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New deals will soon be attempted by the content holders to change the current terms of engagement, with wonderers wondering what the majors can do to level the playing field.
I.B. BAD ON LABELS TAKING
A BITE OUT OF APPLE
I.B. Looks at How Labels Are Preparing Their Strategy for iTunes With Deals Now Up
A special I.B. Bad report.

There’s an imminent shift in leverage between the content holders and Apple, as the Big Four’s deals with iTunes Music Store come up for renewal at the end of April.

In the radical reshaping of music retail during the last half-decade, iTunes has morphed from an upstart into a major player, with the online power now accounting for 7-8% of U.S. music sales, putting it behind only Wal-Mart (25%) Best Buy and Target (13% each), and neck-and-neck with Trans World (7%).

Apple has been wildly successful in its use of music to re-brand the company, as its market cap has exploded from $8 billion to $80 billion since the introduction of the iPod in October 2001 (the iTunes Music Store opened for business in April 2003).

Over that time, Apple’s momentum has continued unabated, as iTunes passed the 1 billion-download plateau in February 2006, hit 1.5 billion last September and is now closing in on 2 billion, while commanding north of 75% of online sales.

Unlike its terrestrial rivals, Apple doesn’t make price-and-positioning deals, although, as The Wall Street Journal pointed out earlier this month, there’s intense competition for placement on the iTunes homepage, which can be had by playing ball with Apple and giving it what it demands, starting with exclusive content. By the same token, not playing ball generally leads to a company being penalized.

New deals will soon be attempted by the content holders to change the current terms of engagement, with wonderers wondering what the majors can do to level the playing field, i.e., breaking Apple’s near-monopoly in the online realm.

Can they empower other online retailers by giving them the range of exclusives that iTunes now gets from the labels? Can they shift their primary focus to the mobile sector of the business, which many foresee as having the biggest upside in the long term?

In any case, as long as iTunes is generating those kinds of numbers, Apple will continue to be a force to be reckoned with, especially at a time of transition from the CD to Internet delivery. 

At the same time, conversations are taking place inside every record company about the possible removal of copy protection—a notion that was viewed as heretical a year ago, but is now gaining traction out of a growing belief that DRM-free downloads will increase online revenues while at the same time loosening Apple’s stranglehold on the market via the interoperability of song files.

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