09/17/2008, 3:45pm, EDT
Wednesday, September 17thUniversal turns profit from music downloads
Universal Music may have finally reached the point at which purely digital music has become profitable, Vivendi Universal chief Jean Bernard Lévy has told the Financial Times. Despite most major labels having seen rapid declines in CD sales that have yet to be compensated by online purchases, Universal now has a "surprise" for investors of a five percent boost in its first-half 2008 revenue to $3.1 billion where it would previously have posted a loss. The change is a sign that the company is nearing the point at which CDs can hurt its bottom line, according to Lévy.
"There is a strong likelihood that we are getting close to the lowest part of the cycle," he says. "“I really believe we are at the turning point for the music industry and I didn’t say that two years ago."
The executive explains that some of the optimism comes from the company finding more viable alternatives to generate revenue from music, which has included its efforts in starting up Nokia's Comes With Music service that ties a year of unlimited music downloads to a higher phone price. He also points to accelerated growth from planned or potential initiatives such as MySpace Music as well as "possible future deals" with Apple, although he doesn't add detail to the remark.
Whether any other steps have helped the company's bottom line performance is unknown. The company offers unprotected music at stores such as Amazon MP3 but has been resistant to doing so at iTunes and elsehwere.
Universal's revelation also comes as direct-download music is becoming the dominant form of purchasing in some countries. In the US, iTunes is the largest individual music retailer ahead of very large CD-oriented stores from Wal-Mart and Best Buy while also playing a significant role in other areas.
Filed under: industry
Other story tags: iTunes, Nokia, Amazon, Universal, Comes With Music, Vivendi
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uh, yep
Oh boy, golly gee --
Hasn't everyone been trying to tell this to the record companies for 5 years??!!
Now, watch as they develop a new business model, keeping the ability to screw the artist over, of course.
Doofuses.
but they would
be making so much more money if they could a) force people to by songs in groups of say 13 songs instead of just one at a time and b) if they could charge a higher per song rate than what Apple unreasonably won't let them do.
here's a thought
The record companies have made a profit from digital downloads from the first day iTunes went live. That's a fact that is irrespective of their dwindling CD sales. And the only reason they are able to make a profit from digital sales is that Apple showed the way.
Every music exec should be on their knees to Apple. But, they won't, because they're just too stupid to understand.
As if you know. . .
No, the record companies haven't been making a profit from digital downloads on iTunes. There is a difference between making sales and making a profit.
I realise this may be controversial in an era when Web 2.0 firms think that number of users will magically turn into money, but profit means generating more income than your costs - and the costs of recording and promoting music haven't fallen much, just the costs of manufacturing (zero) and distribution. Equally the average unit price has also fallen.
The thing is that the accountants in the record companies understand this kind of basic economics in the way that web people really don't seem to get.
Re: As if you know
Oh, Jules, you're so naive. Don't you understand. Music companies are already making music, and already making CDs. So the cost of the digital file is next to nothing, and, as such, every cent they make is pure profit. You don't add the revenue of the digital sale to the revenue of the CD sales and break it down that way. It screws up the argument.
And, on top of all that, don't you understand that there's no need to spend money on production now, because the files are digital. And there's no need for promotion, because it is the internet, and word of mouth and iTunes will sell music like you wouldn't believe!