IB BAD ON UMG VS.
ITUNES: THE SEQUEL

While some believe UMG made a grandstand play by leaking the information that the company had chosen not to re-up with Apple for iTunes, others take the opposite view, asserting that it was Apple, not UMG, that let the cat out of the bag, presumably in order to turn public opinion against the record company.

The leak hit the news services in the midst of iPhone-mania, as Apple was riding a huge wave of public adulation, which lends weight to the latter theory—as does Steve Jobs' recent characterization of the major labels as “greedy.”

In retrospect, it appears that the Doug Morris-led company was simply behaving in accordance with its proactive character when it opted for an “at will” relationship with iTunes. Because of its longstanding marketshare dominance, UMG possesses the clout to blaze trails that lead to new revenue streams, which it has done on a consistent basis.

For example, Morris used his foresight and the muscle to monetize video on demand, and he’s utilizing these same strengths as he positions UMG to begin the process of leveling the playing field for the day when viable challengers enter the digital retail space. In such a scenario, the music group would be free to work out exclusive deals with iTunes’ emerging rivals rather than being contractually confined.

UMG insiders also note that the company is now dealing with iTunes in the same way it deals with every other retail entity. In a sense, the move isn't dramatically different from Sony BMG’s decision to do a one-year deal with Apple, because the retail landscape isn't expected to be radically different in mid-2008 than it is now.

Let us not forget that iTunes is first and foremost a beautifully designed application that works seamlessly with the iPod, and only secondly a music store. In this sense, the lessening of iTunes’ retail clout is not something Jobs is likely to lose sleep over, not as long as his hardware keeps flying out of stores.

As for iTunes’ premium download section, launched two months ago with EMI, no hard data has been made available, but the availability of DRM-free product means less than zero to iPod users, and the only obvious audible difference between the 128kbps standard bit rate and the 256kbps premium version is that the latter is decidedly louder—a major inconvenience when compiling playlists or putting the iPod in shuffle mode because of the difference in volume.