Universal Ditches Its iTunes Contract
Universal Music Group is ready to rain on Apple’s iPhone parade–the company has refused to renew its iTunes contract:
The Universal Music Group of Vivendi, the world’s biggest music corporation, last week notified Apple that it will not renew its annual contract to sell music through iTunes, according to executives briefed on the issue who asked for anonymity because negotiations between the companies are confidential.
Instead, Universal said that it would market music to Apple at will, a move that could allow Universal to remove its songs from the iTunes service on short notice if the two sides do not agree on pricing or other terms in the future, these executives said.
…With the shift, Universal appears to be aiming to regain a bit of leverage — although at the risk of provoking a showdown with Mr. Jobs.
In the four years since iTunes popularized the sale of music online, many in the music business have become discouraged by what they consider to be the near-monopoly that Mr. Jobs has held in the digital sector — the one part of the music business that is showing significant growth. In particular, Mr. Jobs’s stance on song pricing and the iPod’s lack of compatibility with music services other than iTunes have become points of contention.
By refusing to enter a long-term deal, Universal may continue to press for more favorable terms from Apple or even explore deals to sell its catalog exclusively through other channels. If Universal were to pull its catalog from iTunes, Mr. Jobs would lose access to record labels that collectively account for one out of every three new releases sold in the United States, according to Nielsen SoundScan data.
On the flip, though, you have the executives’ hope that exclusive Universal content will result in an exodus from the most popular download service–which seems slim, especially when one considers those competing services’ lack of compatibility with iPods (and iPhones). (Unless DRM-free services like eMusic, or Amazon’s still-not-launched digital store, are on UMG’s radar at this point.) Since a large part of this dispute is about pricing, it’s not entirely out there to wonder if Universal will try to negotiate for a piece of the music-based revenue Apple gets through iPod sales via a Zune-like revenue sharing deal as well, although it’s pretty unlikely that Steve Jobs will be interested in that scenario at all. Either way, here’s one piece of advice to the Universal folks: If you’re hoping that new 50 Cent tracks will cause the masses to embrace Windows Media-based downloads, you may want to listen to his new songs first. Yes, the beat is better than his “Amusement Park” backing, but opening verses about Vitamin Water windfalls = not really the best way to entice people into dropping a lot of cash for a new portable-music setup.
