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Experts say going up against Steve Jobs isn't a wise move

With the release of the iPhone on June 29th, Apple took a bold step into an industry it has never before been in. Facing stiff competition is something that Apple's been use to doing for a long time now. This week however, Apple faces a surprise turnaround from one of its partners in the online music industry, an area where Apple is the dominant force.

Universal Music Group of Vivendi last week sent notification to Apple indicating that it would not renew its contract to sell music on Apple's iTunes store.  The move comes after much negotiation between UMG and Apple. Unfortunately, music industry experts say that the grip that Apple holds on online music sales is what's discouraging UMG.

UMG has a long list of artists including notable names such as Akon, Rhinna and U2. However, Apple itself packs a punch in the amount of revenue that it brings to UMG. In the first quarter of 2007, Apple's sales on the iTunes store brought in more than 15-percent of UMG's worldwide revenue -- that's more than $200 million USD.

According to unnamed executives, UMG is looking into other sources for revenue, either through other channels or possibly a store of its own. Apple's long time control over what devices can play its music has troubled a lot of music lovers as well as publishers. Just recently however, the iTunes store began selling DRM-free music.

Ken Hertz, an entertainment lawyer representing such artists as Beyonce and Black Eyed Peas warned against going up against Apple directly.

"When your customers are iPod addicts, who are you striking back against? The record companies now have to figure out how to stimulate competition without alienating Steve Jobs, and they to do that while Steve Jobs still has an incentive to keep them at the table," said Hertz.

Since the launch of iTunes, Apple has controlled prices of music on its store. This is one area of concerns for music publishers who either want more revenue or are looking into other areas for revenue. The iTunes model has proven itself to be a success formula for music sales however. Before the advent of online music stores, consumers were forced to buy whole CDs and often times received only one to two favorable tracks while the rest were throw-ins.

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Hooray for record labels!
By MonkeyPaw on 7/2/2007 5:55:02 PM , Rating: 4
But some music executives have been chafing at the flat rate that Apple has insisted upon in its contracts with the big record labels, and they have been pressing publicly or privately for the right to charge Apple more for popular songs to capitalize on demand or, in the event of special promotions, to charge less.

Sounds like your typical bad tax policy. Sell an idea that promises a potential benefit (discounts during special promotions), but only if everyone is willing to incur a real penalty everyday (paying more for the good songs). The penalty is guaranteed, the benefits are a promise from your favorite record label. Oh, how can Jobs refuse such a generous offer?

Besides I'm sure the discounts will only show up on the filler tracks and for the sub-par artists:


Edgar Bronfman Jr., the chairman of Warner Music Group, reinforced that idea at a recent investor conference, saying “we believe that not every song, not every artist, not every album, is created equal.”

Run through the Business translator: "We want to charge people more for what they really want (even though it doesn't cost anymore to supply the extra demand on iTMS), and the same or occasionally less for what we've discovered that they don't want."

Nevermind that before iTMS, record labels charged darn near the same price for every album in hard copy, be it good or bad, or mediocre. Economics would suggest that the price on garbage doesn't go down until sales slow and it is necessary to clear the inventory.

“Then they pop up and say ‘Hello, surprise! Give us your money or we will shut you down!' Screw them. Seriously, screw them. You can quote me on that.” -- Newegg Chief Legal Officer Lee Cheng referencing patent trolls
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