Apple iTunes: Changing the Face of Online Music Retailing Industry

Labels (record companies) play an important role in all three stages by providing capital and the marketing know-how to create, promote and distribute music. Music marketing takes place through branding, community building and information dissemination. Music is sold in 'containers' like compact discs (CDs) and audio cassettes⁷ through distribution channels. Another form of music distribution is conducting public and private music shows. The business of music involves many intermediaries between artists (creators) and customers (end users). Each intermediary adds to the final cost of the product. Therefore, some record companies like Bertelsmann combine the roles of multiple intermediaries to reduce overall costs by selling music directly to their club members at low prices.

Record companies have always been a dominating force in this industry since they control major marketing and distribution channels. They exert their might by binding individual artists to long-term contracts. Most of the artists bound themselves to record companies lured by the latter's financial muscle, experience and marketing prowess - all of which were necessary to succeed in the business, and none of which the artists had. This also meant that emerging artists could not compete on their own as they did not have access to big companies. Therefore, they either had to be 'lucky/resourceful enough' for a record company to spot and sign them, or they had to be content with operating in niche markets. Due to the clout labels wielded on the industry, they reportedly took away a huge share (around 80%-90%) of profits...