Digital Music

Amazon’s Daily Deal Skirmish Offers Reminder Of Apple’s Power Over The Major Labels

According to recent reports, Apple has been aggressively discouraging labels from participating in Amazon MP3's Daily Deal.  Feature a new release there, the labels have been told, and your release will get no promotion at all on iTunes.

Being an aggressive competitor is nothing new for Apple. It's also common for labels for show a preference for their largest retailer.  But this particular skirmish reveals both Apple's hypocrisy as well as just how much the major labels fear Steve Jobs.

image from hawtaction.comAnatomy Of The Daily Deal

The Daily Deal is, for all practical purposes, a free promotion subsidized by Amazon. If accepted into the  program, artists and labels are asked for a one day exclusive. During that 24 hours Amazon aggressively discounts the title to between $1.99 and $3.99. In part, to keep each sale eligible to be counted on the major charts, Amazon actually reimburses the labels at the normal wholesale price. In effect, subsidizing about $3 of each purchase.  Amazon MP3 also features the title on its web pages and to the 1.4 million that follow the Daily Deal on Twitter.

Unlike the old price and positioning charges at brick and mortar retail, Amazon and most other online retailers do not charge labels for these promotions.  In the case of the Daily Deal, artists and labels are only asked to promote the release via their web sites, email lists and social networks.

Some label executives worried that deep discounts cannibalized early sales that would have happened at full price. But one major label group recently told its labels that its own studies had shown that as much as 95% of all Daily Deal sales were incremental and would never have happened without the discount.

Apple Fights Back 

Steve Jobs has often attempted to position himself as a champion of music and Apple as music's savior. But not this time. iTunes may have built its reputation by leveraging exclusive content, but that doesn't mean someone else can.

Jobs & Co. doesn't care that the Amazon Daily Deal helps struggling labels sell more music. iTune's 65-75% share of the download market is apparently not enough. Using both threats and actions,  iTunes staffers made it clear to almost every major and indie record label that participation in Amazon's Daily Deal would cost then dearly at iTunes.

The Labels Give In

Since iTune's inception, labels have complained that Apple and iTunes hold too much power.  Steve Jobs, a music industry outsider, was in control of what was fast becoming the preferred distribution channel for music. Jobs demanded and got single track sales that had decimated profits from albums. He publicly berated labels to stop using DRM and then iTunes was among the last stores to drop it. The label executives believed in variable pricing, but it took years for Apple to allow it.

Steve Jobs had to be stopped, the label chiefs demanded. The dominance of iTunes must end.

So when Amazon entered the marketplace as iTune's first worthy competitor, the label rejoiced. Here was the partner they had been looking for.  Amazon sold  DRM free mp3's compatible with any device. Variable pricing and full album sales were available the day the retailer went online. Exclusives were encouraged.  Creative promotions flowed freely.

The most effective weapon in Amazon MP3's arsenal is (or was) the Daily Deal.  It's free. Amazon subsidizes every purchase. It could boost total first week sales by as much as 20%. But apparently, that was not enough to stop the record labels from caving within days of Apple's complaints.

Game Over

Neither Apple or the record labels have commented publicly on the battle. Only Billboard got a few scared executives to speak anonymously. But the proof of Apple's tactics and the labels' acquiescence can be found within the Daily Deals themselves.

Gone are most of the new hit makers. There are a fraction of the one day exclusives that there were just a month ago; and the label executives are back to complaining about iTunes instead of helping an alternative compete with them.

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13 Comments

  1. So loss-leading, worldwide Amazon and the arrogant assholes at the majors who painted themselves into a corner, and who have dealt with far worse at physical retail for decades, are just poor little innocents who need you to defend them against evil Apple now?

  2. First, it’s not about majors — Apple could screw over TuneCore, CDBaby, or any number of indie labels just as easily as Warner or Sony. In fact, it’d be much simpler, because it doesn’t hurt ITS’s bottom line very much to delete an entire indie label’s catalog, so they have a bit more leverage.
    I think if this war goes on, however, it might bring some antitrust thunder down on Apple — I mean, they’re basically threatening suppliers in order to fix a competitor’s prices, no?

  3. See also eBook pricing, which I’ve long thought Apple’s sudden interest in has been revenge for Amazon taking mp3 biz. I’m ready for Amazon to start fighting back, though I don’t understand how major labels or publishers dictating prices is legal.
    Considering the $1.29 price increase worked out so spectacularly, it’s amazing the labels would roll over so easily. Or maybe it isn’t. *sigh* Wake me when big media is dead.

  4. Well let’s hope that Amazon can fight their way through this one and continue with the daily deal as well as getting big name releases every once in a while as well. I so rely on those deals to build up my collection. I use this cool google gadget for tracking and listening to the deal:
    http://www.google.com/ig/adde?moduleurl=http://www.frugalgadgets.com/AmazonMP3DailyDeal/AmazonMP3DailyDeal.xml
    or if you don’t use gadgets, you can use this site:
    http://www.frugalgadgets.com/amazon-mp3-daily-deal.php

  5. Oh, this is NOT a major label problem. It’s indies as well.
    Do Amazon Deal Of The Day and Apple will fuck you. It’s a fact!

  6. The “antitrust thunder” that you suggest is necessary with companies who behave like monopolists. It either would mean Apple having to sell off the iTunes platform or the iPod hardware branch. Another possibility would be opening up iTunes for hardware by other manufacturers. The 1st option would hurt their business model less than the other two, I guess, because they make their money by selling hardware, not music at $0.99

  7. Amazon does NOT share ANY portions of customer data whatsoever with its vendors…
    No one complained when Steve Jobs came up with the novel idea of a digital storefront called ITunes 8 years ago. Labels saw those front-end digital checks double, sometimes even triple each month. While the labels were making deposits, both ITunes and Amazon built their respective brands on content, coupled with varying degrees of consumer trust and confidence(insert credit card #s and consumer data here). At its outset, ITunes was purely a music store; Amazon sold everything and anything you could think of. Now mp3s are added to Amazon’s product offering. In both instances, the B2C(or D2C) model has key roles in each operation, yet adoption of B2C or D2C models throughout the recorded music industry as a whole are still considered novel approaches. At the end of the day, customers are going to provide their information, consume and eventually purchase music from sites and places they trust, and are most comfortable.

  8. I know this is a business and everyone needs to make money and wants to make as much as possible. iTunes is assisting musicians and labels to achieve this.
    But here is what I say. iTunes is a marketing idea that worked and they have seeped into the brains of the general public. Buyers of digital music are convinced iTunes is the way you are supposed to do it. Why? because they spent millions and gazillions of dollars in advertising to brainwash the masses that it’s cool and hip to purchase music through iTunes. Well the general consumer has no idea how artists are screwed over by this, how little they get. They do not even get to see who buys their music and connect with them to say “hey, I see you like my tunes, hope to see ya at a show.” Indie artists NEED this connection to grow their fan base and sustain a career of longevity.
    I propose we form a non-iTunes/Amazon digital buyers coalition. This is about re-educating your fans and re-educating the masses that buying direct from the artist is a better choice. This is a marketing/advertising plan that if it is well executed can change the habits and buying patterns of everyone who has been brainwashed to buy from iTunes. (iTunes succeeded, so can we!)
    We use nimbit for all our digital download distribution. They very kindly do not skim anything off the top of itunes and Amazon. But they do take 20% of mp3’s that we sell through nimbit. Here’s why I am really happy to give them my business. I GET TO KEEP THE BUYERS INFO! This is worth it’s weight in gold!
    What a simple concept. This helps increase my sales because I can be directly in touch with people that love our artists music. And they buy again and again. I can offer them thanks and free things. I make them a loyal fan and customer. They come out to shows, we turn casual fans and buyers into loyal fans and buyers.
    Nimbit actually helps us devise ways to reach out, by providing great information and tools.
    It’s time to step out of the old business and into the new. We do not need radio charts/iTunes bestsellers lists etc etc to determine whether or not a musician/band can have a successful career. These people are all manipulators of musicians and their fans! Are you looking to play arenas? Because that doesn’t happen but for a select few. But an artist can have an amazing career touring the country and making money from their music without the help of radio stations/radio promoters/publicists/iTunes/Amazon/record labels etc etc. People who make loads of money off musicians while the musician sits there praying for a miracle as he/she watches the water boil to fill their styrofoam ramen noodle cup.
    Most musicians that are sustaining average to a healthy above average income, and have 10-20 year careers thus far are doing it completely on their own! Unique use of the internet, marketing, and promotion (all free) and personally connecting with the people who like their music is the key to a musicians success.
    Managers, help your musicians grow their own business and be in charge of their destiny. Let’s not let billionaires tell us how it’s supposed to be done. Think outside the box make a great business pla, and career for both of you! It’s not easy, but it can be fun and creative. That’s why we do this. (Well, that’s why I do this… can’t speak for you all)

  9. Oh for Christ’s sake.
    What was so novel about Apple’s digital storefront? Liquid Audio, Rioport and others had been doing it for years prior to Apple, and in fact, Jobs tried to buy Liquid, couldn’t get it done, so he aped much of what was already in the marketplace.
    This revisionist notion that Apple invented the digital music market makes me want to puke. They’re successful at it because they never HAD to sell music to make money – they made their cash off of the iPod. Apple didn’t invent the digital music marketplace – they built it on the backs of true pioneers that sadly, are now forgotten.

  10. What Apple delivered to the paid-download digital marketplace was an end to finger-pointing. Basically, reliability. Also, smooth integration.
    Outside of Apple, the digital storefronts at that time were selling Microsoft’s WMA files. Seeing as how a key point of WMA files is that there are lots of conditions under which WMA is DESIGNED not to work, there was lots of places for consumers to find out that some of their purchased WMA files wouldn’t play on portable systems from lots of vendors.
    And since the DRM’d files and the players came from different companies, the vendors would point fingers at each other when things broke. With the closed Apple ecosystem, there is only one seller — if it’s broke, Apple has to make it right. Also, if there is only one vendor, getting the DRM’d files and the players to accept each other is much simpler.
    The music industry could have avoided selling its soul to Apple if it had been willing to adopt paid MP3 downloads in the early 2000s. As MP3 files lack properties designed to make them fail, it is much easier to build a heterogenous player/music seller ecosystem around MP3. We are starting to see that now — I don’t hear any complaints that files from Amazon and eMusic don’t play for consumers — but Apple has a huge start and a huge lock-in.
    Bottom line — the industry’s paranoia about sharing and the insistence on difficult DRM solutions led the industry to shoot another foot off.

  11. LOL. Sounds like the story of America…..
    The fact is, Apple saw a lane and drove thru it. While Apple did not invent the digital marketplace, they built consumer trust and confidence to help drive everything associated with it. Question – If Apple decided to do away with ITunes, does the digital landscape significantly change overnight? What is the response of the labels? This issue has less to do with ITunes and Amazon than it has to do with the industry’s pace in adopting and accepting D2C as a core part of their future revenue growth. The labels put themselves in this position (much like we saw with big box physical retail and CO-OP). Yet another case of the tail wagging the dog.

  12. I’ll agree with your synopsis, which is largely correct, with a couple of caveats: Liquid Audio, who were the big dog before Apple, were selling AAC tracks with DRM, not WMA. And A2B had their own non-MP3 or WMA solution as well. And Universal tried launching their own format, which was codenamed “Nigel”.
    There were lots of smart people with good solutions, but you’re right, we made them adopt onerous DRM requirements – phrases like “check in/check out” still haunt my dreams. The major labels bear 100% responsibility for hobbling all of these early companies.
    Liquid Audio’s Gerry Kirby tells a hilarious and interesting tale about Steve Jobs calling him repeatedly to buy Liquid Audio (and being a total ahole)…..
    Apple had the balls, the brains, and the infrastructure to deliver something that worked really well. But they stood on the shoulders of giants, and to say that what they did was “novel” doesn’t acknowledge the pioneers and creators whose original thoughts they aped.

  13. Insider & Old Record Guy:
    Apple did not build their brand on content, they built it on hardware, hardware that works and is awesome. Don’t kid yourselves, Apple would be just fine if they closed the iTunes store tomorrow, but the labels they shut out would evaporate in a dust cloud if they did that.
    The nerds hold all the cards now guys.
    bbb
    http://wheatus.com
    http://twitter.com/wheatus

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