Apple Hosed the Music Industry

NEW YORK (TheStreet) -- For background, see June 2013's Apple (AAPL) Should Be Ashamed Of Itself and August 2013's Downloads Die, Apple Lives, Music Industry Suffers.

Last summer, as most others hemmed and hawed, we were out in front. What we knew then -- and never second-guessed -- has become painfully apparent to the obvious masters today:

CD sales died. Digital downloads are dying. Streaming rules.

Because, outside of a handful of diehards and purists, who of sane mind and body would spend hundreds or thousands of dollars annually on CDs and/or downloads when they can drop $10 to $20 a month to access an unlimited number of songs (and albums) as often as they like?

Add Pandora (P), the only pure-play radio offering, to the mix and Web platforms serve music fans like they've never -- ever -- been served before. And because streaming music is more than just this ephemeral thing that's happening, we are never, ever getting back together with the old way of doing things.

While Apple deserves to be called out for shafting the industry, we should chide the music industrial complex -- major and independent labels alike -- for submitting to Tim Cook after Steve Jobs rode them hard and put them away wet.

Consider what Apple has done to the record labels over the years.

First, Steve Jobs destroyed the record album. The days of blowing $10-$20 on an LP went away with iTunes. Whereas today's no-brainer is on-demand, subscription-based streaming, coupled with Pandora (not to mention YouTube), yesterday's clear choice was buying only the songs you like at $0.99 (and, later, $1.29) a pop.

On one hand, the album gravy train needed a kick in the ass.

On the other, there's nothing better than an album artist. They're a dying breed. Springsteen and Taylor Swift are two of a handful of present-day acts who still create beginning-to-end masterpieces worthy of your investment.

That said, for all intents and purposes, thanks to Apple, music listeners have lived in an a la carte world for quite some time. That's pretty incredible, particularly when you consider how cable/satellite television subs incessantly and futilely long for the same.

The music industry, flat-footed abomination it is, had no plan for this new world Apple and the then-emerging digital era introduced. It simply allowed Apple to use it like a cheap (you fill in the blank) to further Cupertino-centric ambitions.

Fast forward to Apple deemphasizing iTunes in favor of iTunes Radio, the Pandora radio knockoff. The first link in the first paragraph of this article explains the shenanigans Apple pulled there. Truly shameful if you think Apple ought to have the interests of "somebody" other than itself in mind. Truly pathetic if you think the music industrial complex brings its misfortune upon itself thanks to mind-numbing inability to vision and dictate its own future. (Mark me down for equal parts shameful and pathetic).

Apple shoved a bad iTunes Radio streaming deal down the industry's throat. One accepted by major and, to my surprise, indie labels as well. These cats likely signed on with nary a whimper because Apple floated the false notion that iTunes Radio would prompt listeners to pay to download music. You know, use the "Buy" button (which actually lists the price in red until you click it and it turns green) located in the top righthand corner of your iPhone screen.

It's not happening. At least not at any meaningful scale to turn this pitiful tide ...

The first graph chart shows sales. The second displays units. Both come from the Recording Industry Association of America (RIAA) via CNN/Money:

If there was ever a time and a place to refer to an industry as "populated by complete and total morons," this moment -- right here, right now -- is it. What a gaggle of complete and total morons.

It's funny (not, as in, funny haha) to consider what Apple did to the music industry ... Twice ... But even funnier (not in a knee slapping way) to compare the greatness of Apple as an organization with the ineptitude of the music industrial complex.

Here's an industry that owns its greatest asset -- music.

Outright.

Yet it sat idle for decades. First relying on old school and now dead physical distribution channels to realize, granted, great success. But there was never a succession plan in place for the digital era. Not to replace sales. Not to revamp a royalty system that hasn't changed in ages. The record labels -- big and, with few exceptions, small -- allowed Apple to determine the look and feel of change. And, as we move forward (finally), it will be Pandora who will dictate change with respect to royalties.

(Here's a link to a The New York Times story on that. I'm not riffing on it much here because I have spent the last two years articulating what went wrong, what things look like today and why and how things would ultimately transpire. I'll leave the rearview mirror analysis to the Monday morning armchair QBs).

So, for all intents and purposes, the music industrial complex ended up relying on Apple for exposure. The very same thing Pandora and the rest of Internet radio provides. Curiously, however, the industry loathes -- or at least love/hates -- Pandora and Spotify, but spews absolutely no venom Apple's way.

That's nutty. But probably explainable.

The industry likely viewed Apple as a partner ...

Translation: Enabler!

Anyway, Apple's not in the music business. It's not even really in the business of selling songs or apps or software or services. It's in the business of selling high-margin, premium hardware that everybody has, wants and will infinitely upgrade.

The music guys had to be a part of that. They must have figured that if Apple was smart and savvy enough to change the world, they could create an environment where a dollar-per-download could produce the same amount or more revenue than $12.99 per physical CD.

They banked on the notion that "Complete My Album" and, later, iTunes Radio would drive download sales that would miraculously change the laws of basic mathematics. Of course, during this time of imbecilic passivity, the music industry could have been building out their own direct-to-consumer digital platforms, organized on their terms and for their benefit.

Instead the record guys have sleepwalked into a world driven by Apple, Pandora and a handful of other players as well as an attitude of every man for him or herself.

There's no uniform (and, as such, industry-wide lucrative) approach to streaming songs, selling bootlegs, live streaming concerts and marketing music in ways it hasn't been effectively marketed before. There's no logic -- other than that supplied by the aforementioned self-interested others -- to anything the record business does. There hasn't been any for years.

These guys have failed so miserably, they're most likely left with only one viable option: Submit to outsiders yet again.

That means finally embracing everything from Pandora's version of radio to a somewhat established subscription service such as Spotify to relatively struggling startups like Rdio. It also means telling the tech companies that have led the streaming revolution that we (the music industrial complex) screwed up. We should have gone all-in with you guys in the first place, but we didn't and now, well, we're left with the two charts Rocco used for one of his recent articles.

So we're here. Use us and abuse. Tell us what to do. And we'll do it. We'll submit to the dynamic combination of technology and data. We'll put the power in your hands -- not necessarily Apple's -- and we'll hold out hope that the outcome, ten years down the line, is better than what we're left with today.

That's not necessarily a portrait of action for the music industry, but it's marginally better than the inaction that has come to define it. 

--Written by Rocco Pendola in Santa Monica, Calif.

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks. Rocco Pendola is a columnist for TheStreet. Whenever possible, Pendola uses hockey, Springsteen or Southern California references in his work. He lives in Santa Monica.

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