Universal Threatens iTunes Exit
According to reports this weekend, Universal will not renew its contract with iTunes and instead will offer songs "at will" allowing the label group to be selective about what it offers for sale to Apple.
The flap is apparently over variable pricing. Universal wants to charge more for hit songs and less for special promotions and some catalog according to sources. But Apple has long demanded flat 99 cent pricing only allowing variation for special bundles and its DRM free offering with EMI.
This is a battle of two titans who need each other. Universal produces almost 1/3 of all albums sold and iTunes accounts for a growing 15% on Universal’s sales.
COMMENTARY – Not mentioned in the mainstream press are the related implications of Universal’s own rumored DRM free experiments coming to a variety of storefronts including Amazon’s pending DRM free download offering. If Universal’s tracks are widely offered as iPod compatible mp3’s; than iTune’s lock on sales and Universal’s need for Apple both diminish.
While its doubtful the two won’t strike some kind of deal, who blinks first has long term implications for the music industry. #2 label group Sony BMG, the most conservative of all of the majors digitally, has reportedly just renewed its iTunes pact. EMI played by its own rules when it went DRM free with premium pricing. And publicly traded WMG lacks the clout to radically change the game leaving Universal the lone warrior against what many as a too powerful Apple.
I think Apple on the high ground in this fight. By all accounts, their iTunes profit margin is razor thin, for them it’s not so much about profit from music sales as it is driving iPod sales. Apple is mainly a computer gadget company, they employed the same strategy with their computers. If you want their advanced operating system, you’ve got to buy their box. They use the soft merchandise to sell the physical product. It’s a model the record industry ought to look at.