Watching the Wheels Turn

Imagine you’re a diehard fan of Amy Grant, Blink-182, Def Leppard, Elton John, or Ja Rule, and you go to iTunes to buy their new releases. But they’re not there, and neither is the entire Universal Music catalog — and that’s a huge chunk of music considering that Universal is the world’s largest record company and all.

Apple is hoping that consumers will say to themselves, “I’ll just buy from another artist that I can easily find here on iTunes. There are thousands to choose from.” But Universal is banking on music buyers saying, “No. I’m loyal to my favorite artists. I’ll click over to Rhapsody, Napster, or Yahoo, and get what I want — not what Apple wants to sell me.”

So music creators and music buyers are bearing witness to an old-school standoff that started the day Universal boldly decided against renewing its bi-annual contract with Apple. Instead, Universal put Apple on a sort of month-to-month lease for the rights to sell the label’s artists. Publicly, Apple CEO Steve Jobs seems very casual about this situation. But the truth is that this could be serious trouble for Apple unless, of course, music fans are more interested in the buying experience than they are in the actual music. This is literally the $200,000,000 question — as that’s the annual revenue the music industry is gambling with if Universal’s move inspires other big labels to follow suit. If push comes to shove, could the labels really afford to boycott the largest retailer of online music?

Probably not. So what is this really all about?

Many music insiders are attributing the Universal maneuver as a posturing strike to force Apple into allowing the label to dictate different pricing for different artists. Although album prices on iTunes vary, track costs are typically held to 99 cents whether the artist is on a major label or an independent. Universal would probably rather mimic the disparity in pricing seen at many brick-and-mortar retailers, where their releases would be more expensive than the typical indie album. Jobs has stated that he feels staggered pricing would alienate music consumers.
We must also throw in the possibility that the majors hate iTunes. Sure, Apple brings in a lot of revenue for the labels, but they would prefer people to have to pay subscription rates — such as those on Yahoo services — to purchase music online.

So, you might ask, “Do the major labels want my potential buyers to pay them for the right to buy my music?”

Kind of.

Universal wants all artists to note that they stand to make more with the subscription model than if the consumer simply buys a 128kbps file for a one-time fee of 99 cents that can play on only selected (networked) devices.

But what if your potential market doesn’t want to pay that fee? Does that mean that you lose a viable means of online distribution simply because it doesn’t keep major labels as fat as they like to be?

Jobs has said that he will not make iPods compatible for use with subscription services just to appease the majors. But that’s not because Apple is a champion for independent musicians. The truth is it’s because iPods would need to incorporate a program that generates royalties based off “play events” — a royalty generated from each play on an mp3 player or computer, payable to the label/artist and writer. By shunning digital-rights-management software, the iPod remains one of the only music players in the United States that silently, but proactively, endorses people experiencing music “shared” from unlicensed sites. Jobs has even gone so far as to state that labels — big and small — should remove the “lock” that disallows copies of music files to be shared. (Read: Labels should let everyone steal their inventory so Jobs cans sell more iPods and iPhones.)

If they could get away with it, every major label would probably team up and push until Jobs decided to play ball. But aside from the lost revenue, if all the majors were to conspire (in the legal sense of the word) to boycott iTunes, Apple would have a billion-dollar claim against the RIAA. The far smarter move is for a mega-major like Universal to break ranks, and pull out for personal reasons. There are no anti-trust issues, and yet it would seriously handicap iTunes, because Universal controls about one-third of the product in the marketplace.
So — will the majors win the upcoming standoff? And what’s at stake here for independent artists?

Just the way you will be able to make money from your music in the 21st century.