Wednesday, May 12, 2004

ITunes Conference Call Transcript

I've seen some references floating around about the ITunes conference call, but was finally able to find the full transcript of the call at The Mac Observer. Funny thing: I downloaded the new version of ITunes when it came out, and found more features that I didn't know about by reading the transcript.

Anyway, one of the most interesting pieces of the transcript comes in the Q&A:

"Steve Jobs: Oh, there's, you know, there's a lot of challenges that we all face together. Let me give you one that's really exciting to us, which is that if you look at a typical music company, less than a third of their music that they have in their vault is actually available for sale. And the reason for that is, is because with traditional CD distribution channels where you have to make a physical object, somebody has to carry the inventory, somebody has to make, you know, rent space to put it on a shelf, they can't get distribution for a lot of their catalogues that's sitting on their vault because it wouldn't sell enough to justify, you know, the record company...the record stores carrying it. And it's getting even worse with the demise of the small individual record store and the tendency of, you know, of Wal-Mart and Best Buy, et cetera, the selection is even narrowing further.

And one of the most exciting things for us is to get the rest of that catalogue, which has not been purchasable, in some cases, for decades, digitally encoded and online on the iTunes Music Store where there is no inventory, where there are no returns, where there is no rent for the shelf space, and make that music available to everybody."

Let's examine the business proposition for the record companies at a high level: The record companies are sitting on inventory that is really not selling with any rapidity at this point. There would have to be some small amount of money spent (i"m guessing it's less than a minimum production run for a series of CDs) to encode the music. This encoding process only has to happen once; they could encode at 384KBPS, 256KBPS, and 128KBPS at the same time to save having to do it again in the future when the price of storage will make it likely that consumers may want higher quality recordings. Once encoded the tracks could then be sold on every music service (not just ITunes); the cost to change the encoding scheme to the proprietary shceme (Itunes' AAC, Sony's ATRAC, Napster's WMA) should be borne by the store.

Umm . . . this seems like a really good idea. Record companies, are you listening? Start releasing your libraries! If you're worried about upfront costs, maybe you make an exclusive deal with ITunes where ITunes pays the upfront encoding costs and retains the exclusive right to sell your library. Believe me, ITunes consumers are lookign to buy your back library.

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