DIGITAL DOWNLOADING ISSUES HEAT UP: UPDATE

The battle over digital downloading rages on, with labels uniting against Apple’s iTunes’ fixed pricing policy. And now there’s another culprit on the scene—namely satellite radio, which has introduced an even newer means to record and store music.

During a conference call with analysts today, UMG Chairman Doug Morris claimed that variable pricing for digital music is "inevitable.”

"It's inevitable that it will go that way, said Morris. “It's a question of when and who blinks first. If you look at a market where one retailer dominates the market, he has a heck of an influence on pricing."

What wasn’t initially reported was the equally significant second half of Morris' quote. “A lot of people are calling for higher prices now, as you've read,” he said. “But we have decided that, for the moment, we will stay with the current prices, but what we do want is the opportunity to have variable prices. The reason we are going to stay with the current prices is because we don't think there'd be enough traction yet at 4% or 5% of the business. And we do not want, by raising the prices, to take a chance to force people back to piracy. That's our position on the subject.”

Morris’s comments were, of course, directed at the dispute with Apple and that company’s CEO Steve Jobs who recently termed the major labels “greedy” for wanting a flexible pricing plan on iTunes downloading. WMG Chairman Edgar Bronfman, Jr. also recently spoke out against fixed pricing, calling it “not fair to our artists” and stating that all tunes aren’t of equal value. On Tuesday, during the BASCAP executive’s conference to battle worldwide piracy in London, EMI Group Chairman Eric Nicoli said he’s “not persuaded...that a lower price deters piracy. What I am persuaded of is that making music more convenient and better value is a deterrent to piracy."

The battle between Apple—which persuaded the industry to sell music online in 2003, scoring 500 million songs in the aftermath—and the industry could become even more heated and bitter, since the iTunes contract with the labels expires next spring. “It’s a big game of chicken,” Bobby Rosenbloum, attorney for Jimmy Buffett and Sheryl Crow, told Rolling Stone Magazine. "My bet is Apple will reach terms with the labels."

If this isn’t a big enough headache for the industry, it looks like the labels will soon also be doing battle with satellite radio stations over new portable players that allow listeners to record and store songs that are broadcast on those stations. Sirius Satellite Radio recently announced plans to introduce a small portable device, the S50, to its subscribers that can store 50 hours of music, news and programs. XM Satellite has had a portable device on the market since last fall, and plans to introduce MP3-enabled portable satellite radios, developed by Korea's Samsung Electronics Co Ltd., to its subscribers during this upcoming fourth quarter.

An RIAA spokesperson said that players present “genuine issues”—analysts say the organization may file a lawsuit this fall over a new feature for upcoming wearable satellite radios—although sources say the opposing sides are already in talks to resolve the matter and could end up in court.

Nathaniel Brown, a spokesman for XM Satellite, says he’s hopeful the issues will be resolved. "The music industry is an important partner and we continue to listen to their concerns in hopes of finding a resolution that benefits everyone, especially consumers.” Sirius Satellite Radio has thus far declined to comment.

JP Morgan analyst Barton Crockett told Reuters that even if a lawsuit is filed, he doesn’t believe the suit will be successful because “fair use'” laws allow subscribers to record songs for their own use. But he added that the new devices could prompt a lobbying push by the recording industry as satellite radio and the labels wrangle over a new music rights contract. He believes the RIAA might seek $1 billion-plus in music rights fees for a new contract covering 2007 to 2012 to replace the current $80 million pact that expires in 2006.

Other insiders, however, believe that the contract talks will end in arbitration.