Universal iTunes bluff will not work on Apple

Stan Beer
Wednesday, 04 July 2007 05:44

Opinion and Analysis

Lately, Universal Music Group has displayed a penchant for flexing its muscles by taking on some of the world's most powerful media players. First it was Google's YouTube over alleged copyright infringement, then it was News Corp's MySpace, and now it is Apple iTunes. The fact is UMG is probably all bluff.

As a case in point, UMG put on a grand song and dance last September expressing its indignation about alleged copyright violations in a lawsuit against YouTube. Then in October, the two parties signed a content agreement. In November, UMG filed a similar lawsuit against MySpace which is still ongoing.

There is very little doubt that the Vivendi owned UMG lawsuits against companies with pockets at least as deep as its own amount to little more than posturing in order to extract a good deal for its content. Likewise, the latest veiled threat against Apple to withdraw UMG content from iTunes is yet more posturing to get a better deal from Apple.

The question is does UMG have the leverage to bring Apple to heel? The answer is probably not.

As UMG well knows, CD sales have been declining for years, while digital music downloads has been on an upward trend. With nearly $1 billion of UMG's annual revenue now coming from legal digital downloads, it's fairly clear where the future lays for the company.

Having established that UMG is as firmly entrenched in the digital music downloads market as the other major recording companies, can UMG afford to pull its content off the online music store that dominates the market with 80% market share? Obviously not if it wants to keep its shareholders and talent happy.

From Apple's point of view, with 100 million plus iPods already in users' hands, iPhones being sold hand over fist, and iTunes on an uninterrupted trend, the UMG threat must seem amusing. Yes UMG supplies one third of iTunes music content but so what? Where else is UMG going to sell it? It would be like saying to Walmart you can't stock our CDs anymore - not a very wise move.

If the combined might of all the record companies couldn't bring Apple to heal, what makes UMG think it can? With YouTube and MySpace, UMG arguably has some leverage because of the legal implications. With iTune's, it's simply a matter of UMG not liking Apple's pricing policy. As Steve Jobs has already demonstrated in previous showdowns with the recording industry, when it comes to pricing Apple holds all the cards.