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Apple likely to lead music negotiations

updated 11:00 am EDT, Fri April 20, 2007

Apple, music negotiations

Apple is preparing to sit at the bargaining table with the major record labels over the next month, and will likely use its market-leading position to push for DRM-free tracks from the remaining 'big three' music companies. Apple and EMI on April 1st announced that the label would offer its entire catalog of audio tracks without copy protection via the iTunes Store, and the other labels are expected to follow suit in the near future. "EMI struck a deal that puts all of us at a disadvantage," said an anonymous music executive. EMI defends its position, saying that consumers were frustrated with DRM protection. "We believe removing it will boost digital music overall," an EMI spokeswoman said.

Sony BMG, Universal, and Warner will attempt to drive contract renewal negotiations with Apple toward variable song pricing, a subscription service for iTunes, and bundling more music alongside other features into digital packages, according to Reuters.

Music companies are also likely to jockey for improved margins on digital tracks, and may ask for or demand a slice of iPod sales by pointing to Microsoft's agreement with Universal last November. The Redmond-based company, which had recently begun selling its new Zune portable media player to combat Apple's market-leading iPod, agreed to pay Universal a royalty fee for every Zune player sold.

"We felt that any business that's built on the bedrock of music we should share in," said Universal chief Doug Morris.

The deal was not directly linked to content shipped with the Zune, however, as the device's preloaded music was provided through music labels with no clear connection to Universal. The label also refused to license its content to Microsoft's Zune Marketplace online store without those royalties, demanding compensation above and beyond direct music sales -- regardless of whether music from Universal is ever copied to a Zune.

Morris boldly implied that all non-Zune owners thieves, and hinted that he would press for similar terms with Apple as well as other online store owners moving forward.

"These devices are just repositories for stolen music, and they all know it," Morris said.

Apple, however, still maintains the upper hand in negotiations with its dominant position in the industry. Last week the Cupertino-based company announced that it had sold 100 million iPods since it introduced the portable player in 2001, and is currently responsible for more than 80 percent of all digital music download sales in the U.S.

Still, pressure continues to mount overseas for Apple to open up its iTunes music to competing players. That movement, led by Norway with backing from countries such as France, Germany, Sweden, and others has threatened Apple's ability to sell music in those regions. Norway has already declared Apple's closed system illegal, and has provided a deadline that it says the company must abide by.

France drafted a law which would have prevented iTunes from selling FairPlay-protected tracks in that country, but the bill was watered down sufficiently to pose no threat to Apple before it eventually passed and took effect.

Some music industry watchers point to Apple's proprietary FairPlay DRM (Digital Rights Management) as the key issue, noting that the record labels don't necessarily need to remove DRM completely but that Apple can open up its closed standard by allowing competing devices to play FairPlay-protected tracks.

"EMI rushed into that deal," said Ted Cohen, who left a senior position at EMI last year to start a consulting firm. "It would have been better to put pressure on Apple to open up FairPlay to make it interoperable across multiple platforms."

The other three big music labels are experimenting with DRM-free tracks, but privately admit that following EMI is just a matter of time, according to Reuters.

"If Universal goes, then everyone has to follow," said the anonymous music executive. Cohen speculates that Sony BMG, Universal, and Warner Music will carefully watch the outcome of EMI's DRM-free offering.

"I have a strong feeling there's not going to be a move for at least 60 days by any of the other majors," Cohen noted. "If all of a sudden EMI starts increasing market share in digital sales over that period, then they'll have to act."

by MacNN Staff




  1. Rincewind

    Joined: Dec 1969


    Doug Morris...

    I'm not a thief. Stop believing that just because we didn't pay you for the honor of ripping our legally obtained and paid for CDs that we're ripping you off.

    Maybe someday these guys will get it - the reason we like digital music is because it frees us of the burden of carrying around a c*** ton of CDs and allows us to listen to our music how, where and whenever we like. Anything that restricts any of those makes the music less appealing.

  1. testudo

    Joined: Dec 1969


    Re: morris

    "We felt that any business that's built on the bedrock of music we should share in," said Universal chief Doug Morris.

    Based on that logic, television networks and movie studios should get a piece of each TV and DVD player sold, Exxon a piece of each car sold, Adobe for each Mac sold, Trojan for each trick done by a hooker, etc.

    The label also refused to license its content to Microsoft's Zune Marketplace online store without those royalties, demanding compensation above and beyond direct music sales -- regardless of whether music from Universal is ever copied to a Zune.

    See, they should have done this upfront with the iTMS, instead of trying to get it tacked on later. Now that Apple's the market leader with a big monopoly stick to wield, they can pretty much demand their own terms.

    Morris boldly implied that all non-Zune owners thieves, and hinted that he would press for similar terms with Apple as well as other online store owners moving forward.

    Interesting. Is he saying that if you own a Zune, you've shown that you are a person who respects copyrights and don't steal music? Or maybe that, because you own a Zune, you're now allowed to download all the music from the P2P sites you want, because you've been granted a waiver?

    But, most of all, isn't he going after the wrong people? The online music stores are the ones with the DRM. And you can't "steal" music with a Zune or an iPod (well, you can, you stick it in your pocket, walk into your record store and point it like its a gun and say "Give me all your CDs!", or club the guy over the head with it, but that's about it). The 'theft' occurs when the music is ripped and shared. Shouldn't they be going after Best Buy and the Computer makers with the CD readers in them?

    And how's he going to extract money from stores that don't sell hardware, or MP3 makers who don't sell music? I can't see Creative or Sandisk giving the RIAA money for sales of their hardware as they don't have any contracts to hold over their heads.

  1. davesmall

    Joined: Dec 1969


    Demand -> Price Elastic

    The demand for digital content is highly price elastic. The lower the unit price the more downloads. Raise the price and watch sales plunge.

    I don't think many consumers will pay $20 to download a movie. Make that $3 per movie and you might get 30 or perhaps 50 times as many downloads.

    The cost to store and download content is very low because it is totally automated.

    The way for the media companies to maximize their sales and earnings would be to drastically lower the prices, not raise them.

  1. russellb

    Joined: Dec 1969


    Music Companies

    Yeh right ... the music companies just dont like it now that someone can s**** them like they have been s******* customers for years.

    Let me see Apple has done all the hard work, setup the most successfull legal online music sales system and accounts for 80% of legal US downloads.

    In the article it says the problem is Apples DRM .. it should be opened up for any player !!!!!!

    So they want Apple to open up their successfull system to the other less successfull 20% of the market of music players so the music companies can them go do deals with other players and s**** Apple

  1. resuna

    Joined: Dec 1969


    open up your players

    (and, electronista, fix your website)

    Electronista just throw away the comment I'd just typed in, where I described how Apple's own format (AAC) is simply MPEG-4 audio, not proprietary, and every music player could play the majority of somgs in people's iTunes music collections right now if they chose to do so. I won't go into all the details (again), but the bottom line is:

    1. I am currently in the market for a new music player, having given my daughter my iPod when her old one broke.

    2. I have a few hundred encrypted iTunes Music Store songs, but I have thousands of tracks ripped into AAC from my CD collection. I can handle re-encoding a few hundred iTunes tracks into unencrypted MP4, but not re-ripping my whole collection *and* having to use the bulkier MP3 format.

    3. Of all the players I considered... all the flash ones and most of the lower end disk ones... only two supported anything but "WMA and MP3". One also supported Ogg-Vorbis, and a Sony player supported AAC as well as Sony's proprietary format.

    Given that Sony's player was pretty old, and more expensive than an iPod, I decided to take my search to the Internet. I really don't much care for the higher end iPods, personally, but I'm locked in by THEIR decision to only support MP3 and Microsoft's proprietary format on their players.

    I don't know WHY they don't support any formats other than MP3 and Microsoft, whether it's laziness, a contract with Microsoft, or an attempt to put pressure on Apple. I don't care.

    Right now the lock-in to the iPod isn't Apple's fault, it's the fault of the makers of the MP3 players. Until they open their hardware up to support MPEG-4 audio, they have nothing to complain of from Apple.

    Open up your own players before complaining about Apple's DRM.

  1. resuna

    Joined: Dec 1969


    Sorry, shmoolie.

    Sorry, shmoolie, I posted that in response to another article... and it vanished. That was right after I posted my security article here and had *that* vanish. I wonder if that showed up on some other random electronista/macnn page.

    I guess their "session" management is a bit shonky.

  1. anthology123

    Joined: Dec 1969


    suing themselves

    I guess if the labels were to sue the CD-ROM distributors, then Sony would be suing itself since they sell computers to do exactly the kind of ripping the labels discourage. How's that for irony.

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