Apple To The Rescue...Again? - Forbes.com

Apple To The Rescue...Again? - Forbes.com
NEW YORK - Apple Computer, whose iTunes and iPods took a major step toward rescuing the music industry from the grip of pirates, is poised to do a similar service for videos.

Some of the top music labels say they've been contacted by Apple (nasdaq: AAPL - news - people ) about the prospects of selling music videos on iTunes—probably ahead of a fall debut of a color-screen Apple full-motion video iPod. The labels ought to be jumping for joy.

Since the debut of MTV nearly a quarter century ago, the top music companies have been churning out music videos to fill an instant need for 24-hour services that reach their music buyer audience directly and immediately. As one music industry insider put it, "the labels watched MTV build a multibillion dollar business on material they supplied for free."

And that was at a big, sometimes enormous, cost. Some of the highest-concept, most elaborate videos soared well into seven-digits for the hottest groups. The cost of producing a Michael and Janet Jackson video for "Scream" passed the $7 million mark for just a few minutes of high-concept production. Until now, music videos have been entirely a cost-center for the music industry—alongside ads, posters and other promotional devices.

Now, suddenly, Apple is dangling the prospects of turning these into a profit center, or as one senior record label exec put it, "at least it might let us recover our costs."

In fact, it could do whole lot more than that. Recently, with growing music piracy adding to the burden of big-time record labels and their stars, there's been a shrinking piece of the pie left for the production of music videos.

Video directors—and in the interest of full disclosure, my son is one of them—have seen budgets cut from the high-six figures to the low-six figures and down into five, even four figures as well. This has certainly led to some pretty creative forms of budget cutting and video design. Still, with a pot filled suddenly with real gold at the end of the rainbow, there might be incentives to put some real money into what remains a true cinematic art form.

The ice was broken back in May when Time Warner's (nyse: TWX - news - people ) AOL and Sony (nyse: SNE - news - people ) BMG talked about making Sony BMG's huge catalog of music videos available on AOL, for a price estimated by some at $25 million or more. Suddenly, monetizing what had been a library of dusty videos seemed to become more than an early pipe dream of Andy Lack when he took over as head of Sony BMG. Universal and Warner reportedly have similar deals in place, granting customers of the big portals online access to its music video catalogs, and EMI may not be far behind.

And MobiTV, the video service for cell phones, already carries three music video channels offered by San Francisco-based CMC Broadcasting. CMC has a 25,000-strong library of videos which users can access as part of the $10 per month subscription to MobiTV. At the same time, Microsoft's (nasdaq: MSFT - news - people ) MSN and Yahoo! (nasdaq: YHOO - news - people ) are offering one time only streaming videos on their Web sites.

The big problem is that some of the Internet portals, such as AOL, wanted exclusivity from Sony BMG. But the labels aren't about to get snookered a second time like they did with MTV, when they gave up their music videos for free. Exclusivity might be a good thing in the short run for the likes of AOL. But if an 800-pound gorilla like the Apple-iTunes combo is lurking just off the trail, locking a label into a single distributor could prove to be a huge costly mistake.

Now, with Apple also on the phone to the likes of Warner, Universal, EMI and a host of other labels—and the wallets of millions of teeny-boppers poised to open for a whole new medium—there's talk of big money not so far over the horizon. Already, Apple said this weekend it has sold 500 million songs (at 99 cents a pop) since iTunes went online, and analysts are talking about a near-term market of 125 million music videos, presumably at a comparable figure.

Moreover, according to the Recording Industry Association of America, music video sales (DVD and VHS) jumped 51% last year to 32 million units, good for a haul of about $607 million.

All these numbers are just a fraction of the billions being lost every year to music pirates. According to NPD, there were nearly 275 million songs downloaded on P2P networks—i.e. stolen—in March alone, comparedto only 25 million songs purchased through legit services like iTunes.

Still, it's a start.

With reporting from Lisa DiCarlo.