Report: Universal Music Group Declines to Renew iTunes Contract
July 2, 2007 1:27 PM
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Experts say going up against Steve Jobs isn't a wise move
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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7/2/2007 6:27:26 PM
"Experts say going up against Steve Jobs isn't a wise move"
Funny, Billy Gates and Michael Dell have been doing it for a while now, and I don't see them doing poorly. How is not letting Apple sell your music "going up against Steve Jobs?" When I go into Best Buy and decided not to buy an iPod, am I going up against Steve Jobs? This must be that reality distortion field I've been hearing about lately. Apple is the one that's really screwed here, pure and simple. I'm amazed I even need to say this, if the title of the article was "Nintendo pulls all Wii stock from Best Buy" I doubt people would think that Nintendo's screwed. Although Universal might be making a stupid business move, they always have other avenues of profit to fall back on. Apple has iTunes + iPod + iPhone, right now that's where the bulk of their profit is. Their computer business is not making that much of a profit right now. Knock iTunes out of the equation, and the iPod is just another pricy MP3 player. Even Apple admits that iTunes is key to their success.
RE: What Experts?
7/3/2007 12:09:24 PM
Shhhhh! Stop it! You're making Steve angry!
RE: What Experts?
7/4/2007 4:06:13 AM
It should probably read something more along the lines of "going against Steve Jobs in the music industry isn't a wise move."
Microsoft is doing well, but Dell isn't particularly hot right now - their market cap is about $50 billion at the moment, down from about $80 billion a year ago. Apple is at $110 billion, up from about $80 billion a year ago. Dell sells a lot of stuff, but a well run business is generally about profit and return to investors, not simply market share.
Also, as has been stated many times on DT, the iTunes Music Store makes up a miniscule part of Apple's revenue, and an even smaller percentage of its profits - we're talking single digit percentages. Also, while the iPod may currently have bring in more money than the Mac, that has only happened the past few quarters (less than a year if I recall). Even now, Macs still bring in over 40% of both revenue and profit for the company - 44 or 45%, i think. This means that Apple would collapse if they decided to stop producing or developing either the Mac or the iPod.
And lastly, Universal tries to break free just as EMI starts to sell DRM-free legal music. It might be interesting to see which camp is more successful. Universal will probably collapse, considering iTMS is still only in 3rd place, and as far as I know Universal hasn't pulled out of Wal-Mart yet.
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