RSSUniversal Not Renewing Annual iTunes Contract
By Scott M. Fulton, III | Published July 2, 2007, 3:04 PM
Major press sources including The New York Times this morning are citing anonymous executives reportedly with direct involvement in negotiations, as saying Universal Music Group has opted not to renew its annual contract with Apple's iTunes.
The company will instead opt for a month-by-month arrangement, similar to what it has with smaller MP3 distributors, which could give the publisher greater freedom and perhaps more leverage in setting terms.
This news comes one month after reports that UMG and Apple were entering negotiations for the iTunes Plus store to sell DRM-free UMG tracks for a premium, similar to the arrangement Apple had just entered into with rival publisher EMI Group. (Universal Music Group is not a part of NBC Universal; its parent company remains Seagram.)
Digital Music News, which has been following Apple's negotiations with UMG and other publishers, says the news was not unexpected, and may just be UMG's latest efforts at brinksmanship.
The sticking point is probably what it has been from the beginning: Apple's unrelenting insistence upon a flat 99 cent retail price for DRM-attached tracks. Publishers have voiced in the past that they would rather have the option of dictating certain tracks as "popular" and others as "classic," for instance, in order to create premium and discount tiers. Typically, retailers that make arrangements with their suppliers cannot dictate pricing terms so completely.
Once again, artists' royalties could be one of the major sticking points. In the music business, such royalties as stated in artists' contracts are based on the manufacturers' suggested retail prices of the albums on which their songs appear.
As a three-year-old can deduce, MP3s aren't albums; and although you can download the content of an album through iTunes, it isn't a manufactured album. So all this time, artists have been receiving royalties based on what the track would have cost if it were part of an album.
If you've ever received royalties for any kind of published work, you know that fees apply before your cut is finally determined. So manufacturing fees are apparently subtracted from the MSRP of a downloaded track before percentages are applied, even though nothing was manufactured.
Since the iTunes Music Store was first established in 2003, featured artists apparently have received only between 8 and 14 cents per download, with Apple receiving an estimated 33 cents and the record labels the remainder. Under the iTunes agreement, record publishers continue to be the sole distributors of royalties; iTunes serves only as a retailer, and stays out of that part of the negotiation.
So complaints that Apple has given artists a raw deal may seem a bit odd, since never in history have retailers been responsible for royalties distribution anyway.
Pleas from musicians' groups and unions that they be entitled to as much as half of the retailers' cut from sales - which would be as much as 33 cents - have been treated by the recording industry as demands that royalties be raised by more than double, rather than simply stop subtracting fees that make no sense in the context of digital downloads.
Such demands may be cited as incentive for record companies to demand the right for iTunes to charge higher prices...and perhaps make it look like Apple's tough stance on flat prices is designed to exclude artists from their just deserves.
As New York Law School Associate Professor James Grimmelmann writes for his personal blog this morning, "The majors [record labels] have been upset with Apple's hegemony in the online music market, and they hate hate hate being forced to do business on Apple's terms. As Apple's market position grows, they fear losing what little leverage they possess. Understandably, they're looking around the dancehall for better partners."
But Prof. Grimmelmann believes that Apple has the upper hand in these negotiations because Apple has the public face. "It's all about the brands, not the bands," he continues. "Recording labels have cruddy brands...If all Universal music disappeared from iTunes tomorrow, what songs would be missing? The consuming public has almost no idea."
Last November, Microsoft and UMG entered into an agreement whereby UMG would receive a percentage of sales from Microsoft's competitive MP3 player, Zune. While Microsoft does not have its own public opinion (yet) on the subject, its director of business development for emerging business, Don Dodge, has a few personal words on the subject today.
"Universal Music has a good point about music pricing," Dodge writes. "They believe that some new hit songs are worth more than 99 cents and some older songs could be worth less, or specially priced for a promotion. They want the ability to set prices for their own product. Wow, what a concept!"
Critics of the Zune deal said at the time they believe its purpose may have been to generate a new revenue source for UMG that the publisher did not have to subdivide for the sake of its artists.
Meanwhile, as the Times article states, iTunes accounts for as much as 15% of UMG's revenues during the first quarter of 2007. Even though there's more competition now for iTunes, Dodge states (without naming whom), he concedes UMG would have a difficult time searching for a revenue source to replace iTunes.
The Times also quotes competing publisher Warner Music Group chairman Edgar Bronfman, Jr., as saying, "We believe that not every song, not every artist, not every album, is created equal." As long as the publishers' stance is equally unyielding on this issue, Apple may find it less feasible to guarantee long-term song availability to its iTunes customers going forward.
This is going to create an opportunity for someone to dislodge iTunes. Check out the wikihow article on how to start an online store:
http://www.wikihow.com/Start-an-Online-Store
Score: 0
|I think it is great that I dont have to buy a entire album for one song, I would gladly pay $4 for a song as long as I dont have to shell out $15 for the album. it is still money saved!!! so dont get greedy kids.
Score: 0
|One has to laugh...Universal are the same bright bunch that bought, destroyed, and sold for a loss MP3.com!
Dumb decision they just made, considering all of the consumer options: buying non-Universal music, used CD stores, encrypted file-sharing apps such as GigaTribe: http://www.gigatribe.com
Score: 0
|Encrypted file-sharing, oh-wow! What is exactly the benefit of encrypting the data?
Score: 0
|Let me get this. I actually started to buy NEW music again with itunes. If record companies want to start charging more, I'll just buy used again and they'll be out even more!
My .99 worth
Score: 0
|One has to laugh: the anti-Apple sentiment in BetaNews readers is amazing! Even after reading an article that clearly outlines how the record labels are shafting artists, people still want to blame Apple.
I dare say the critics don't even use iTMS. If they did, I highly doubt they'd want to pay $2 per song (as Universal would like) rather than 99c Apple is maintain for the sake of consumers. At least Apple realises online, legitimate music needs to be affordable to be successful against piracy.
Score: 0
|No, we'd rather pay 79c or 88c as most non-iTunes stores charge. Call us crazy, but in my library, 11c and 20c per song adds up REAL fast.
Score: 0
|problem with most discount mp3 sites like Walmarts (88cents) they are all radio edits so as to avoid any problems with the perental advisories, and theie selections aren't nearly as good, quality lacks and download speed are usualy lacking, just my thought on the subject :)
Score: 0
|Some of us would pay $2.00 per track provided:
- The tracks were unmodified
- The tracks were uncensored
- The tracks were lossless
- The service had decent download speeds
- They provided "perks" such as album art, tablature, lyrics, etc.
- Service was non proprietary and did not require 3rd party software to access (though providing a 3rd p[arty tool for those who wish to use such would be fine).
Such a service would blow even AllofMP3 out of the water.
Score: 0
|This has always been a problem with Apple. They want to corner markets. It happened with the PC. Now they own a very small segment of the PC market thanks to proprietary thinking.
Score: 0
|They whine if you steal it, they whine if you buy it. No way will I ever pay a monthly subscription fee just to keep on listening to it and I’d rather do without it than go back to the old days where you would have to buy a album to get one good song.
Score: 0
|Go Universal! I'm all for breaking iTunes' proprietary and closed format, which limits choice. If I buy tracks from Buy.com, Wal-Mart.com, or any other online music retailer, I can play them without any trouble on any of 100 different devices, many of which are readily available for less than $35. Or, I can buy a track at iTunes and play it on my choice of and iPod, iPod Nano, or iPod Shuffle. Wow, what a choice, not to mention iTunes software is a bloated piece of garbage that's screwed up more PC's than poorly written anti-virus or firewall software.
Score: 0
|this has nothing to do with the format of the songs. its the fact that universal wants to be able to charge more for popular songs and older songs that might be harder to find. this does not benfit the consumer at all unless the chose the higher quality tracks drm-free for $1.29/song tier which they have the option to do.
Score: 0
|No, actually the issue of Apple opening up it's FairPlay DRM scheme has been an issue with Universal as well as other music companies in recent months. Apple claims that it can't license the code or it would make it more difficult to patch going forward. The labels want the code licensed to increase the pool of potential buyers.
Score: 0
|I see - so first Apple managed to get music companies to actually not be afraid to supply music because DRM was available. Now that record companies are supplying said music, Apple is now trying to take the next step and eliminate DRM and make music available in an open format and you're STILL complaining?
Sigh
--->Go Universal! I'm all for breaking iTunes' proprietary and closed format,
Score: 0
|You can use iTunes tracks on any player you want by either buying the iTunes Plus version or burning a CD and reripping it. Can the same be said about buy.com and wal-mart.com? Also do you have any proof that iTunes has screwed up more PC's than poorly written anti-virus or firewall software. I bet Norton has screwed up 10x more PC's then iTunes.
Score: 0
|Wow. Stupid, greedy, money grubbing morons.
Score: 0
|Yes, they are there at iTunes.
Score: 0
|Yeah. The bast*rds. Keeping the prices low, not giving in to the labels that want to increase those prices, selling tunes without DRM...
Money grubbing bia***es.
Score: 0
|Apple wants to keep the prices low so they can sell iPods and iPhones at high profit margins. They don't care if anyone makes money off the music.
Score: 0
|So Realist how much do you think a song is worth? I think 99 cents is about right. It costs the record company the same to sell one track or one billion tracks. It costs Apple bandwidth.
Score: 0
|its psychology... people are willing to buy 2 tracks if they both cost .99 cents than they are two buy 2 tracks if one of them costs $1.29
if i want two songs and they are both a dollar, it looks cheaper to me than if one of them are 30 cents more and the other one is cheaper... even though i might be technically paying more for the two 99 cent songs.
Also, I dont know (i actually doubt) if Apple does this by design but the 99 for all model keeps the industry THAT MUCH closer to earth. If they give the industry the freedom to decide what IS and ISNT classic you think they'll stop at deciding it just for music? The FANS determine what is worth $1 or what isnt. Not the cartels
Score: 0
|You know, I go into a grocery store and different types of the same foods cost different prices. I don't think there's anything wrong with rights holders deciding how much they want to charge for thier product. The market ulitmately votes with thier pocketbook. If Universal wants to test the market with songs that are $5 each, that is their right.
Your cost thoughts aren't exactly right either. A record company and artist cannot possibly recoup their investment nor make a profit selling one track. The costs of producing music are not all about the container nor the method of delivery. It's as though some of you don't realize that the music model we have had for decades allows musicians and record companies to exist. Get our of your pop mentality and start considering MOST musicians and record lables which don't sell millions of anything.
I'm a jazz lover, I own a couple of thousand physical CD's and I maintain a subscription to URGE to affordably find new music and legally/ethically enjoy artists I don't want to purchase or just want to audition.
Score: 0
|