For example, one of the superb and fundamental strengths of the original iPod was its small size, courtesy of the small 1.8 inch hard disk drive from Toshiba. Creative Labs who was the market leader at that time, used 2.5 inch drives and as a result, their box was 4 to 5 times bigger. Apple shrewdly had negotiated an exclusive with Toshiba. So no one could manufacture as small of a player no matter how much they tried. Hard disk manufacturing is specialized and Toshiba had the only small unit. Hitachi had a similar one but was still bigger.

Microsoft does hardware as necessity. While it is very good at it as that group is very profitable, the group that does that work operates in a different mind-set than Apple. It is not nearly as anal as apple is about design for example. That said, I have heard that Xbox Kinect came out of that group and if so, I would say they can hold their own in that sense.

 

[Phelonious Ponk]

The initial contract was for 18 months. I don't know the length of the follow ons. I would guess 4-5 years.

Then time's been up for a long, long time. If Jobs pulled a fast on on the music business and tricked them into selling singles at a loss instead of making oodles on packages of 12 - 14 songs at a time (have I got that right?), then they would have declined to renew that deal at least 5 years ago, if not after the first 18 months.

BTW, I don't know about the wisdom of Apple raising prices on music. They like the margins to stay small there to keep competition out. As long as they are making money on the hardware, I don't see them rattling the cage there.

Well, I've got a pretty good idea of the wisdom of that. Digital purchases account for 35.5% of the music sold in the U.S. and iTunes has a 26.7% market share of all music sales. That's huge. They own the digital music market. Everything else put together is lost in their shadow. They can raise prices anytime they want to, and if you're right and they are operating at break even or a loss, they would have, and every one of their competitors would have followed them into the warming light of profitability. And it wouldn't have caused anyone to buy a Zune. I think you've bought into conspiracy theories created and perpetuated by bitter competitors looking at iTunes and wishing they'd done that.

Tim

 

[amirm]

Then time's been up for a long, long time. If Jobs pulled a fast on on the music business and tricked them into selling singles at a loss instead of making oodles on packages of 12 - 14 songs at a time (have I got that right?), then they would have declined to renew that deal at least 5 years ago, if not after the first 18 months.

You are making me spill all the industry secrets .

So imagine it is five years after the Apple deal and the contract is due for renewal. What would you want to do? CD business has declined. And tracks are being sold individually. In the words of the movie Speed, "what do you do? What do you do?" You think you can strong arm the guy controlling 80% of your digital business? You think you can tell them they can't sell tracks anymore? No. You bite your lip and renew.

I created another thread asking what should happen to the music industry. I don't recall anyone coming up with a good answer. Let me give an answer that worked in video.

My partner, Warren Lieberfarb (http://en.wikipedia.org/wiki/Warren_Lieberfarb), is a 40 year veteran of the movie industry. While head of the Warner Home video, he had a problem. Blockbuster controlled 60% of the rental VHS market with the kind of leverage Apple has on revenue splits. His solution? Go from $50 tapes the studios sold to $15 with a new format he created with Toshiba called "DVD." People thought he was insane. How would reducing the price help grow the market and their revenues? Well, he knew that if he offered the movies for sale, then a lot more retailers could sell and compete with Blockbuster. Faster forward 6-8 years later and home video sales takes over theatrical sales due to strength of DVD format.

Now, i am not as smart him on business innovation. The music industry needs someone like Warren to think of what is not thought. Messing with revenue splits and such isn't going to make it. It needs radical thinking. Without it, there will be casualties.

 

[Phelonious Ponk]

You are making me spill all the industry secrets .

Not so far, I'm not.

So imagine it is five years after the Apple deal and the contract is due for renewal. What would you want to do?

Lots of things. A really good one, I think, is change the way the product is created and packaged to meet the new market instead of trying to force it into the old model; the aforementioned EPs with 5 good songs, for example. Getting the "artist" back in artist development would be another positive move.

CD business has declined.

Of course, but not that much. Digital sales are only 35.5% now. I'm sure they were considerably less five years ago. But the writing was on the wall.

You think you can strong arm the guy controlling 80% of your digital business?

Let's just guess and say that five years ago digital sales were 25% of the business, not 35%. Would I strong arm the guy controlling 80% of 20% of my business if he wasn't letting me make money and the channel he controlled was obviously the future of my business? I wouldn't strong arm him, I'd stop selling him product altogether. And if he was really sucking all the profit out of the entire channel, the future of my industry, all my competitors would be happy to step on the little weasel with me. As soon as the contract ran out, the guy would have no product, and if I didn't have the stones or the know-how to do it myself, I'd set somebody else up in the business to take his place.

I'm not sure it matters what kind of trade secrets you've got, this is either a sour trade fantasy or music is a trade with no brains and no testicular fortitude. And that's the industry we're talking about, not software, not hardware, not your business, Amir. The trade secret that your trade doesn't seem to have is how the music business makes money on iTunes and how much. But they're doing ok, or they simply wouldn't be doing it. I think they're making money and so is Apple. My guess is the majors aren't making as much as they'd like to, but that's because they've refused to change their product in the face of huge changes in their consumer market. And who's fault is that?

Tim

 

[amirm]

Would I strong arm the guy controlling 80% of 20% of my business if he wasn't letting me make money and the channel he controlled was obviously the future of my business? I wouldn't strong arm him, I'd stop selling him product altogether.

Now the second part of this story . Further assume that you an executive working in that industry where people get fired on the spot every other day so you are quite sure you won't be around 5 years from now to care. Further assuming that your use of the corporate jet and earning of heavy bonuses relies on making your numbers. Now, you say no to 25% of your revenue and jobs as he did when his music business started tells you he will go on with you. I ask again, what would you do?

And if he was really sucking all the profit out of the entire channel, the future of my industry, all my competitors would be happy to step on the little weasel with me. As soon as the contract ran out, the guy would have no product, and if I didn't have the stones or the know-how to do it myself, I'd set somebody else up in the business to take his place.

I think the problem statement is lost here. The problem here started with breaking the album into the CD. It is not an issue of labels making too little margin. After all, if Apple has no margin, then there is little room for growth in label splits.

Problem then is what is the right answer at this point.

I'm not sure it matters what kind of trade secrets you've got, this is either a sour trade fantasy or music is a trade with no brains and no testicular fortitude. And that's the industry we're talking about, not software, not hardware, not your business, Amir. The trade secret that your trade doesn't seem to have is how the music business makes money on iTunes and how much. But they're doing ok, or they simply wouldn't be doing it. I think they're making money and so is Apple. My guess is the majors aren't making as much as they'd like to, but that's because they've refused to change their product in the face of huge changes in their consumer market. And who's fault is that?

Tim

Let's clarify something: I am not in music industry trade. I used to build technology for them and my venture in some remote way has something to do with me getting into music business (realize this sounds odd but I can't say more ).

On whose fault it is, I have tried to demonstrate cause and effect for why we are here: Apple created a mass market built on the backs of music labels, and shifted incredible amount of money his way. That part is clear and not debatable. What is also not debatable is that despite this superbly healthy market, the core suppliers are not healthy. I am troubled by that. If I were Apple, I would look for ways to keep the labels happier and healthier. But maybe he doesn't care and thinks his future is selling apps.....

 

[Phelonious Ponk]

Further assume that you an executive working in that industry where people get fired on the spot every other day so you are quite sure you won't be around 5 years from now to care. Further assuming that your use of the corporate jet and earning of heavy bonuses relies on making your numbers. Now, you say no to 25% of your revenue and jobs as he did when his music business started tells you he will go on with you. I ask again, what would you do?

Look for another industry to work in? I don't doubt that the record industry was a cut throat business that cared about nothing but numbers and left no room for risk or innovation. It wouldn't be the only business with that problem. But that only helps to explain why that industry couldn't adapt to the new model and give its customers what they wanted (good songs/no filler). It does nothing to lay that problem at Apple's feet.

On whose fault it is, I have tried to demonstrate cause and effect for why we are here: Apple created a mass market built on the backs of music labels, and shifted incredible amount of money his way.

Perhaps you've tried, but the cause and effect that has been demonstrated is that Apple created a mass market based on giving customers what they want (good songs/no filler), and the music labels were unable to adapt to the new purchasing model (good songs/no filler), unwilling to do what Apple did -- give customers what they wanted (good songs/no filler). We still haven't seen how Apple is losing money or breaking even on this business model. We still haven't seen how the music biz has done anything to try to adapt and market to this new purchasing model (CDs are still 65% of their business and they're still marketing albums - even on iTunes). We still haven't seen how Apple took anything away from the music industry. The music industry's own customers took it away, because 35% of them decided they'd rather have the good songs with no filler and the majors refused, and still refuse to change anything to serve those customers. Stubborn, entrenched, idiotic.

And what, exactly, did evil Apple do? They found something that people want (good songs/no filler), and gave it to them in an elegant, intuitive, stylish package. Bastards.

Tim

 

[Steve Williams]

Amir

I agree completely with Tim. My 2 youngest kids buy more music in a month than I do in many years, but as Tim says, they only want the songs they like, no filler. My kids entire collection has been all digital downloads from iTunes.

Amir, truly you need to see this industry how younger people view the music industry. Virtually 100% of my kids music comes from itunes. Plus Apple markets and packages their hardware like eye candy. You show me where there are people lining up such as the night before Apple releases a new iphone, or ipod or computer etc, to buy a new droid or PC etc

Apple has done their job well. Jobs has behaved the way a CEO should have and honestly if it weren't Jobs it would have been someone else

It seems that the people who are objecting the most are those who are a day late and a dollar short to the party.

Tim is dead on in his evaluation of the industry. I have to say partner on this one I still side with Tim

 

[amirm]

I have no sourness. My job at Microsoft was to develop new audio and video technologies. I did that. We created WMA, WMV and VC-1. They are billions of devices that use them putting aside Windows. I got even our fiercest enemies such as Sony with its PlayStation and PSP to support it. So if you are saying that about me, it is not an issue. My job wasn't to sell boxes.

What I did however, was to always look for win-win situations and long-term view. I think whether these companies are going to be around 5, 10, 15 and 20 years and if so, then I don't do a sweet deal now favoring myself and screwing the other party. Unfortunately, traditional school of business in US says do as Apple does. We are taught that to a sign of a good deal is how good it can be for you and how much you can squeeze the other guy. I think this bad policy. I believe long term relationships matter. I can't tell you how much I have benefited from this over the years.

Years ago, when I was working for Sony, we were looking for a magnesium alloy case for a laptop. Very few companies make magnesium castings as it can be pretty challenging. So we went to a remote area outside of Yokohoma, Japan and get out of the cars in the farmland. My mechanical engineer was with me who used to work for Apple. Apple had used a bit of magnesium in their first laptops and he could only find a couple of places in US around Chicago that could produce the parts. The president of the Japanese company greets us and gives us the tour of the factory. He opens the doors and my mechanical engineer nearly passes out. I ask him why. He points to the dozen machines the guy has and how he not seen more than one or two at US plants. The machines cost hundreds of thousands of dollars and he could not fathom how the guy in the middle of nowhere could afford to have so many.

So I ask the president of the Japanese factory how they can afford the gear. He says that they do 80% of their business with Panasonic and that Panasonic helped them substantially to buy the equipment and that whenever there is a downturn, they help them along so that they stay in business and can serve them in the future. Don't know about you but this makes sense to me. Take care of your suppliers and they take care of you.

I can tell you that probably every day someone at a record company wakes up thinking how they could even up the score with Apple. Maybe one day, they hire a Warren Lieberfarb and we or our children talk about a different story about Apple. And maybe they don't and they practically go out of business and we are left with consequences that sitting here don't appreciate.

In the words of Matt Damon in the movie Good Will Hunting, "I don't know much... But I know this!"

 

[Phelonious Ponk]

I have no sourness. My job at Microsoft was to develop new audio and video technologies. I did that. We created WMA, WMV and VC-1. They are billions of devices that use them putting aside Windows. I got even our fiercest enemies such as Sony with its PlayStation and PSP to support it. So if you are saying that about me, it is not an issue. My job wasn't to sell boxes.

What I did however, was to always look for win-win situations and long-term view. I think whether these companies are going to be around 5, 10, 15 and 20 years and if so, then I don't do a sweet deal now favoring myself and screwing the other party. Unfortunately, traditional school of business in US says do as Apple does. We are taught that to a sign of a good deal is how good it can be for you and how much you can squeeze the other guy. I think this bad policy. I believe long term relationships matter. I can't tell you how much I have benefited from this over the years.

Years ago, when I was working for Sony, we were looking for a magnesium alloy case for a laptop. Very few companies make magnesium castings as it can be pretty challenging. So we went to a remote area outside of Yokohoma, Japan and get out of the cars in the farmland. My mechanical engineer was with me who used to work for Apple. Apple had used a bit of magnesium in their first laptops and he could only find a couple of places in US around Chicago that could produce the parts. The president of the Japanese company greets us and gives us the tour of the factory. He opens the doors and my mechanical engineer nearly passes out. I ask him why. He points to the dozen machines the guy has and how he not seen more than one or two at US plants. The machines cost hundreds of thousands of dollars and he could not fathom how the guy in the middle of nowhere could afford to have so many.

So I ask the president of the Japanese factory how they can afford the gear. He says that they do 80% of their business with Panasonic and that Panasonic helped them substantially to buy the equipment and that whenever there is a downturn, they help them along so that they stay in business and can serve them in the future. Don't know about you but this makes sense to me. Take care of your suppliers and they take care of you.

I can tell you that probably every day someone at a record company wakes up thinking how they could even up the score with Apple. Maybe one day, they hire a Warren Lieberfarb and we or our children talk about a different story about Apple. And maybe they don't and they practically go out of business and we are left with consequences that sitting here don't appreciate.

In the words of Matt Damon in the movie Good Will Hunting, "I don't know much... But I know this!"

I like your business ethic, Amir, and I don't think you're the one who is sour. I think it is the record company executives who are sour. Apple didn't make 35% of their business unprofitable, though I understand how it must feel better for them to believe that, because the alternative is to accept that they were screwing their own customers, making them buy (slight overstatement alert here...) 10 parts of crap to get 2 parts of what they wanted. Apple gave people what they wanted and, in the process, brought millions of them from illegal downloading back to paying for music. Apple stopped the bleeding. Hell, they showed them the way out. The record companies just wouldn't take it. They continued to change nothing and, evidently, blame Apple. I'll bet they blame buyers, too. I'll bet they have what we used to refer to in the ad trade as a thinly veiled contempt for the customer.

In fairness, maybe they're afraid that if they do change product, if they start actively marketing individual songs or those 5 good songs on an EP of 5 instead of 2 good songs on an album of 12, they'll lose the other 65% of their market, the disc buyer, to this narrower, more difficult (good songs are harder to write and produce than mediocre ones) product model. Maybe they're afraid they'll lose even more margins. Could happen. Could be inevitable. Maybe they were making too much money on filler.

Regarding little Japanese companies with big expensive machines: Supporting your suppliers is a good business practice, Amir, unless those suppliers are not supporting your customers. Then you have to decide who to serve. Apple decided they would serve the customers the record companies refused to serve. They became the world's largest music retailer in a couple of years by serving just 35% of the market really well. The labels decided to stick with their old business model. They refused to serve that chunk of the market. Apple didn't steal it from them, they passed on it. They continue to do so. And they do it deliberately. They have the product, Amir. They don't have to sell it to Apple. Somebody is big enough to make the decision not to renew that contract without losing his access to the corporate jet. They choose not to make that decision. Next time you're talking to one of your bitter record executives dreaming of revenge on Apple, tell him to look up. That's where the enemy is.

Tim

 

[DaveyF]

Amir, I'm really with Tim here.. If you ask me, the ones that should be castigated are Microsoft. Just look at all the inferior products they have foisted onto the public over the years and then used the very same public to do their beta testing.
When i talk to the younger generation, which I now do daily, they think 'Windows' and 'PC' are almost dirty words They adore Mac and love what itunes and the rest of the 'app' world does for them. Frankly, I wouldn't be too surprised to see Bill Gates and his ilk go the way of the dinosaur in the near future...the new generation doesn't take kindly to his business model at all
As to your belief that Jobs killed the music industry, I think exactly the opposite is true..without Jobs or someone like him, I suspect the music industry/labels would be in very deep trouble. The old business model of the labels, wouldn't be well received at all by the younger generation. Don't believe me, go out and talk to any young person and see what i mean.

 

[amirm]

Amir, I'm really with Tim here.. If you ask me, the ones that should be castigated are Microsoft. Just look at all the inferior products they have foisted onto the public over the years and then used the very same public to do their beta testing.

The doctor to the patient: 'You are very sick'
The patient to the doctor: 'Can I get a second opinion?'
The doctor again: 'Yes, you are very ugly too...'

Thanks for bringing the Microsoft vs Apple into the discussion Dave .

 

[DaveyF]

The doctor to the patient: 'You are very sick'
The patient to the doctor: 'Can I get a second opinion?'
The doctor again: 'Yes, you are very ugly too...'

Thanks for bringing the Microsoft vs Apple into the discussion Dave .

You're welcome

 

[DaveyF]

Amir, this video is for you...http://www.youtube.com/watch?v=kAG39jKi0lI,
Cheers,

 

[tonmeister2008]

I don't believe it was Steve Jobs or iTunes that is killing the business. There is another thread here on the forum asking whether CD's are going to disappear in the future. There is no question in my mind not "if" this will happen but "when"

Apple has always had the entrepreneurial ability to seize on an opportunity and capitalize upon it. Just because he was the first doesn't make him a bad guy nor the one who who is killing the music business. BTW, Bon Jovi doesn't need to sell his music on the iTunes store

I agree. The Music Industry killed itself -- not Steve Jobs. It's well-documented in this book, "Appetite for Self-Destruction: The Spectacular Crash of the Record Industry in the Digital Age "

The greed, short-sightedness, and excesses of the Record Industry made them blind to the opportunities of online digital distribution. They failed to transform Napster into a legal online digital distribution when they had the opportunity. Jobs stepped in and saved them before they completely self-destructed.

Like it or not, Itunes and the Ipod have enabled more people to be exposed to more music than ever before. The fact that you can hear a sample of the music online before purchasing it has made purchasing music a much better experience than "imagining" what it sounds like in a store while holding the album cover.

Perhaps Bon Jovi can't sell as many albums when people are able to audition his tracks before purchasing the album. Instead they just cherry-pick the best ones. He should look in the mirror first rather than blame his problems on Steve Jobs

 

[JackD201]

I may be in the tiny minority but I can say that when I really like an album (not song) that I downloaded, I do go out and buy whatever is available in either LP, SACD or CD. In that order.