Tuesday, July 03, 2007

Universal Declines To Extend Contract With Apple's iTunes

Apple Logo

Universal Music Group has reportedly declined to renew an annual contract with Apple and iTunes to sell songs and albums through the iTunes service. This is not a situation causing imminent threat of danger to iTunes, as the two will likely reach a short-term "at-will" agreement as they negotiate new terms for a new contract; rather, it will take some of the bargaining power away from Apple and allow Universal to remove songs from iTunes as it chooses.

The move is a response by one of the major labels to the growing clout (read: virtual monopoly) Apple has in online music sales. As consumers move away from physical CDs to buying digitally, the labels may continue in Universal's stead and force significant concessions from Apple in future contracts.

Conversely, Apple's iTunes is a major source of sales for labels whose physical sales continue to suffer. iTunes' storefront is a massive source of exposure, and since iPods are incompatible with other download services, labels who do not sell through iTunes will miss out greatly on sales through downloads. This bargaining chip of Apple's fails, however, if Universal and others move to DRM-free MP3 sales through other sites.

Bottom line: If labels are willing to give up DRM and make songs available through multiple outlets (just like brick-and-mortar record stores, what a novel idea!) they will not need to stick to Apple's way of doing things, and can start to take back the ability to shape their own business.

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