In The Ring: UMG and Apple!
In the wake of the iPhone launch, Apple has found that the celebration may be short-lived. Universal Music Group of Vivendi(UMG), the biggest music corporation in the world, told Apple last week that it will not be renewing its annual contract that allows the sale of the company’s music through iTunes.
Instead, Universal has said it will market music to Apple at will, which could give UMG the power to remove songs from iTunes at short notice if pricing terms are not agreed upon. This is an attempt for UMG to regain a bit of leverage; however it may come at the cost of a showdown with Steve Jobs.
Artists include U2, Elvis Costello, Jay-Z and Shania Twain to name a few. Major record labels have been building tensions with Apple for some time and these negotiations may be seen as the tipping point. Music business insiders have been concerned that Apple has almost created a monopoly on the market with the pricing they have put on music and the iPod’s lack of compatibility with other music services.
If Universal pulls the plug on iTunes, Apple could lose access to the record labels responsible for one out of every three new releases sold in the United States. This could prove to be very upsetting to brand new iPhone owners since the technology allow access to the iTunes program as well, making it possible to download music onto your phone.
Should Apple be the one to refuse to carry UMG’s music, the company would suffer the loss of the upper hand on the digital music market. iTunes as well as other sources account for more than 15% of UMG worldwide revenue this first quarter, which is more than $200 million.
Sony BMG Music Entertainment, number two on the totem pole, has just signed a one year contract with iTunes so the potential flight of UMG would not necessarily cause an uprising against Apple.
Apple has sold over 100 million iPods which, being tied to iTunes, has made Apple the leading seller of digital music by a large margin. iTunes is responsible for 76% of digital music sales…and climbing. The company is the number three music seller over all, behind Wal-Mart and Best Buy. With the sales of iPhones remaining to be seen, the number is sure to increase.
Jobs contends that the 99 cent price point of songs(more for songs without piracy protection) is what keeps generating new business and reduces piracy. However, music executives are pushing for Apple to charge more for popular songs and capitalize on demand, or charge less for special promotions.
Even though he is unwilling to change the price of songs, Jobs is also unwilling to license Apple’s proprietary copy restriction software to other manufacturers that would allow other players to play iTunes music, and iPod owners to buys from other sites as well. Jobs argues that sharing software would increase the amount of hacking and other issues.
Apple has asked for music companies to drop their insistence on copy protection. Only EMI, one of the four music companies, has made a deal to sell unrestricted music on iTunes.
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