Universal rousing an iTunes rebellion, report says

The head of Universal Music Group is enlisting the support of other major record labels to launch a new music subscription service that will try to loosen Apple’s grip on the online music market, according to a news report Friday.

Universal CEO Doug Morris has already enlisted Sony BMG Music as a potential partner and is in talks with Warner Music Group about joining the effort, which aims to counter what the music industry sees as Apple’s overly stringent restrictions on the way they can market their music.

The report, in the online version of BusinessWeek, cites mostly unnamed insiders said to be familiar with Morris’ plan. As well as launching a rival to the iTunes music store he hopes to nurture the adoption of other music players such as Microsoft’s Zune, and develop a new business model in which music for consumers becomes essentially free, the report said.

The music industry is understood to be widely dissatisfied with the terms that Apple imposes for its iTunes store. Apple has insisted on selling all tracks at a uniform price, for example, while the labels would like to charge different prices for new and older music.

The conflict became public in July when Universal, which puts out one in every three new songs released in the U.S., decided not to renew its long-term agreement to release its music through iTunes. It now markets its music on an “at will” basis that leaves it freer to sign contracts with other distributors such as cell phone carriers.

Jean-Bernard Lévy, CEO of Universal Music’s parent company, Vivendi Universal, said last month that the share of revenue that Apple collects for each song sold on iTunes is “indecent,” according to reports at the time. He said Apple takes about $0.29 for each $0.99 song sold.

Morris is looking to wrest some control back from Apple and change the way digital music is sold with a new service called Total Music, according to BusinessWeek. The plan is to get hardware makers to absorb the cost of a $5 monthly subscription, so that consumers would get their music essentially for free when they buy a new player, and the hardware industry would be compensated by selling many more devices.

The plan is still in flux and faces several hurdles, BusinessWeek notes. Among them is finding a business model that allows the hardware makers to subsidize the cost of the music. In addition, the labels have tried to develop their own online music services before without success.

They wouldn’t be the first companies to take steps against Apple’s dominance. In August, MTV Networks said it would abandon its own digital music service, called Urge, and pool its efforts with RealNetworks’ Rhapsody service to create a better iTunes rival.

It was unclear how the new service would approach the issue of DRM (digital rights management). Universal began a six-month trial in August offering music without copy protection — with the exception of the music it sells through iTunes. If the new service were to offer DRM-free songs it would make it easier for it to target a wide range of music players.

Meanwhile Sony said recently that it would abandon its proprietary ATRAC copy-protection technology, and add Microsoft’s Windows Media technology to its music players instead. At the same time, Sony said it would close its Connect Music Store in Europe and the U.S., an acknowledgment that it had been unable to dent Apple’s iTunes sales.

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