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Universal and Apple get Ugly
July 2, 2007
Thomas Mennecke
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Surprise, surprise. News is circulating that Universal Music has decided not to renew its annual contract with iTunes. Instead, Universal is trying to opt for a shorter term agreement - perhaps as short as a per month basis - in an attempt to gain leverage against the iTunes juggernaut.

According to the New York Times, this news was leaked by an unnamed Universal executive who remained anonymous because the briefing was confidential. This is the equivalent of breaking a friends secret by saying, "...don't tell anyone I told you, but..."

If we're to believe this unnamed and confidential source, it's news that's been a long time coming. Since iTunes became the quintessential source of authorized digital music online, the major music labels have been clamoring for variable pricing. Hopefully, from their perspective, a variable price that would place the final cost of popular music above the constant 99 cent price tag. This concept didn’t sit well with Steve Jobs, the CEO of Apple.

"If they want to raise the prices, it means that they are getting greedy…If the price goes up, they (consumers) will go back to piracy and everybody loses."

In a way, variable pricing has already arrived at the iTunes Music Store. EMI's "DRM-free" (Digital Rights Management) music is selling above the 99 cent price structure, at around $1.39 per track. The argument could be made, if EMI can sell music above 99 cents, why can't Universal?

Going back to the opening paragraph, this move, if indeed true, is an effort to gain some negotiating power against Apple. CD sales continue to slump, overall sales are down; and digital music is the only bright spot in an overall dismal music industry. Apple is the dominant source of authorized digital music, and with that status comes great power. Universal is trying to pry away some of that power, and steal some of Apple's iPhone headlines to make its case. However, how critical is Universal's threat against Apple?

Although the iTunes music store has given Apple the distinction of being the premier online retailer, it's by no means its primary source of income - not even close. The iPod, which is populated by sources ranging from P2P, friend to friend, some guy on a street corner, and perhaps even iTunes, is the primary money maker for Apple. Digital music sales means a lot more to Universal, and the music industry as a whole, than it does to Steve Jobs. While this is a strong move on the part of Universal during Apple's media euphoria, its foundation may prove too weak to stand against the Apple behemoth.

This story is filed in these Slyck News categories
Authorized Music Store :: iTunes

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