Universal wants better deal with iTunes

The Baltimore Sun

Vivendi's Universal Music Group has reportedly refused to renew its contract with Apple Inc. to sell its music catalog on the iTunes Store. But you won't see Universal's artists vanish from the iTunes Store any time soon. They clearly need each other.

For the past couple of years, the Big Four music companies - Universal, EMI, Sony BMG and Warner - have watched uneasily as Apple became an increasingly powerful player in the world of digital music. The iTunes Store has about 75 percent of the market for online music downloads. It recently passed Amazon.com in a survey by NPD Group to become the third-largest retailer of music in the United States.

Until now, Apple's strength has allowed it to dictate terms to the Big Four. But they haven't been happy partners. They wanted more control over pricing, particularly the ability to charge more for popular songs (iTunes charges 99 cents for each track). They wanted to be able to offer songs on other services without having to offer them on iTunes as well. They urged Apple to make its FairPlay Digital Rights Management available to makers of competing music players so iTunes songs would play on more devices (the DRM, an anti-piracy measure, prevents the songs from being played on unauthorized devices).

BusinessWeek.com reported this week that "sources close to Universal" said a new deal with Apple would give Universal the flexibility to make exclusive deals with other services, and possibly the right to charge a limited-time premium for hot new hits. If this happens, no doubt the other three music companies eventually will want similar terms.

What does that mean for Apple? It may not be all that bad. The flap with Universal will loosen Apple's grip on digital music, which will give a slight boost to Apple's competitors, both the digital music vendors and the makers of rival music players.

But Apple has nothing to fear as long as it keeps doing what got it into such a dominant position: making the best music players and operating the best music download service, anticipating and responding to customer desires.

Increased competition isn't a problem as long as you're still better than they are.

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