iTunes, is it still a great option for Artists?

By: Ethan Smith & Nick Wingfield
(The Wall Street Journal; Market Place Section, 8-29-08)

iTunes has been the runaway hit of the music business, selling more than five billion song downloads since it started five years ago. But a growing number of record companies are trying to steer clear of Apple Inc.'s behemoth music store, because they say selling single songs on iTunes in some cases is crimping overall music sales.

Kid Rock's Rock 'n Roll Jesus album was kept off iTunes' virtual shelves. It has nonetheless sold 1.7 million copies in the U.S. since its release last year---a sizable number for the depressed music industry. Sales of the album have increased in 19 of the past 22 weeks, according to Nielsen SoundScan, vaulting it to No. 3 on the Billboard 200 sales chart. After witnessing the album's performance, his label, Warner Music Group Corp.'s Atlantic Records, last week yanked an album by R&B singer Estelle from the iTunes Store, four months after it went on sale there---and the same week that one of its songs entered the top-10-selling tracks on Apple's download service.

... there is growing discomfort with the dominant role iTunes already plays: The store sells 90% or more of digital downloads in the U.S., surpassing Wal-Mart Store Inc., according to research firm NPD Group Inc.

Label Executives, managers and artists chafe against the iTunes policy that prevents them from selling an album only. iTunes, with few exceptions, requires that songs be made available separately. Consumers strongly prefer that, though Apple also typically offers a special price for buyers who purchase all the songs on an album.

Some artists see their albums as one piece of work, and don't want them dismantled. Their handlers believe they can make more by selling complete albums for $10 to $15.00 than by selling individual songs.

Irving Azoff (manager of the Eagles) says, "I'm underwhelmed by the number of sales I see on iTunes for the classic bands."

That sentiment was a factor in the Eagles' decision to sell their latest album, Long Road Out of Eden, only through Wal-Mart.

Shunning iTunescarries risks for the labels. Not only is it the biggest force in music sales, but keeping songs off the service could prompt listeners to look for illegal downloads instead. In addition, customers have demonstrated a clear preference for buying singles instead of entire albums. Only in few cases have record labels been able to boost album sales over those of individual songs.

Kid Rock's manager, Mr. Levitan, points out that if his client's album were sold the way iTunes wants, many of his 1.6 million U.S. album sales to date would instead have shown up as 99-cent downloads of the hit single "All Summer Long."

A Warner Music Group Spokesman, Will Tanous, calls removal of certain music from iTunes like Estelle's "American Boy" is a part of a broad range of digital-release strategies "uniquely tailored to each artist and their fan base in an effort to optimize revenues and promote long-term artist development.

In other cases, Mr. Tanous added, Warner has made songs or albums available exclusively on iTunes for certain periods, if that seemed a promising approach.

Since the beginning of 2006, only the Beatles have sold more "catalog" albums in the U.S. that AC/DC---also without licensing their music to iTunes. Among the six best-selling catalog artists during that period, the act that sold the most individual songs digitally--The Rolling Stones--sold the fewest albums, digital or physical. That is important because while the Stones' six million single tracks sold may seem impressive, they represent low-cost, low-profit transactions. Album sales, on the other hand, are much more profitable.