Which comes first, the music or the music player? That’s the type of brinkmanship like discussion that egotistical Universal Music Group executives will be asking themselves later this week and they will be hoping the answer is ‘the music,’ which of course it’s not.
I’ve got my iPod and I like it, so if UMG music disappears from the iTunes store what will the average music lover do? We think we know the answer to that. They will find the song illegally on a pirate service and copy it to their iTunes player, staying true to their device and personal music experience, and not staying true to the principle of what a wonderful music engine UMG is.
There are many reports out this week that UMG has told Apple that it will not renew its year long music contract, but instead has signed a short term one, which neither of the two companies are speaking openly about. Instead UMG has leaked the story to ‘trusted’ journalists, that since the dawn of iTunes have been ready to run ‘record labels about to beat up iTunes’ stories at the drop of a hat, however unrealistic.
The music labels last tried to push this idea back in May 2004, when we ran the headline ‘Butchering the goose that laid the Record labels’ one Golden Egg,’ but that was a battle they all backed away from, despite telling the New York Times that it was a ‘fait accompli’ that was as good as signed, and that was back when very little revenue was at stake.
All the new sources cite the same issues that we’ve heard of for the past three years. iTunes insists on one price for all music, it insists that music can be sold in single tracks, not only in albums and it won’t open the DRM on its player to other players.
The New York Times went heavy with the notion that this can hurt iTunes, despite the fact that it said that UMG got 15% of its revenues from online services last quarter, some $200 million and can ill afford to lose out on iTunes. At this current rate of growth it will be no time at all before this becomes a $1 billion decision, so those unnamed executives at UMG had better be absolutely sure that if they pull their music from iTunes, they have a plan B to replace that kind of revenue.
The way the average music lover thinks of this is; iTunes good, bands good, piracy not too bad, record labels very bad. The ingrained greed of record labels forcing albums on a world that always wanted singles is well understood by everyone except the labels themselves.
And what if Apple gave in to the UMG demands as they are itemized in the press. What if they only sold albums, and the new albums were at extortionate $20 prices, while the long tail music cost virtually nothing? iTunes revenues would fall, UMG revenues would fall, and piracy would become rampant once again, with music lovers feeling justified by the greed of the record labels.
The only possible reason that UMG thinks it can get away with such a deal is because the handset makers and operators in the cellular world realize that they must try whatever they can to halt the Apple juggernaut, and putting music on their handsets at whatever price and formula the record labels tell them, may suggest that suddenly Apple’s iTunes would lose its dominance. That might be true except for the iPhone.
Well iTunes pricing has been shown to work, and many of its rivals use the same pricing model. So the time to push Apple on the issue would be when a big cellular operator has just achieved a huge amount of success with a formula and pricing which is different. Then the labels would know that alternatively pricing works, and know that the public would follow them into a new platform and business model. But that has not happened, so the UMG execs must be sitting on their hands, hoping the next quarter’s sales through iTunes don’t get any bigger, making their gamble larger by the minute. Of course they can quietly sign a new deal with Apple, and their short term deal may well be a rolling monthly deal anyway, and forget about the whole sorry issue.
What would happen, ask all the newspapers, if all of the major record labels, including Sony-BMG and the private equity owned EMI Group, along with Warner Music, all decided they just had to pull out of iTunes at the same time for the same reasons. Although that would be an open and shut anti-trust case with the labels in collusion, there is already evidence that Sony and EMI have both signed new deals with iTunes, while Warner has made a positive point about focusing on online sales, from the first day that it was acquired in March 2004 by Seagrams heir Edgar Bronfman Jnr.
Instead you might like to ask what would happen to the record labels if there was a big enough bust up and Apple decided to urge any UMG artist which was out of contract, to sign directly with iTunes, or a rival record label that remained on iTunes? That kind of scenario may be improbable, but would it keep you awake at night if you’d just taken a $1 billion gamble with the label’s future?
In the end, just like 3 years ago, this is a bluff, and our money is on Apple to see it as such, hold its line and retain its customers. We hope UMG can manage that too.