Why Apple doesn’t need Universal Music

The New York Times is reporting that Vivendi-owned Universal Music Group has decided against renewing its licensing deal with Apple’s iTunes. Instead, Universal will license its music to Apple “at will”, meaning that the company can remove its songs from the iTunes store at short notice, which it hopes will put the company in a stronger position when negotiating pricing and other terms in the future.

The reason for the stand off is fairly well documented. Universal, along with the other majors, is frustrated at Apple’s insistence on fixed pricing and its refusal to allow other download services and music player manufacturers to utilize the company’s copy-protection technology, FairPlay. The latter means that music bought from iTunes only works on the iPod, and no other service can sell DRM’ed downloads that will work with Apple’s music player. As a result, says Universal, Apple has become too powerful a player in the music industry.

Will such strong-arm tactics help Universal? I’m not convinced Apple needs Universal as much as Universal needs Apple.

Sure, were Universal’s catalog — which includes artists such as U2, Akon and Amy Winehouse — to disapear from iTunes, it would be a blow to Apple and would make its music store that bit less compelling. But the media and customer backlash against Universal would be massive: “here those greedy record companies go again”. And besides, if users can’t buy Universal music for their iPods from iTunes, then they’ll either purchase on CD and rip it, or more likely, download it illegally elsewhere. Remember, on average, music bought from iTunes only accounts for 3% of songs on every user’s iPod. Either way, it won’t impact on iPod sales, which is where Apple makes most of its music-driven revenue, anyway.

So how can Universal weaken the iTunes/iPod hegemony? Simple. Start offering DRM-free downloads, as EMI has done, which can be played on an iPod (or any digital music player) and can be sold by other online services — not just iTunes. This would create a much more level playing field, with greater competition in terms of pricing and other factors (such as backup/storage and audio quality). But then again, it’s real competition that the majors probably fear the most.


http://www.last100.com/2007/07/02/why-apple-doesnt-need-universal-music/