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Universal Refuses to Re-Up iTunes Contract

By Chris Maxcer MacNewsWorld ECT News Network
Jul 2, 2007 1:14 PM PT

The world's largest music corporation, Vivendi's Universal Music Group, is reportedly preparing for a showdown with Apple over selling its songs on Apple's iTunes music store. Universal notified Apple that it would not renew its annual contract to sell music through iTunes, according to press reports based on anonymous sources. Instead, the sources said, Universal would market music to Apple at will, perhaps on a month-to-month basis.

Universal Refuses to Re-Up iTunes Contract

Officials at both Apple and Universal did not return MacNewsWorld's requests for additional information by press time.

Ultimately, by keeping agreements with Apple fast and loose, Universal may be able to offer exclusive online song sales agreements elsewhere or convince Apple to sell songs at different price levels.

Superpowers in Dispute

With Universal as the music industry's largest family of labels and Apple as an increasingly important music seller, a showdown appears to be in the works. As Apple's power and influence grows, so does the fear that Apple can dictate music sale terms.

The NPD Group recently ranked Apple's iTunes store as the retailer selling the third most songs. Wal-Mart and Best Buy came in first and second, respectively, with in fourth. In addition, in the online-only world, Apple dominates by owning at least three quarters of the market.

Tipping the Scales

"Fundamentally, it comes down to who has more power in the marketplace, and there is a sense among the major labels that Apple in general, and Steve Jobs in particular, has too much influence in the online music world," Susan Kevorkian, program manager for IDC's consumer market analysis of audio, told MacNewsWorld. "Some labels more than others -- in this case Universal -- are being more active in trying to reestablish a balance of power."

Apple, said Kevorkian, needs Universal more than Universal needs Apple.

"Universal has a monopoly on their own product and Apple absolutely needs to work with Universal in order to make the iTunes store a comprehensive offering," she explained.

A Buck for a Song on the Way Out?

Steve Jobs and Apple softened the company's long-standing stance on selling songs at a flat rate of 99 US cents when it agreed to sell DRM-free "iTunes Plus" songs at $1.29 with major record label EMI.

If Universal has the ability to yank its songs quickly from the iTunes music store, the label may gain some power over Apple. For instance, Universal could offer to sell the hottest, most popular singles for $1.99, and if Apple doesn't want to offer songs at a higher price, well, too bad for Apple and iTunes customers.

If It Ain't Broke...

However, by changing price models and charging consumers for hot songs and perhaps less for older songs or those from new artists, might Apple upset its highly-successful iTunes formula?

"You're not messing with it if it's still relatively new and relatively untested," Kevorkian said, noting that Apple has already introduced tiered pricing with iTunes Plus, which hasn't yet seemed to have caused problems with consumers.

"There might be some resistance, and that's always the tradeoff, the tradeoff being volume vs. margin," she said. "You might lose a little volume with a hot artist but you can make it up on margin and gain more revenue if your price is even just a little higher."

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