Will a UNI Pull-Out Dawn The End Of the Download Innovator?

By Moses Avalon

So, imagine you’re a die-hard fan of Amy Grant, Blink 182, Def Leppard, Elton John or Ja Rule, and you go to iTunes to buy their new release but it’s not there. Nor is any music by artists on Universal Music. Why? Because, Apple may no longer carry the catalog of the world’s largest record company. What will you say to yourself?

Well, according to Steve Jobs, CEO of Apple, you’ll say, “Too bad for Apple, I’ll buy another artist that I can easily find here on iTunes. There are thousands.” But according to Universal Music, you’ll say, “Na… I’m loyal. Ill just click over to Rhapsody, Napster, Yahoo, or (God forbid go to a record store) and get what I want. Not what Apple wants to sell me.”

This is the Mexican standoff drawing near because of Universal’s bold statement last month: they are not renewing their bi-annual contract with Apple and instead putting them on sort of month-to-month lease for the rights to sell their artists. Anyone who has ever rented an apartment knows that when your landlord says he will not renew your two-year lease and puts you on a month-to-month, it’s not good times.

Publicly, Jobs seems very casual about this. This may be because he’s betting people are fans more of his buying experience, over the artists themselves.

Who is right? Well, that’s the $200,000,000 question. This is how much annual revenue the industry stands to gamble with if Universal’s move inspires the other majors to do the same. If push came to shove, could the majors really afford to boycott the world’s largest retailer of on-line music? Probably not. So what is this really all about?

If you’ve read some of the blogs on this ground-breaking issue, “insiders” are saying that Universal is posturing a sort of strike if Apple doesn’t allow them to dictate different pricing for different artists. However, Jobs has stated that he feels staggered pricing would alienate the consumer. But, those of you who read the DRM Manifesto in the July 2007 issue of EQ should be able to figure out that this has nothing to do with staggered pricing. There’s really a much broader agenda at work.


Y’see, it’s real simple: the majors hate iTunes. Yes, it brings in a lot of revenue, but the majors want everyone to get their downloaded music via subscription based services like Yahoo, wherein you pay a monthly fee of about $15 and go buy the CD when you’ve decided what you really like. This is the future they are trying to sell. Using this system labels, publishers and the artists make far more than if the consumer buys a 128 bit low-res file for a one-time fee of 99 cents that can only play on selected (networked) devices.

But Jobs will not make iPods compatible for use with subscription services. (And he claims he’s pro consumer). To do this, iPods would need to incorporate a program that generates royalties based off “play events” (a royalty generated from each play on an MP3 player or computer payable to the label/artist and writer.) Without this type of digital rights management software, the iPod remains one of the only music players in the US that proactively endorses people experiencing music “shared” from unlicensed sites.

And so the majors hate iTunes.

Jobs knows this. He could make them like it more. But instead has refused to make iPods compatible, stating instead that labels should remove the “lock” that disallows copies of music files to be “shared.” (Read: labels should let everyone steal their inventory so that Jobs cans sell more iPods and iPhones.)


If they could get away with it, every major label would probably bail out of iTunes until Jobs decided to play ball. But aside from the lost revenue, if all the majors conspire to boycott iTunes, Apple would have a billion dollar claim against the RIAA.

The far smarter move is for a mega major like Universal to “break ranks” and pull out for personal reasons. No anti-trust issues and yet it would seriously handicap iTunes because Universal controls about one-third of the product in the marketplace.

Who would have thought Universal would be the rebel label? Will they win the coming stand-off? What’s at stake? Just the way we all make money with music in the 21st century.

Stay tuned.

Moses Avalon

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More links on this: http://www.reuters.com/article/businessNews/idUSN0128300220070702?feedType=RSS&rpc=23&sp=true


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