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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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By Kuroyama on 7/2/2007 9:28:12 PM , Rating: 3
The market is profit maximizing. Cost of producing the item is irrelevant, other than to the extent that producers will drop out of the market if the price goes below their costs, thereby reducing supply until cost and price are comparable. But when there are not alternate producers who can produce a product when price > cost then there need be no connection between cost and price, and restricting supply or raising prices can increase profits. For instance, oil prices have little to do with cost. During the California electricity crisis the electric prices had little to do with cost. Likewise with music; if I want the hit song from band xxx then I am not willing to buy the hit song from band yyy even if it is cheaper.


"A lot of people pay zero for the cellphone ... That's what it's worth." -- Apple Chief Operating Officer Timothy Cook

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