So omnipotent is the Apple digital music machine that just the possibility of one of its main suppliers holding back some of its music from Apple’s iTunes music store is enough to make headlines and send shock waves.
That is what happened last week when the Universal Music Group let Apple know that it would no longer grant the company guaranteed access to its coming releases. Officially, Universal had no comment, but an executive briefed on the negotiations said the music company was merely interested in keeping its options open as it does with most other retailers in the brick-and-mortar world.
The upshot is that Universal will provide music to iTunes on an “at will” basis. Thus, if someone offers Universal a boatload of cash for the right to sell the latest Bon Jovi or Rihanna singles exclusively on a rival download service, Universal is saying that it is open for business.
This bit of news could shake up the digital music business because Universal, owned by Vivendi, is the world’s largest music conglomerate, representing one of every three albums sold in the United States. And it underscores the longstanding and increasing tension between Apple and the entertainment industry, not to mention the scores of rivals who spend days and nights plotting for ways to chip away at the primacy of the Apple iPod. (That primacy has already bolstered sales of Macintosh computers and, if all goes as Steve Jobs plans, will soon spread to mobile phones and home video.)
Theoretically, Apple may be concerned because of Universal’s market clout; an Apple spokesman did not return calls seeking comment. On the other hand, Universal is not about to turn its back on Apple, given that 15 percent of its global sales come from digital downloads.
“It looks like a little bit of saber-rattling,” said Susan Kevorkian, an analyst who covers the consumer audio business for IDC. “We’re not seeing ultimatums being dished out here. It’s a very symbiotic relationship.”
But there is little question who is benefiting the most from the symbiosis so far. Mr. Jobs’s “iSpawn” holds more than 70 percent of the market for portable music players and more than 80 percent of the online music sales business — a fairly unassailable lead, as contenders like Samsung, Sony and Microsoft have found. You can almost imagine Mr. Jobs shrugging at Universal’s new terms: “Go right ahead.”
But as more music sales move online, the volume is turning up not just among hardware players but also among digital music service rivals that include Amazon, Yahoo Music, Napster and Rhapsody. According to figures released last week by Nielsen SoundScan, physical album sales decreased by 15 percent from Jan. 1 to July 1 this year, while sales of digital tracks, though still a much smaller business, rose 49 percent.
In this environment, the music biz has a tempestuous relationship with Mr. Jobs, more respect-resent than love-hate. Label chiefs respect that he has revolutionized the online and portable music businesses at a time when so many others have flopped, and file-sharers and sites like Russia’s AllofMP3.com — a site that labels have accused of piracy — have wreaked havoc on the industry’s business models. (AllofMP3 was conveniently shuttered last week as President Vladimir V. Putin of Russia prepared to visit President Bush.) But the chiefs resent Mr. Jobs’s rigidity in areas like pricing — 99 cents a track, take it or leave it — and iTunes’ proprietary digital-rights management software, which has made songs sold there impossible to play on rival devices.
Most of all, they envy that Mr. Jobs is in a much higher-margin business of selling gadgets. Ms. Kevorkian of IDC said the label chiefs might still hold out hope that Apple will share someday the spoils of each iPod sold — along the lines of how Microsoft agreed to pay $1 for each of its Zune players, introduced last year. But only a million Zunes have been sold, while iPod sales have topped 100 million.
http://www.nytimes.com/2007/07/08/business/yourmoney/08frenzy.html?ref=technology
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