Universal unwilling to renew annual iTunes contract - report

[AppleInsider]

Following a standoff in negotiations, Universal Music Group of Vivendi, the world’s biggest music corporation, last week notified Apple that it will not renew its annual contract to sell music through iTunes, reports the New York Times.

Citing "executives briefed on the issue," the newspaper said Universal will instead look to market music to Apple at will, which could allow the label to yank its songs from the iTunes service on short notice if the two sides do not agree on pricing or other terms in the future.

The New York Times characterizes the move by Universal as a bid to regain a bit of leverage in the near-monopoly that Apple chief executive Steve Jobs has created in the digital download sector -- the one part of the music business that is showing significant growth.

In particular, Jobs’s stance on song pricing and the iPod’s lack of compatibility with music services other than iTunes have reportedly become points of contention between the two parties. The Apple headman has adamantly demanded that iTunes stick to its original pricing system that charges a flat 99 cents for a song since, arguing that a uniform system and low prices will invite new consumers and reduce piracy.

The big record labels, however, want the right to charge Apple more for popular songs to capitalize on demand or, in the event of special promotions, to charge less, reports the Times. During a recent investor conference, Edgar Bronfman Jr., the chairman of Warner Music Group, reinforced the labels' notion that "not every song, not every artist, not every album, is created equal."

Similarly, Jobs has also refused to bend at calls for Apple to license its FairPlay proprietary copy restriction software to other manufacturers, saying it would dramatically increase the software's susceptibility to hackers. Instead, he has urged the labels to drop copy protection measures on digital songs all together.

In April, Jobs and Apple teamed with record label EMI to do just that: launching premium, unprotected tracks (called iTunes Plus tracks) for $1.29 a piece. The move, according to EMI, has since driven a significant uptick in its digital sales. So far, however, other major labels have been reluctant to follow EMI's example.

[ View this article at AppleInsider.com ]

[britwithgoodteeth]

The only surprise here is that it took so long.

[deepkid]

This is a late and perhaps not-so-smart chess move on behalf of Universal. The big record labels are a dying breed, much like the huge airlines but aren't reading the writing on the wall. This stand-off will be interesting to observe. Note to big record labels - it isn't 1984 anymore.

[josephwinters]

this is kind of scary. I am a big supporter of the music side of the store, downloading songs on a daily basis. The EMI deal, great... but if other songs go up in price from .99, I am going to stop buying.

The only way I can agree with a price jump is if DRM is completely wiped off of the songs. Even then, $1.29 really sucks, but what can I do?

[ascii]

If the labels would only follow EMIs example they would not be tied to iTunes but could still be compatible with the iPod.

They are so obsessed with DRM, but it only takes 5 minutes to create non-DRM files from a CD, which they sell.

[Sälli]

I am sure that this is just because they want to wait a bit longer for the results of EMI sales. Before they see some hard numbers, they are too scared to hop on the no-DRM train, but also do not want to make a long term DRM deal. When they see the results, I think they will sign the long term deal, and we all know what it is going to be like.

[deepkid]

Originally Posted by josephwinters

The only way I can agree with a price jump is if DRM is completely wiped off of the songs. Even then, $1.29 really sucks, but what can I do?

You have the option to not buy, buy it on some other format, "borrow" it or wait for a price drop.

[Xool]

Universal's job should be to get their clients' music in to as many stores as possible and to make efforts to increase sales through marketing and other promotions.

Withdrawing from the #3 store with 10% of the market sounds like the opposite to me. Unless they are colluding with other labels, all they'd be doing is removing their client's material from the fastest growing music marketplace and force consumers to use other means. Some will still head out to the local music store but many others will find "other" alternatives, especially those used to the convenience of digital downloads.

I'd expect the labels to wake up and start to get what's going on, but instead I think they want to play more games. If consumer votes (with our pocketbooks.. ahem #3 store) don't seem to do it, then the artists will have to rise up and demand an end to this nonsense. If the labels ignore us both their downfall will only be that much swifter.

[JimDreamworx]

Good points, Xool.

Universal has now chosen to refuse to sell its product in a specific marketplace that is growing.
This is wrong, both for the artists and shareholders - unless of course they can offer proof that sales will increase once they pull out of iTunes... but I didn't think so...

[syklee26]

in the mean time, Limewire just released 4.0.

[Xool]

Originally Posted by syklee26

in the mean time, Limewire just released 4.0.

Limewire, preferred by Universal Records 3:1 over the competition!

[anantksundaram]

Do they think that non-Apple services are going to sell songs for more than $0.99 (or $1.29 non-DRM) per song? What are they smoking?

[mark2005]

Originally Posted by anantksundaram

Do they think that non-Apple services are going to sell songs for more than $0.99 (or $1.29 non-DRM) per song? What are they smoking?

Wasn't it Universal that first got the $1 per Zune deal from MS? And then said something to the effect that they'd be working to do that with other companies (that have both a store and a player, which is really just Apple). What are they smoking?

[nevenmrgan]

Did somebody at Universal hold their Business 101 book upside-down when they read it? They're distrusting their only distributor that's showing any growth and refusing to follow the example of a recently upticked competitor? What's next, they'll refuse to sell their music at all in an attempt to gain leverage against those annoying customers?

[breeze]

So Universal in it's glutinous greed thinks it can muscle Apple into giving it a cut of it's hardware by issuing a veiled threat of possibly cutting Apple off anytime...( ie: no long term contract)

Well who exactly would they be detrimentally alienating, hurting and pissing off big time (as well), by doing this?

1. Apple - The 3rd biggest (and undisputedly best liked) music retailer in the US/World)

2. Steve Jobs - Remeber Michael Eisner's outcome him when he played power games with Jobs

3. Music buying consumers - Who resent having beed gouged for years paying $20+ for CDs...

4. Resentful Musicians - Who hate the big labels for being short changed and exploited forever

5. Their signed Artists/Performers - Who may well rebel and sue them for hampering their promotion, careers, fan relationships, thereby hurting their sales and reach by shunning the most popular sales channel and exposure they could possibly want - iTunes.

That leaves one bullet left in the 6 chamber revolver - to shoot themselves (Universal) in the head with...

Apple should incorporate a new Record Label and sign up all musicians with fair contracts. Signed Universal musicians will be legally backed in breaking their contracts - since their interests are being ignored and not best served by Universal.

Universal is a GREEDY monster that cares none about Music, Culture Art or Musicians -

Go ahead Universal - Shoot yourselves in the head and do us all a favor.

[aaarrrgggh]

It might actually make some sense for Universal to do this. The top two sales channels sell music as loss-leaders. Apple actually is in it for a profit, so must mark up costs. If they can figure out how they can get other stores to sell their products at a loss... guaranteed profits. (Moron PHB's!)

I just hope that Apple makes the move to actively promote competing artists, especially independents. There is no hurdle with the Apple Corp legal battle over for good.

[jpellino]

If nothing else, the music business' shift in the past five years has proven that while it obeys the laws of supply and demand, it does so just barely, as the supply is now outside the control of the music company itself. ITMS has produced a model that runs right on the razor-thin edge of what people are willing to pay for.
It's like the prisoner's dilemma. Universal believes that the music distribution game is zero-sum. It is not. It used to be, but not anymore. Not when you can make unlimited digital copies and tell anyone selling a particular piece of music to pound sand. They believe that since they can manipulate the demand side with marketing, saucy artist behavior and such, that they should be able to manipulate the supply side too. When you had physical media only, you could. You can't anymore.
Unless you want to go back to nothing but piracy, you'd better listen to the people who made their living in digital and respect the 20 years of experience. Steve and Apple seem to know how hard they can push before the audience revolts. Universal does not. They're used to making $16 on something that costs $1 to manufacture. Outside of pasta at Wolfgang Puck's, no industry can survive making that sort of added value.

[1984]

Originally Posted by AppleInsider

During a recent investor conference, Edgar Bronfman Jr., the chairman of Warner Music Group, reinforced the labels' notion that "not every song, not every artist, not every album, is created equal."

While I tend to agree isn't it up to the consumer? Different people have different tastes.

[macmikey]

Originally Posted by aaarrrgggh

It might actually make some sense for Universal to do this. The top two sales channels sell music as loss-leaders. Apple actually is in it for a profit, so must mark up costs. If they can figure out how they can get other stores to sell their products at a loss... guaranteed profits. (Moron PHB's!)

I just hope that Apple makes the move to actively promote competing artists, especially independents. There is no hurdle with the Apple Corp legal battle over for good.

It has been long known that Apple isn't raking in tons of profits on sales of music at iTunes--that's a break-in-at-best enterprise. Apple's money is in selling iPods (and now iPhones). On this front, Apple's interest has always been (at the top level) for the artist and the consumer, not themselves. Their profit comes in iPod sales which should, frankly, make no never-mind to the labels anyway.

The one point Universal makes that I kind of agree with is that, in fact, all music is not created equal. They're exactly right; some music is great, and some is garbage. Which makes me wonder: If they know they've got an artist selling crap, and it really is an issue for them, why do they keep the artist signed? This doesn't delegitimize their point, only their right to make it.

[donebylee]

Originally Posted by Xool

Universal's job should be to get their clients' music in to as many stores as possible and to make efforts to increase sales through marketing and other promotions.

Withdrawing from the #3 store with 10% of the market sounds like the opposite to me. Unless they are colluding with other labels, all they'd be doing is removing their client's material from the fastest growing music marketplace and force consumers to use other means.

Originally Posted by breeze

5. Their signed Artists/Performers - Who may well rebel and sue them for hampering their promotion, careers, fan relationships, thereby hurting their sales and reach by shunning the most popular sales channel and exposure they could possibly want - iTunes.

That is the point I was going to make: Universal's biggest potential problem could come from contracted artists who might have standing to sue them for failure to adequately promote their products by withdrawing from the 3rd largest music venue.

I think U2 and a few other large acts may well have more say in what Universal ultimately does than the idiots making these threats realize.

As for Apple starting a label, that would be a very, very bad idea. But, if they were to create an independent bizarre, which would provide a published set of fees for any independent artist who wants to sell their music through iTunes that would be very interesting indeed. Then Apple is only selling music--just like they do now--without getting into competition with record labels.

And finally, I have to wonder how much longer these record labels can exist in their current form? As more and more music is distributed digitally, other than advertising what exactly are they doing to earn their money? Suing customers?

[britwithgoodteeth]

Originally Posted by breeze

So Universal in it's glutinous greed...

http://www.macrumors.com/iphone/2007...onents-at-220/

[southerndoc]

I refuse to buy CD's anymore. If it isn't available on iTunes, I simply do not buy it.

So when Universal pulls their artists from iTunes, I hope every iTunes user joins me in refusing to buy Universal products.

If they increase the price of their products without DRM-free music, then I will also refuse to buy their songs unless they mail me a free CD.

The recording industry thinks they are above the law, and they're like the mafia trying to extort money out of people. It's time we make a stand against them.

[ChevalierMalFet]

Isn't it tradition at this point for the labels to make wild claims about what concessions they are going to extract from the iTMS shortly before contract re-negotiation, followed abruptly by complete capitulation?

[SpamSandwich]

I know it's chic to blast Universal over this, but their stuff will still be available. It's the long-term with Apple that changed, nothing else.

[icfireball]

The fact is, if the record labels think they can charge $1.29 (or some other price point more than $0.99 for DRM-ed music, they are sorely mistaken. People will just download their music illegally.

[vinney57]

Originally Posted by donebylee

As for Apple starting a label, that would be a very, very bad idea. But, if they were to create an independent bizarre, which would provide a published set of fees for any independent artist who wants to sell their music through iTunes that would be very interesting indeed. Then Apple is only selling music--just like they do now--without getting into competition with record labels.

Very good suggestion that I am sure Apple have been considering for some time. Just not quite yet; more of a nuclear option.

The word is Bazaar by the way (Iranian)

[scottiB]

Originally Posted by SpamSandwich

I know it's chic to blast Universal over this, but their stuff will still be available. It's the long-term with Apple that changed, nothing else.

The current contract is 12 months. What does Universal want, six months? Three? Might as well just keep negotiating year round.

12 months as long-term is relative - just ask at&t. Five years isn't long enough.

---

I'm not directing this at you Spam, more at the weirdness of Universal.

[Zandros]

Originally Posted by SpamSandwich

I know it's chic to blast Universal over this, but their stuff will still be available. It's the long-term with Apple that changed, nothing else.

Ah, but I think it won't sit too well with Steve. There are, after all, two parties in this.

/Adrian

[JavaCowboy]

Originally Posted by breeze

S
2. Steve Jobs - Remeber Michael Eisner's outcome him when he played power games with Jobs

I've probably been living in a cave, since I'm not aware of the Eisner-Jobs spat. What was the story? I'm genuinely curious.

[JavaCowboy]

I can't see how Universal can justify pulling out of the #3 music retailer, and the largest online music store to their shareholders. In fact, it's totally conceivable that they'd be violating securities regulations. A corporation, by law, must do everything possible to ensure profitability. Mistakes are tolerated, but a decision to deliberately reduce short-term profitability on this scale would be grounds for a shareholder lawsuit.

If Universal does this, their lawyers won't be too happy.

[AISI]

Originally Posted by JavaCowboy

I can't see how Universal can justify pulling out of the #3 music retailer, and the largest online music store to their shareholders.

They're not considering pulling out of the iTunes Store altogether.

Originally Posted by JavaCowboy

A corporation, by law, must do everything possible to ensure profitability. Mistakes are tolerated, but a decision to deliberately reduce short-term profitability on this scale would be grounds for a shareholder lawsuit.

Precisely, in my opinion they may want to maximise their profits.

They think that enough music fans will buy a blockbuster hit for, say, $1.50. Universal may lose some sales but the price increase could more than make up the difference, like 300,000 people buying at $1.5 instead of 400,000 people buying at $0.99. Tadaaa! Revenue and profits increase of almost 15 percent.

From their point of view, why should they sell this very valuable (in high demand) track for $0.99? Universal wants to maximise profits, and Apple's flat-pricing is in the way.

[JavaCowboy]

Originally Posted by AISI

They're not considering pulling out of the iTunes Store altogether.

They're threatening to.

Precisely, in my opinion they may want to maximise their profits.

Not by carrying out their threat to pull out.

They think that enough music fans will buy a blockbuster hit for, say, $1.50. Universal may lose some sales but the price increase could more than make up the difference, like 300,000 people buying at $1.5 instead of 400,000 people buying at $0.99. Tadaaa! Revenue and profits increase of almost 15 percent.

Nice theory. There's also the theory that if you remove DRM, more people will buy tracks at the current price or even significantly higher. Universal doesn't seem to abide by the latter theory of profitability.

From their point of view, why should they sell this very valuable (in high demand) track for $0.99? Universal wants to maximise profits, and Apple's flat-pricing is in the way.

From their point of view, why should they sell their all of their music DRM-only? As the EMI experiment shows, demand for non-DRM downloads is huge!

[†MiMiC]

There is not much stopping artist from creating their own music. Some hardware and software from Apple for those just starting out, or rent some sound time and do a professional job. This and other moves like it could usher in artist taking that next step.

People could open sound stages like gyms and rent time and producers like trainers and equipment. Could very easily be done. Just upload your music to iTunes like a Podcast and do some self promoting until you get started then hire a promoter or manager.

Just imagine if the artist received 100% of the non-Apple portion of the $99/$129 price tag. Artist could get sponsors like start ups get revenue. Sell stock in the artist or group to raise money. Plus the artist would own the rights to their music or lyrics.


http://www.RichGetz.com

[breeze]

Originally Posted by JavaCowboy

a decision to deliberately reduce short-term profitability on this scale would be grounds for a shareholder lawsuit. .

A Shareholder/Class Action Lawsuit against universal... : well deserved and way overdue, for some kind of delinquency of contractual obligation if they indeed continue on this path.

[backtomac]

Originally Posted by †MiMiC

There is not much stopping artist from creating their own music. Some hardware and software from Apple for those just starting out, or rent some sound time and do a professional job. This and other moves like it could usher in artist taking that next step.

People could open sound stages like gyms and rent time and producers like trainers and equipment. Could very easily be done. Just upload your music to iTunes like a Podcast and do some self promoting until you get started then hire a promoter or manager.

Just imagine if the artist received 100% of the non-Apple portion of the $99/$129 price tag. Artist could get sponsors like start ups get revenue. Sell stock in the artist or group to raise money. Plus the artist would own the rights to their music or lyrics.


http://www.RichGetz.com

I made this point over at Ars. Why do artists need the big labels nowadays? What service do they actaully provide? Couldn't you negotiate with Apple and distribute your music on iTunes? All it would take to kill the big labels is for one major artist (U2, John Mayer?) to drop their label and distribute their music on iTunes and MS Zune marketplace directly. I think the studios would then have a difficult time justifying their existence.

PS I wish Bronfman would go back to liquor.

[Porchland]

Originally Posted by britwithgoodteeth

The only surprise here is that it took so long.

Off topic, but your sig is hysterical. Is that from a movie?

[JupiterOne]

It sounds like Lisa Lampanelli.

[techno]

You think that Universal would have realized that their greedy gluttonous ways of the past just don't work in today's world. Don't they remember why Lars of Metallica was so upset? People steal music. If the price is too high and the consumer feels ripped off, they will steal it. Everyone has a line somewhere they will cross. Apple seems to have found that magic line that many people felt was fair and so they bought instead of stole music. Universal is stupid if they think that they will bring Apple to it's knees. Everyone has an iPod. Apple is growing it's market share. ITMS is the 3rd largest seller. The iPhone is only going to help. I will not go to a Music store to buy a CD anymore. I certainly won't for Universal. I am not saying I will steal, but I am sure many will. I will just buy from the other labels. I thought someone had an interesting idea of Apple having it's own label. Of course we can all imagine the problems a certain label in England might have with it.

[JavaCowboy]

Too bad Vivendi/Universal was so expensive, or Apple or Disney could just buy them out:

http://finance.google.com/finance?q=EPA%3AVIV

[AISI]

Originally Posted by JavaCowboy

They're threatening to [pull out].

They don't want to pull out altogether, the iTunes Store makes up the bulk of UMG's digital music sales revenue. UMG have declined to sign a new long-term deal and they are threatening to offer new releases exclusively to other music stores. See Wall Street Journal, NYT, Reuters…

Originally Posted by JavaCowboy

From their point of view, why should they sell their all of their music DRM-only? As the EMI experiment shows, demand for non-DRM downloads is huge!

As far as I know Universal is not a proponent of DRM-free tracks. Unlike EMI, Universal is #1 and they have a lot more to lose. EMI was becoming increasingly desperate. Besides, the results are not yet conclusive, Universal will likely be sceptical and resist the change. And last February the RIAA still wanted Apple to license its proprietary DRM scheme.

Online music sales are increasing but only account for about 10 percent of the music industry's sales and they are not making up for declining CD sales. The labels would like to bypass Apple's flat-pricing to increase profits as rapidly as possible and to lower their dependency on iTunes. If a new track is sold exclusively through Napster for some time, and protected with Microsoft's DRM, tens of millions of iPod owners won’t be able to buy, once again the labels are dependent on Apple, from their POV Apple is always in the way and has too much leverage. If Apple was to license FairPlay, Universal could sell hits through Napster or some other iTunes competitor at a higher price point during 3 or 6 months (while it's hot). It's no wonder there's tension between Apple and Universal.