Apple as gatekeeper
Apple may be an also-ran in the computer business, but in the music business it is now the ruling oligonomy. It stands between the big music companies and music consumers with iTunes putting it into an oligopoly (a near monopoly) of digital music provision and an oligopsony (near monopsony) for the distribution of music from the Big Four record companies. Apple has become the indispensable Middleman in the business.
That all is made clear in a Wall Street Journal article ("Music's New Gatekeeper," 3/8/07). As the key retailer in the business, What music Apple stocks on its "main shelves" (key Web site pages) is a matter of critical importance to those who want to have people buy that music. As the article puts it, "Every day, the roughly one million people who visit the iTunes Store home page are presented with several dozen albums, TV shows and movie downloads to consider buying -- out of the four million such goods the Apple site offers. This prime promotion is analogous to a CD being displayed at the checkout stands of all 940 Best Buy stores or featured on the front page of Target's ad circular."
This phenomenon, something that Internet with all its variety was supposed to end, is, if not a refutation of the theory of the "Long Tail," at least a serious complication. While the myth is that the Internet represents an infinite array of shelves (I think of Borges's library of Babel) with everything democratically and randomly available, the real world has a way of organizing things up front or way back, even when it's all cyberspace.
The article notes that Apple, at least so far and on the surface, does not sell this prime territory to the highest bidder, something it might well be tempted to do. But, as the article points out, "there's plenty of horse-trading going on", including for exclusive offerings and fee reductions.
Apple, in other words, has a unique opportunity to drive sales, and there are those who think it's using that power to bully artists and companies. Apple now is organizing sales and specials that can really push the music that they choose to single out. And, as the article notes, "Apple is a rare growth story in the music business. It nearly monopolizes digital-music sales, just about the only growth area for the beleaguered industry, which saw CD sales fall for seven years running. ITunes sold 1.2 billion songs last year compared with 30 million in 2003, its first year in operation, Apple says. The company says it passed Amazon.com last year to become the fourth-largest music retailer in the U.S., behind Wal-Mart Stores, Target and Best Buy, a claim that isn't disputed by music companies."
So far Apple has been a fairly benevolent oligonomy. It has not squeezed recoding titles except to persuade them to make specials available that lower the price for the consumer. And Apple makes little money from iTunes (the real money is from selling iPods.) In fact, the taste of the hip computer and music pros at Apple are often the determining factor.
But the question is when, if not whether, Apple will start using its oligonomy power in ways that hurt both the record companies and the consumer. Monetizing of its position has to be constant temptation. O far, Apple has been growing rapidly year over year, but what will happen if the company as a whole falters? In Europe they have already been sharpening the antitrust knives, and the US might be next.
10:11:14 PM 
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