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Universal Music playing hardball with Apple?

With sales numbers for the opening weekend of the iPhone expected to read like the returns of a summer blockbuster, today should be a good day for Apple but an article in the Wall Street Journal may cast a small cloud over what should be the start of a good week.

The Journal is reporting that Vivendi’s Universal Music (the biggest of the Big 4 record labels by some metrics)  is “considering notifying” Apple that they aren’t interested in a long-term renewal of their iTunes contract.   The article carefully uses the word “considering” and it cites its source as “a person familiar with the situation.”   With such phrasing, it’s not so much news as rumor and innuendo but it could still be enough to dampen the start of the week.

Supporting the possibility Universal’s consideration may be more than bluff, the story draws on the widely reported frustration  of the music labels which are struggling both with the decline of their traditional business, and establishing their place in the developing digital distribution marketplace.  

Ultimately, however, Universal’s public “consideration” may be nothing more than a  ploy to gain leverage in further negotiations with Apple.  Its highly unlikely that they’d withdraw their catalog from the Apple store and more probably that they are jockeying for better pricing terms, or other incentives. 

Apple is now the number 3 seller of music, and the entrance in to the mobile market with the iPhone represents the possibility of even greater sell through.   While the label doesn’t want to lose that distribution, it is at the same time rightfully concerned about having too much of its revenue stream (present, but especially future) being dependent on too small a pool of sellers. 

In an ideal world for the labels, their catalog would be like a commodity available from a wide range of independent sellers – none of whom is too powerful to be able to demand better terms than another.  Unfortunately, the present climate is not their Utopia.


Expanding on the earlier reports, The New York Times, Rueters and other news outlets are now confirming that last week The Universal Music Group did, in fact, notify Apply that they will not (at least for now) sign a long term deal. Instead, after an apparent stalemate in negotiations, they will allow their music to be sold month to month.

Month to month won’t cause any noticeable changes for music buyers but it will allow Universal to withdraw its catalog on short notice should they choose. That, remains however, extremely unlikely. Apple controls 76% of digital music sales, and more than 15% of Universal’s revenue comes from digital sales. No matter how much Universal wants to move away from a fixed flat rate price, or convince Apple to license its Fairplay DRM to other vendors (thereby opening the iPod to the entire market), pulling their music in this game of brinkmanship would be too costly.

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