Information Week – June 2, 2007:
Apple’s dominance of the online music market has prompted the world’s largest record music company to fight for a greater share of the profits.
Vivendi SA’s Universal Music Group told Apple last week that it that it would not be renewing its annual contract to sell digital songs through Apple’s iTunes Music Store, according to reports published in the New York Times and The Wall Street Journal.
Instead, Universal plans to sell music at will, meaning that it could withdraw its songs from Apple’s online store on short notice. The move is widely seen as an effort to obtain better contractual terms from Apple.
Universal’s move is a risky one, however. Estimates published in the New York Times indicate that 15% of Universal’s revenue for online music sales during the first quarter of the year came from Apple and other online stores. And Apple CEO Steve Jobs is not known for allowing Apple’s partners to dictate how his company does business.
Apple is really screwed. The music it needs to sell is owned by the major labels. Anytime they want, they can cut iTunes off and it’ll go out of business. And if iTunes ever got big enough that it was the sole source of music sales and the labels could not afford to piss off Apple, then governments would break iTunes up as a monopoly. There is simply no way Apple can win this battle.
I gotta agree j-f. Sure Universal makes some serious money from Apple, but a 15% loss still leaves them with the rest their 85% profit. There is also the better then good chance that Universal will make more money by asking for a higher cut on popular music.
#2 – Yeah, but would you want to be the CEO or CFO who has to explain to the shareholders why you just lost 15% of your profit?
Also, there is more than enough competition out there to keep Apple from being labeled a “monopoly.” Sure, they’re the big fish in the pond, but nowhere in their agreements does it say, “you can only deal through us, period.”
That, my friends, would make Apple a monopoly.
15% of Universal’s revenue for online music sales during the first quarter of the year came from Apple and other online stores.
Shouldn’t this be 100%
#1
This means nothing like that at all. Illicit downloading of music dwarfs the entire rest of the music distribution business, and for iTunes amazing growth, it is not enough to make up for the shrinking sales of the music business.
Universal sees the writing on the wall for the music business and they are doing this so they can distribute movies on the Xbox, which is dwarfing the iTunes own movie downloading business (but is ignored by the popular gadgets media because hey its microsoft and they are EVIL, er um something like that) But it is probably not just XBox, Tivo is also releasing a HD movie download product. The Apple offerings in this business are expensive and they allow the end user to keep the file after they are done with it which gets in the way of movie rentals.
2. “Yeah, but would you want to be the CEO or CFO who has to explain to the shareholders why you just lost 15% of your profit?”
You don’t understand the music industry. If someone wants to buy Eve, Universal owns her music. No one else can sell it. People buy the music they want, not because it’s at a particular store. If Universal pulls out of iTunes those fans will simply buy the same music somewhere else. There will be no loss of profits.
4. “Shouldn’t this be 100% ”
Nope, the labels make most of their online money from ring-tones. iTunes is just a drop in the bucket.
Lets look at this.
A money grubbing corp wants more money.
Look at the distribution technique Itunes uses…EVERYWHERE. Not just to the big cities, and towns, and every mall. WHICH are quiting business in the thought that record Stores are DIEING.
My only thoughts are to…
1. they Want to do it themselves, AFTER someone else has proven it can be done.
2. If they were serious, they would have gotten the OTHER music corps behind them, as a Larger threat.
3. Universal dont know what its doing. the storage facilities for ALL this music in digital form, is enormous. The bandwidth, is outragous, and Keeping up the tech and security, is humiliating…
#4, one problem I see with your logic is that not everyone who might have bought something on iTunes will go out of their way to get it somewhere else.
Also, with places like Tower Records closing stores leaving things like Best Buy, Walmart, and Target as the big music stores, those places frankly don’t have the selection that makes it worth my while to shop for music.
Amazon is okay, but the interface is so junked up it drives me crazy. I personally like browsing the ITMS. If I don’t find something there, it is unlikely I will find some other way to get it.
7. “they would have gotten the OTHER music”
Oh wow, forming an illegal cartel to increase profits would have been a great idea. Apple never would have taken advantage of that! Wow, you must be some sort of genius, or something.
They are not pulling their music from itunes just declining to sign a contract ,they have nowhere else to go. It’s a bluff that could only work if Apple had serious competition in the sales of DRM infected music.
You guys realize that Apple only earns around $6 of iTunes Store sales on every iPod they sell? (That’s 20 iTunes purchased songs on the average iPod) Doesn’t sound like it’s one of Apple’s business corner stones… More like a cheap accessory for an iPod.
The fact is that the vast majority of iPod buyers never ever buy a single song on iTunes. The iPod is successful due to the simple and elegant integration with iTunes, not because of the iTunes STORE.
The music industry needs the iTMS much more than Apple the music industry. Because every song they are selling on iTMS is one less which is illegally copied.
All business is pugilistic and I’ve always enjoyed watching Steve Jobs deliver blow after blow to a industry that had truly gotten fat, lazy, stupid, and let’s be honest here, corrupt.
If Universal Music is willing to bet the farm an extricate their wares from the reach of the iPods army, well good luck to them. The online music marketplace is going to continue to go through violent convulsions and people are going to get hurt. Such is the free market.
I must say that if more people understood just how little money the record labels generate actually makes it to the artists who rightly deserve it, they would open rebuke these lumbering behemoths.
I don’t think Universal will go full throttle. It has too much to lose. No other digital content seller can begin to make up the difference from not doing business with the iTunes Store.
I just crunched some more numbers.
Apple has sold 100 million iPods and 2 billion iTunes songs to date (hence the 20 songs per iPod).
Over the last 4 quarters they sold 40 million iPods, so I assume they sold 800 million songs during the same period. Now allegedly Apple gets 30 cents per song. So we come to a revenue of $240 million due to music sales over the past 12 months. This is around 1% of Apple’s annual revenue.
And since I believe the iTMS only plays a very minor role in people’s decision to buy an iPod, I don’t think Apple is the one who will bleed when Universal pulls out.
Uni will blink first. Mark my words.
The nationwide ATT edge network outage is the first drop of sweat on Apples brow.
Stefan, you’ve got it exactly right.
It’s rather funny to read the the posts where just wishing Apple’s downfall will somehow make it happen, even in the face of recent slam dunks, and total command of the sector. In answer to the poster who mentioned Eve… If Universal pulls out, Eve and other artists like her will likely be royalty pissed (pun) and move or go independent at the earliest opportunity.
#18,
Actually, the ATT network is currently melting down. I would not call that a nothing but net event. Right now the ball is bouncing around the right, it might go in, it might not.
Given that apple stock was tanking today, if they had actually sold a nice round number of 500k phones over the weekend, I think they would have had a press release, “Phone sold out everywhere with over 500k units shipped”. Instead we got that news from blogs and analysts.
Well Greg, there is news. Only 2% of activations at AT&T had problems… all fixed now. Apple didn’t tank at all. In fact it did better than i thought it would after an event like that. Don’t you know about investing? Buy on rumor and sell on news. Apple was down 2 cents on average volume… basically unchanged.
17. “Here is what I suggest Apple should do.”
You’re right, at some point iTunes will become its own “label” of sorts, and musicians will simply sell their music there and market themselves elsewhere.
Jobs will have to be careful. They will never “sign” an artist. If they “sign” an artist, the music industry will see iTunes as a threat to their monopoly and will cut them off.
Jobs will simply let an artist sell his or her music via iTunes without a label. For example, do artists such as Prince or Metallica really need labels? When their label contracts run out they could simply start selling their music on iTunes and selling CDs on Amazon.
The music industry is simply not needed. All it does now is act as money hungry middle man. That’s going to change soon enough.
From an article by Reuters:
My friend Evariste at Discardedlies comments:
Time for the apple fan-boys to be spanked.
Let the games begin.
Is it too much to ask that Information Week (IW) get their number straight when they quote other sources?
IW quotes the NYTimes saying that “that 15% of Universal’s revenue for online music sales during the first quarter of the year came from Apple and other online stores.”
NYTimes actually said: “sales of digital music through iTunes and other sources accounted for more than 15 percent of Universal’s worldwide revenue in the first quarter, or more than $200 million. (Vivendi does not break out revenue from Apple alone).”
Again IW quotes the NYTimes saying: “Apple’s iTunes Music Store accounts for about 70% of online music downloads sold, according to the NPD Group”. The NYTimes actually says that according the data from the NPD Group: “The iTunes service accounts for 76 percent of digital music sales, and the contract talks come as it is on the rise “.
By misquoting the NYTimes, IW has made it sound like Apple has less leverage than it really does on Universal. The quotes from IW might cause one to believe that the iTunes Music Store (IMS) only contributed 10.5% of Universals online music sales for the first quarter, whereas from the NYTimes article we see that IMS contributed 11.4% to Universal worldwide revenue for the first quarter (over 152 million dollars).
When one takes into account that the profit from digital online sales is at least two to three times greater than the sales from physical media (especailly when one takes into account that the leading physical media retailer is a loss leader (or tough negotiator) like WalMart), then one can see how much leverage that IMS is starting to have on Universal.
From these statistics in the NYTimes article it looks like IMS contributed between 20 to 30 percent of Universals first quarter profits (assuming 2 to 3x profits over physical media sales). No wonder their sabers are starting to rattle with so much shaking going on in their boots.
The sad thing that I see from these articles is that it sounds like Universal is starting to look at IMS as the enemy instead of a partner. When that happens most negotiations end with deals that are more “lose/lose” than “win/win” (or even “win/lose”). If that comes about, then it is obvious to me that Universal has much more to lose than Apple.
Why should Universal (or any other media company) be entitled to a cut of Apple’s sales, Brock?
#25,
Universal should receive a payment for each iPod sold because Apple enables music pirates to copy music. Apples own numbers indicate that only 2% of music on an iPod is legit, and the rest is pirated materials.
#26
Greg, that’s a completely wrong assumption. You forget that people own CDs which they import to iTunes. At least that’s the first thing I did when I got an iPod. In my case that’s 50 CDs with 700 songs. I already paid a horrendous price for the CDs (new CDs costs around $25 here in the Netherlands), I definitely don’t think Universal should receive an additional fee for the same product.
So what you’re saying is that Apple should be presumed guilty, and guilty specifically of allowing piracy of Universal’s content?
#26 – GregA
A new, rewarding career path awaits you with the Repuglician Party!
“Apples own numbers indicate that only 2% of music on an iPod is legit, and the rest is pirated materials.”
What a lovely piece of deliberate, dishonest distortion!
What they actually say is, 2% is purchased from the iTMS. You cleverly twist that into “legit”, thereby falsely implying that the remainder, being anything not purchased from the iTMS is therefore defined as “not legit;” and miraculously transforms thereby into “pirated materials”.
I refuse to believe that you actually believe that obvious crock of feces, so the only alternative I can come up with is that you’re a fucking liar.
Maybe some slack-jawed yayhoo from Bumfuck, Egypt would swallow that line of what you apparently think is clever shit – but do you actually imagine there’s anyone here so goddamn dumb that they don’t know that your “pirated materials” actually consist of anywhere from 0 to 100% music legally ripped from the iPod owners own CDs, tapes and LPs?
And neither Apple, nor you, nor your RIAA overlords you shill for know exactly what that percentage is.
Nice try, though. Jay has some nice parting gifts for you… I’ve already forwarded your resumé and CV to the NRC. They’re always on the lookout for people with your “talents” and ethical standards.
#29
I want you to think about me everytime you are in your lexus with your brand spanking new iPhone and you realize I was the one that told you you can’t anything with your iPhone because the handfree bluetooth locks up your iPhone.
HEhehehe, but that Google maps sure is saweet!
I carry a MOTORIZR Z3, but thanx 4 the advice anyway…
oh, yeah; none of the tunes on it come from iTMS. Shall I start watching for the RIAA goon squad in my rearview mirror?