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Friday, March 21, 2008

Universal Music is cozying up to Apple

The chairman and CEO of Universal Music Group, Morris yanked music videos off Yahoo and sued MySpace for copyright infringement. He threatened to pull songs from Microsoft's online music store unless Bill Gates forked over a $1 for every Zune music player sold. He seethed over Apple CEO Steve Job's refusal to let him and the other label execs set song prices on iTunes.

So why is he now offering Jobs a plum of a deal?

Morris has approached Apple with an idea to offer a device that comes preprogrammed with Universal Music's entire library on it, sources told CNET News.com. A music industry source said Wednesday night that Apple has broached the idea of bundling music with the other three major labels but didn't show much enthusiasm for the plan. "Apple was just inquiring about whether this kind of thing would interest (the other record companies)," said the source.

It's clear now, two days after The Financial Times broke the news about the Apple-label discussions that Morris, not Jobs, came up with the idea.

Insiders say Universal Music, whose artists include U2, DMX, and The Killers, wants to pump life into subscriptions, and is tired of seeing Apple selling songs cheap and making fat margins on the music players. Not surprisingly, he wants a slice of device sales from any gadget maker that licenses his music. Morris also has ambitions of turning Universal Music into a total entertainment company.

The plan now is to "partner instead of just being a vendor," a source close to the label told News.com.

Universal revamping strategy
In the proposal Universal Music pitched to Apple, the device would come with all-you-can-eat music for a period of time, perhaps a year, and then owners would be "rolled over into a subscription service."


Label wants to breathe life into subscription services

(Credit: Universal Music Group's Web site)Subscriptions services, such as Napster, Yahoo Music and RealNetworks' Rhapsody are dwarfed by Apple's download store but are still very important to executives at Universal Music, say insiders. They see it as a way to get people to keep paying for music and to keep tabs on what audiences are listening to, sources say.

Universal Music was a big backer of an ISP tax, according to reports. And last October, BusinessWeek reported that Morris had also toyed with the idea of enlisting the other three majors to create a music-subscription service. The plan seemingly was derailed when the U.S. Justice Department began investigating whether such a consortium would violate antitrust laws.

"These guys at Universal," said one music insider, "are so obsessed with this subscription thing...but there are publishing issues involved with bundling and I don't think they make much money off it."

What can't be overstated is Universal Music's desire to get a taste of device sales, insiders say. Back when Apple's iPods became the rage, everybody in the music industry realized they missed an opportunity. While Jobs made pennies on song sales at iTunes, he pocketed 50 percent profits on some iPod models, according to estimates by iSuppli.

It's safe to say that almost all the major players in the music industry see that as unfair. They argue that what people want isn't a music player. It's the music.

That's why Morris went after--and got--a share of the Zune as well as devices offered by Sirius Satellite Radio, XM Satellite Radio and Nokia.

The FT reported that Morris wants $80 for any Apple device bundling Universal Music songs, while Apple has offered $20.

Getting a share of music players is smart, said Forrester Research analyst James McQuivey, even if it is late. But he warns that whatever gains the labels make on device sales, they could lose in other areas. Allowing Jobs to place their music catalogs on a single device might allow him to offer a breakaway handheld that could overshadow any other gadget or music service out there.

"The labels would just be turning over their music to another Apple-only environment," Forrester Research analyst James McQuivey said. "Nobody would want anything else."

"This kind of offer would kill CD sales far more quickly," McQuivey said. "You'd be giving people that typically buy music a reason to quit buying. Besides killing off CD sales, the music industry would harm two areas that are going strong for it right now. One is MP3 sales and the other is the (free streaming) music offered by social networks Imeem and Last.fm. If I were the music labels, I would tell Apple to come back in 2009, after I've given these other services opportunity to grow."

More
In a move that could see perception of the iTunes Store shift beyond all recognition, various reports are suggesting that Apple Inc. is contemplating increasing the price of its iPod and iPhone devices in order to grant unlimited free usage of its accompanying music and media download portal.


The proposed plan, which first emerged through an article published by the Financial Times (FT), has met with a degree of score from industry analysts who suggest that any such transformation applied by Apple could lead to an “accounting nightmare,” while also likely to drive a wedge between Apple and recording artists left unhappy at their content being given away for free.

According to the FT report, unnamed sources close to Apple have said the California-based tech specialist is currently holding talks with major music distributors regarding the possible incorporation of a monthly subscription on the iPhone and unlimited usage packages for iPod media players.

The report does not specify the projected price jumps Apple’s devices would incur should unlimited user access be introduced to iTunes, but it does claim that any emergent deal is being held back regarding the amount Apple would pay music labels for access to their content.

Apparently discussions are presently stuck in the mud on this aspect of the deal, with Apple only prepared to offer contributing labels around $20 USD for every iPhone or iPod bought by consumers, reports the Associated Press.

It’s likely that Apple is considering alternative ways of presenting its wealth of iTunes content to iPod and iPhone users on the back of rival music download portals seeking fresh distribution methods.

The immense popularity of the iPod/iPhone and the iTunes Store has recently helped power Apple into second place in the U.S. list of leading music sellers, behind only American retail giant Wal-Mart. The iTunes Store made around $2.5 billion USD for Apple in 2007, while it made $8.3 billion from its iPod range during the same period.

Other recent rival portal deals have seen mobile phone titan Nokia joining with Universal Music to provide users of selected Nokia handsets with unlimited free access to Universal’s music portfolio. Also, RealNetworks and Microsoft Corp both offer monthly subscription-based access to their respective music catalogues.

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