July 2, 2007
Universal Music Group Stiff-Arms Apple
Universal Music has declined to sign another one year agreement to sell it's music via the iTunes Store. The company opted instead for a month to month deal while it looks at options to sell music on other services. Universal and other labels complain they have no leverage with Apple, who holds approximately 70% of the online music sales market. Steve Jobs always insisted that the sweet spot with consumers was at 99 cents. He only broke with that view when he agreed with EMI to sell higher quality tracks with no DRM for 30 cents more. Even then consumers only paid the difference for the track upgrade.
That was not a road Universal wanted to travel, not with getting a dollar from every Zune unit sale from Microsoft and nothing from Apple for the iPod. Royalties from the iPod would be real money as Zune sales are minuscule in comparison. Moreover, Apple insisted on selling single songs rather than emphasizing albums. Artists lamented that fact over creative issues while the labels lamented the money they weren't making from song collections. The seller couldn't always repackage old songs with one or two new ones to force a greatest hits resale as they could with CDs.
Universal is looking to create an alternative to the iTunes store. It wants competition, which is probably a good thing. Everyone says that competition spurs innovation. The problem with Universal's vision of competition is that it's an online version of the CD distribution model with copy protection. Apple promotes the concept that consumers are willing to buy music if they get a good deal. There must be some merit to this given their market share.
Universal will have to put some thought into how they will offer a better deal than Apple. Price isn't everything. if it were, Wal-Mart would be king of the heap. The iTunes store is the easiest place to buy music and the iTunes software is very good at managing music files. The included DRM even gives consumers options to share music between computers. The only place with better terms for consumers is through illegal file sharing. Universal is going to have to come up with something better than free. Will it have the marketing imagination to do that?
July 2, 2007 | Permalink
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It would be interesting to see what would happen to the company's share price (if was listed) if it did actually remove its songs from iTunes. I imagine that they would quite seriously tank as Universal would be giving up a significant growing revenue stream while other streams are declining.
Google Finance shows that Vivendi shares fell around the news of the iTunes short contract.
Who has the most balls, Steve or Doug and who has the most to loose? My guess is Universal has the most to loose and Steve has bigger balls. UMG's overall revenues declined last year while the digital music sales rose by 54%.
Posted by: Simon | Jul 3, 2007 4:58:02 AM