Universal Music vs. iTunes

Just when you think the game of old vs. new has been played out, one othe dinosaurs raises its head for another roar at the mammals running around its feet.

Universal Music Group (UMG) is refusing to renew its long-term contract with Apple for its product on iTunes, opting instead for a month-to-month sales agreement. Universal (like other labels) is unhappy with the 99 cents price point and has tried to negotiate a tiered system, with premium prices for new material (rumoured to be above 99c) and less for back catalogue. It makes sense (at least the back catalogue part) because that's how it works in a physical retailer.

Cut to the basics and its all about power. Music labels are used to controlling the marketplace. Doug Morris, CEO of UMG, must alternate between frustration and despair that the consumer and technology are riding roughshod all over him. The visible face, Steve Jobs, has been in the driving seat for years now. With UMG controlling almost 30% of the legal music market, it must seem like a perfect time to reassert control.

Recent stats show iTunes as the 3rd largest music retailer in the United States at 9.8%. They control almost 80% of online retail business. If it were a bricks-and-mortar operation Universal would never consider the move; cutting off a leading retailer in a market that is experiencing declining sales is pure stupidity.

There are legitimate concerns about the near monopoly status Apple enjoys in selling online music, the closed nature of iTunes, and a pricing policy that treats all music as equally valuable. But there's little doubt that in popularizing legal music downloads, Apple has provided a challenge to music piracy. Music labels are profiting where they would perhaps have not profited before.

This is never going to work in UMG's favour. There aren't enough alternatives to iTunes to make up the lost revenue if they pull out. While it will be inconvenient for the buyer if he can't find the track he wants on iTunes, he's more likely to fire up Limewire than start the search for the legal alternative. After all, it's almost a certainty LimeWire will have it, while I know from experience the search for legal alternatives can be time consuming. A lot of people already think 99c is too expesnive, pointing to the lack of physical cost involved; to raise prices above $1 for so-called premium acts is to introduce scarcity of sales, again driving customers to other alternatives.

The public perception of greedy music companies is already well-established; what kind of PR spin could a master publicist like Steve Jobs put on this? He's already considered the coolest guy in the music business. You think he'll come out of it looking like a bad guy?