Dinosaurs with Jetpacks.
Go Universal, Go!
Universal as a whole is a cranky company. In particular they will swim against the stream of popular opinion to spite other companies. Currently two divisions are doing this. Their home video division refuses to sell high definition versions of their movies on the more popular Blu-ray format and instead goes exclusively with the less popular HD DVD format. They are the only large, major movie studio with this stance: the other studios either support Blu-ray exclusively (Sony, Disney, Fox) or support both (Warner Bros., Paramount). There’s been much speculation as to why Universal continues down this path and the consensus seems to be that Universal is less interested in succeeding than they are in Sony failing. That, and Toshiba pays them to support HD DVD exclusively. You see, Toshiba hates Sony too…
As for Universal’s Music Division, their “Sony” is Apple. They don’t like Apple. To be fair, most major labels stopped liking Apple the minute they realized they accidently gave Apple the keys to the castle, the castle being online distribution. If you haven’t figured it out yet, a record label amounts to nothing more than shady suits, Advertising money, CD replication plants, and distribution channels. Online distribution is making the latter two, plants and distrubition channels, obselete. You don’t need a CD plant when the music is sold online and you don’t need a bunch of stores when your music can be sold to everybody in the world from the same web page. By letting Apple have online distribution rights, which Apple quickly built into an empire, the record labels burnt one bridge (CD replication) and gave one to Apple (Apple being the world’s most popular online distribution channel). This shift, which everybody but the record labels have been expecting since 1996, has left the labels with their suits and advertising dollars. The suits are a dime a dozen and things like myspace have begun to erode the importance of corporate backed ad-money.
Record labels:Dinosaurs::internet:meteor.
The labels want to blame the internet for their downfall. Except they can’t blame Apple (though they have insinuated as much). They blame piracy. The internet was the problem and DRM (magic computer pixie dust that would make songs as impossible to steal as CDs in a store. Cough.) was the answer.
Except it wasn’t.
Apple saw it and encouraged the record labels to allow them to drop it altogether in Steve Jobs famous Thoughts on Music. Not that Apple is some saint: they’re just smart. They realized that it’s not the DRM that is keeping people buying songs and iPods from them, but the fact that its much easier to use Apple’s store with Apple’s iPods. Apple is counting on people to be lazy and I’d say that’s a safe bet. Famously, EMI called what many thought was a bluff and begun selling DRM-Free tracks through iTunes. Early data has been “promising” which translates into “sales have increased to some degree because of this”. I’ve bought albums from iTunes that I otherwise wouldn’t have because of this.
Universal has decided to jump on the bandwagon as well and “experiment” (their words) with DRM-free tracks. The real question is this: what is the goal of the experiment?
Well, there’s really only one goal: to prevent the DRM monopoly Apple currently has going. The one, ironically, that Universal and other music companies demanded of Apple in the first place. The one that Apple also wants out of. Crazy, I know. Universal’s goal is to hurt Apple in the most politically correct way possible: everything else is just corporate cover-up. Universal is trying to undo the damage they did to themselves over the last 5 years… they’re trying to get the keys back.
Your Enemies’ Enemies
By refusing to sell DRM free on iTunes Universal allows 3 things to happen. 1) They get to ensure that DRM-free tracks sell horribly. This is good because it ensures 2) the DRM tracks they sell on iTunes will sell much better. This allows them to say “look, we sold more DRM tracks than DRM-free tracks. Obviously the consumer prefers DRM.” 3) They get to be courted with sweet royalty and licensing deals by Apple’s competitors who are *dying* for some advantage against the juggernaut. Then, they’re in with the other distributors with sweet-licensing deals and can institute non-Apple DRM if they so choose. The other distributors will go with this because having something Apple does not is a nice competitve advantage and online distributors will bend over backwards for it. For example, Microsoft (a company much more successful than Apple overall, but far less succesful in the realm of music) pays Universal for every one of Microsoft’s Zune products sold (they’re Microsoft’s answer to the iPod… no, I don’t know anybody who has one either). That’s money paid for literally nothing… these things have nothing to do with Universal itslelf and theoretically could never play a single Universal song during their lifespan, but Universal still gets a cut of the sales. Why? Because Universal told Microsoft that they wouldn’t give Microsoft the ability to distribute their songs unless Microsoft hooked them up. It was extortion, and Microsoft went along because they know they can’t beat Apple unless they have Unviersal’s songs. Apple’s distribution contract was so old that Universal could not pull the same trick (nor did they bother back then). Rumor is that Universal tried to pull the same trick with Apple when their contract was suppossed to be renewed earlier this year and Apple essentially told Universal to fuck off. At this point in the game it’s quite possible that Universal needs Apple more than Apple needs Universal. As such, the contract was NOT renewed and instead operates on a month-to-month basis. Reading between the lines it’s pretty clear: Universal wants to cut all ties with Apple as soon as possible but they can’t simply cut off that large chunk of revenue. So Universal is biding it’s time, month-to-month, hoping they can find more profitable distribution channels. Cue this announcement where Surprise surprise, everybody gets DRM-free tracks *except* Apple.
For Universal, the experiment is win-win. If it “succeeds” then they can continue on that path, cultivate other retailers, and ditch Apple. If it “fails” then they are justified in maintaining DRM on their products. For a consumer who want to buy DRM-free tracks from iTunes this experiment is bad news: it’s very existence makes DRM-free Universal iTunes tracks less likely. Very clever, Universal. This dinosaur may have strapped on a jetpack, but extinction is still inevitable.
Why is Universal making it harder for you, and especially the less net-savvy crowd, to get DRM-free music? They don’t really want you to have it and if you must have it they sure as hell don’t want Apple to be the one to give it to you. So why is Universal so scared of Apple? Because Apple is one signed band away from being the most powerful music label of them all: a music label that understands both branding and technology. No dinosaur can match that, jetpack or not.
What I don’t understand, and haven’t seen any mention of anywhere, is what is the difference between Universal signing a contract with Apple iTunes and going month to month.
There must be a reason to sign the contract for Universal and for Apple.
What’s different now?
Eloquently said.
I wouldn’t be surprised in the least to see el Jobso set up an Apple subsidiary that exists solely to act as artist distribution. It’s probably a few years away (Apple would be burning a good number of bridges with that act), but it seems like every year, we inch toward the inevitable downfall of the major labels, and something else taking their place. As a musician, I hope it is something more favorable to musicians than the loan sharks, er, I mean record labels were.
If Universal “succeeds” as you define it, I actually think consumers and Apple will win in the end. Simply put, the more DRM-free music out there, the more you can theoretically put on your iPod.
In the short run, it’s inconvenient to have to download in one program, and load the player in another, but in the pre-iTunes music strore world, there were plenty of non-tech savvy people who managed to put music on CD compilations and MP3 players. I think you’re overstating that difficulty.
Any idea what file format they’ll use for their non-DRM tracks? If it’s one that iTunes supports, then I can just buy the music at the non-iTunes store and import it into iTunes and from there to my iPod. If it’s not a format iTunes supports, can I convert from it to MP3 or AAC?
Mitch…
Although I’m not a lawyer a “month-by-month” is a common “continuation clause”. They usually include this in the original contract in case that the renegotiations take longer.
If you have a “5 years contract” you can program for the long run.
Having a “month-by-month” you just “keep things going”.
@Mitch-
Universal wants variable pricing — popular current songs will cost more than has-been tunes — not Apple’s one-size-fits-all pricing.
Apple will not do this, so there is no new contract (agreement). Rather than taking all their music and going home and losing their iTunes revenue (as noted above) they are playing a game, trying to force Apple to change.
The record labels are doomed. You’re correct to assume that Apple could start signing distribution deals with artists directly. But, there is not enough movement in that direction yet. That will be the ace in the hole for Apple if others start to want to move away from this model. In the meantime, if other labels pursue this model, there will be a large fragmentation of user experience and a decline in total units moved. As a musician, all I can say is to hell with the labels and their slave labor contracts
So should we buy music from Universal Label or not? How do we kill the dinosaur? I want to help.
I bet they’ll use WMA as their non-DRM format. That would give them the least compatibility with Apple and iPods. They wouldn’t want to accidentally sell music while trying to make a point would they?
I think you’re spot on. The only thing that really wasn’t brought up was why Universal seems to loathe Apple’s music dominance: Because Apple refuses to switch to variable pricing. Universal claims that their DRM-Free “experimentation” will help prevent a music monopoly by Apple, but the truth is, if it were Microsoft who had the online music dominance – they would be ecstatic.
Universal wants companies who routinely fuck the end-consumer – which is something Universal has been doing for years. Not that Apple hasn’t had it’s share of consumer piss-offing, but Apple for the most part is keeping online music prices “fair”.
That’s what Universal (and record labels in general) don’t get. iTunes dominates because it is simple, and fair. Most of the other online music stores are not. They are either too complicated to use (in terms of software), too expensive (like subscription models at a time when people don’t want to have another monthly bill), or too restrictive with their Orwellian DRM. iTunes on the other hand has simple software, simple pricing which is fair and “fair” DRM compared to the others.
I hope Universal dies a slow, agonizing death. I hope that artists can go straight to the online distributors and sell directly and pocket their fair share.
Don’t forget that Apple will probably be dragged back into court by Apple Corps. if it starts directly signing up Musicians. And this time they may have a lot harder time getting out of it (to be honest, I think Apple Inc should just buy Apple Corps and be done with that whole unproductive dispute)
It’s not quite win-win for Universal. Every time someone buys some other company’s music DRM-Free on iTunes in preference to Universal’s crippled music they lose. That becomes an issue if the other labels break ranks, more than it is so far.
The labels aren’t behaving in a sane way because they’re trying to do something which is essentially impossible – prevent the free distribution (both senses of the word) of music. They own a legal construct (copyright) and they’re trying to milk it for as long as possible. They essentially don’t add value.
@Rolf –
You must have missed something a few months back. Apple and Apple Corps settled the TM dispute by granting all rights and ownership to the Apple name to Apple Inc. which Apple Inc. in-turn, licenses the name back to Apple Corps.
Unless I am missing something, the door seems wide open.
- Bone
Universal is a cranky company…
There’s really only one goal: to prevent the DRM monopoly Universal and other music companies demanded of Apple in the first place. The one that Apple also wants out of. Crazy, I know. Universal ’s goal is to hurt Apple in the most politically corr…
The tracks will be MP3. What quality MP3 is something I have yet to see any solid info on. Universal is playing a very dangerous game here, but I seriously think they simply do not see it. They are so completely enveloped in their previous reality that they just don’t see that everything has changed. This will not end well for them. Apple has pretty much all the cards, including the ability to demonize them with their own artists.
Rolf — I believe the final settlement between Apple (then Apple Computer) and Apple Corps gives Apple free reign to do whatever they’d like in the music space. Apple can prepackage iPods with music if they like (becoming a physical music distributor), or even turn themselves into a record label. Legally.
James — I found this page through Daring Fireball, and I must say, it is extremely well written and thoroughly thought out. I hadn’t been following the Hi-Def DVD format wars, so I wasn’t aware of Universal’s missteps on that side of the tech universe. Universal’s top executives are stupid, stupid dinosaurs.
I don’t have a problem with iTunes DRM, and if I find myself needing a song distributed by Universal, I’d rather vote by buying it from iTunes than getting it elsewhere, even if it is DRM free (and possibly even higher quality). From my perspective, iTunes does everything right, and I admire Apple’s business model — the sweet spot for online music is 99¢ per song, where it’s a fair price for consumers and maximizing profits for the distributors/labels.
Nice article, but your analogy is wrong. It should be Internet:Record Labels::Meteor:Dinosaurs.
Analogies read like this:
A:B::C:D
A is to B as C is to D.
The internet is to record labels as the meteor was to dinosaurs.
Here’s the thing that I keep coming back to: the iTunes Store is only modestly profitable. Hurting the store won’t make Apple’s dominance go away any more than Shutterfly being cheaper than iPhoto’s embedded printing service hurts iPhoto. The value is in the iPod, the iconic music player of this decade, and it’ll still be able to play these MP3’s. Of course, Universal can’t seriously go and sell DRM-free music in a format the iPod can’t play (e.g., Windows Media). So most of these songs will end up getting bought for iPods, consumers will keep buying newer and better iPods, and that’ll make Apple stronger anyways.
You don’t want to endorse Universal’s maintaining the DRM, so don’t buy Universal from iTunes.
You don’t want to endorse Universal’s intentional inconvenience and spite, so don’t buy the Universal’s non-DRM from the non-iTunes stores.
So if you’re interested in the whole album, just buy the CD and rip it yourself.
If you’re interested in just a song or two, well, you know…
When I read the title, I thought you were making a sly reference to another Universal blunder: Jurassic Park IV is to feature dinosaurs being trained to use weapons. Either way, the analogy is great.
Invalidname is correct. Remember, Apple is in the business of selling systems with great gross margins, be they iMacs, iPods, or iPhones. iTunes is just a means to an end for them. They’ll sell billions more songs in the next few years, but that doesn’t matter to them as much as selling millions more iPods. And they’ll sell those songs because the labels need the revenue stream. Again, Apple could care less.
I honestly don’t think anyone at Apple is sweating over this.
@rolf regarding Apple Corps: For things to move forward at all, we’ll hve to wait for that fossil Yucko Oh-No to die. She’s the biggest whiner about the whole thing Apple vs. Apple thing. Paul McCartney has wanted to work very closely with El Jobso for years, as did George Harrison. They constantly have to stave off the wacko insanities of her Yonones.
[...] Dinosaurs with Jetpacks. Why sell DRM-free tracks, but not through iTunes? “[T]o prevent the DRM monopoly Apple currently has going. The one, ironically, that Universal and other music companies demanded of Apple in the first place. The one that Apple also wants out of.” (tags: apple drm music itunes piracy universal) [...]
I just want to further debunk some of the misinformation circulating.
•Apple Inc. now owns all rights to the use of the Apple name in multimedia enterprises. That can include production as well as distribution. (Sadly, the ‘Apple Corps. can always sue Apple’ myth is becoming routine FUD like the ‘Bill Gates owns part of Apple’ myth.)
•A month to month contract means the either party can end the relationship with minimal notice. The fact Universal chose month to month instead of severing its relationship with Apple means its suits are frightened of biting the bullet. (I would love to see the shareholder response if they dared to do it.)
•The Universal DRM-free downloads will indeed be in MP3 format. One of these sites’ selling points will be to prominently feature the information that their MP3 downloads play on the iPod. With the exception of Amazon, most of the sites involved are little known and will have trouble getting noticed even with DRM-free content. Universal seems big on gBox, but I think that will be the most uphill battle of all.
well I’m glad I stand corrected about Apple Corps – I’ve always thought that the lawsuits were poisonous. Especially now that Apple Inc is an infinitely stronger brand than Apple Corps (Apple Corpse?)
Taking the Universal situation further…
if Universal “wins” and the DRM-less tracks sell well outside of iTunes, then iPod users will still be able to download these tracks and toss them on their iPods. Sure it will be a little annoying but still doable. And the more “other” retailers that sell DRM-less music, the easier it will be for people to find it. If they remove their songs from iTunes altogether, people can buy them elsewhere. If they don’t, those who don’t care won’t be affected. As stated, I don’t think Universal really wants this to happen anyway.
If Universal “loses” and DRM-free tracks don’t sell well outside of iTunes and they use this to claim that “people like DRM” or less objectionably: “people don’t care about DRM,” they’ll be able to charge what they want and still apply DRM. And if they charge too much and/or implement more stringent DRM, people will go back to the easiest means to get these songs st a reasonable price: stealing them.
In the end, Universal is doomed with this strategy. The question remains, what will Warner and Sony will do…follow Universal? Or follow EMI? I think we know what most of the independents will do.
Nice article, lots of good points. Minor issue – flying dinosaurs didn’t go extinct, it’s just that we usually call them birds. Birds with a jetpack would certainly be an innovation!
[...] With the exception of the slightly straw-mannish Universal Pictures / HD-DVD point at the bginning (Universal Pictures and Universal Music have nothing to do with each other, really), this is an excellent article regarding the recent decision by Universal Music to sell DRM-free versions of their catalogue, just not through Apple. [...]
News Flash: John Lennon’s catalog has been added to the iTunes *Plus* catalog!
http://www.macnightowl.com/2007/08/14/flash/
Imagine all the people…
Of course, those songs were available elsewhere before
http://www.macworld.com/news/2005/11/09/lennon/index.php
but
– it’s a *Plus*
– Imagine: the 7-letter-word, starts with B and ends with S…
Very good analysis.
[...] Dinosaurs with Jetpacks — More thoughts on the music industry vs. its customers. “By refusing to sell DRM free on iTunes Universal allows 3 things to happen. 1) They get to ensure that DRM-free tracks sell horribly. This is good because it ensures 2) the DRM tracks they sell on iTunes will sell much better. This allows them to say ‘look, we sold more DRM tracks than DRM-free tracks. Obviously the consumer prefers DRM.‘” (via DF) 9:14 am comment [...]
Was ‘dinosaurs with jetpacks’ a Calvin and Hobbes reference? I think they flew F-15s in the strip.
Loved the analysis. Universals move seems to make good business sense. As a consumer I certainly don’t want them to win, but as someone heavily invested in all of Apple products I REALLY want to see strong competition for Apple on every front. If Universal gives Apple something to worry about, I’m happy.
The worst thing for an Apple customer would be for them to operate without competition. Apple’s capacity for arrogance is substantial. Happily I don’t think that will happen. Long may Apple struggle!
Nice article.
I think it’s clear that record companies, Universal chief among them, want to break the Apple-iTunes hegemony, primary so they can institute a variable pricing scheme (e.g. $2.99 for the latest chart-topping hit, $0.49 for that old Neil Sedaka song). Selling DRM-free tracks on non-iTunes services is part of their strategy… and if they had instituted that strategy ten years ago, they might have had a chance.
But what they don’t see yet is that *artists* are just as anxious to break the record label hegemony, the monopoly system that throws money at the latest fads, while talented artists languish in obscurity. Also remember that most artists get a couple of pennies out of every dollar of record sales. Suppose we had a powerful independent label that did Internet-only distribution, and it gave artists a 40% cut of sales. How long before all the major artists completely abandoned the old record companies to jump on that train? Even outside of Apple, I’ll bet there’s any number of companies considering making an Internet-only music label: Google/YouTube; Napster; Yahoo; MySpace; and yes, even Microsoft.
The record companies need to wake up and change their thinking, or they’ll be dead within the space of seven years.
Great article.
At first I thought Universal is really stupid for not charging 30 cents more for DRM-free (MP4) songs on iTunes, and instead selling elsewhere their DRM-free (MP3) songs for the usual 99 cents.
But it is obvious that it wants to take business away from Apple by undercutting iTunes’ DRM-free songs and still sell DRM-free MP3 songs that are compatible with the iPod.
Universal’s business strategy seems much like the record industry in general: Let’s antagonize one of our biggest customers, and try to hurt their business while we’re at it. I buy virtually all my music on iTunes, and if Universal isn’t there, odds are I just won’t buy music on Universal. I’m not trashing my iPod or my Mac just so I can play along with Unviersal. I’m sure as heck not going to buy a Zune so I can line Universal’s pocket before I buy anything from them. Universal wants to get tight with Microsoft, the only problem is that no one else does! Zunes are colllecting dust, and Universal is pissed that their clever “royalty” scheme isn’t netting them any money. Go Universal… iTunes will be here long after you’re gone.
[...] This great post, “Dinosaurs with Jetpacks,” talks about Universal’s decision to keep its online DRM-free music off of iTunes. Hmm. Universal is perhaps not as stupid as it appears. [...]
Lots of good points above. (I was going to mention the Lennon-iTunes thing but others got there first.)
One element I haven’t seen mentioned is that Universal Music, unlike the movie division, really doesn’t have much mindshare for the average consumer — not many people know (or care) what major label is the middleman that distributes the pop music they consume. There’s nothing that distinguishes UM’s product from anybody else’s, except for maybe a little logo on the CD packaging that nobody pays attention to. “Independent” labels (even those that are owned by majors, like Sub Pop) can have enough of a coherence to their products that you can imagine someone seeing a CD and saying, “Hey, this is on Nettwerk, it’s probably worth checking out,” but nobody’s going to buy a CD because it’s on the same label as Christina Aguilera.
[...] Dinosaurs with jetpacks Posted August 14, 2007 I have a full day of meetings tomorrow and am absolutely committed to using the phrase “dinosaurs with jetpacks” in one of them. Brilliant. [...]
Loved it. It was right on the spot. Universal is lost if they ditch Apple (right now) and it’s lost if it doesn’t. Very nice piece.
By the way, just wanted to mention a small mistake. On the second paragraph (starting from the bottom) you say “it’s very existance” when it should be “its very existance.” Not meaning to bother, just thought that you might’ve slipped that apostrophe by accident.
[...] Dinosaurs with Jetpacks. at Shots Ring Out Universal is starting to sell DRM-free songs on an “experimental” basis, but they won’t do it through iTunes. This article is probably the best summary of the situation that you’re going to see. The short of it is that Universal is part of that special br (tags: apple itunes drm music) [...]
>By the way, just wanted to mention a small mistake.
>On the second paragraph (starting from the bottom)
>you say “it’s very existance” when it should be “its
>very existance.” Not meaning to bother, just thought
>that you might’ve slipped that apostrophe by accident.
Actually, it would be “existence”, but nice try!
Very insightful article! I think, really, that the only way to take down Universal Records, though, would be to simply not buy their products at all. Not on iTunes, and not anywhere else. They’re trying to be devious by setting up a win-win situation for themselves which ultimately will hurt consumers, and the only way to make them lose is to make sure that they don’t get revenue from *either* source.
Much easier said than done, though.
@ Ken
You said: “I think it’s clear that record companies [want primarily to] institute a variable pricing scheme (e.g. $2.99 for the latest chart-topping hit, $0.49 for that old Neil Sedaka song).”
I’m more willing to bet on numbers like $4.99 for the hit song and $0.99 for the back record.
$0.49 for back-catalog music makes far too much sense, and when have you ever seen any of the record companies doing something that *makes sense*?
If there were a pre-defined upper limit, say $1.99 for the current hits, with a pre-defined markup half-life, say 3 months, but this change included $0.49 songs for anything older than 3 years (or something) i would be okay with it… even if it goes against the simple, “everything gets the same price” standard of today.
But *reasonable limitations* are just far too much to ask of the content owners, and simplicity certainly has its advantages.
[...] To Apple, music is not so much a product as it is a simple feature of the iPod. Thus, the iTunes Music Store and the ability to buy music quickly and for a semi-fair price, is yet another feature. You don’t need more proof than Apple’s own actions: if the profits were coming from the music sales they would allow anybody with any music player to buy the songs. But they don’t: only an iPod+iTunes can leverage the convenience of the iTunes Store. The store is simply another bullet-point to get you to buy the iPod. In this sense, it’s in Apple’s best interest to charge as little as the labels will allow because cheap songs on the store is yet another feature that leads to iPod purchasing. Apple doesn’t really care how much profit they, or the music labels, are making off the music. The happy coincidence is that both Apple and the consumer want the same thing: cheap music. The labels want more “flexibility” in their pricing but Apple stands strong at keeping their price point at $.99 a song (note: Wal-Mart has attempted similar hard-lines at keeping CD prices an $9.99). See my article Dinosaurs with Jetpacks for more on the war between the music labels and Apple. [...]
[...] politically correct way possible: everything else is just corporate cover-up.[…] Thanks to p0ps for providing this nice story on Digg (more than [...]
[...] A very interesting take on Universal offering DRM-free music directly instead of through iTunes. I think the writer is on target in describing the motives of Universal in cutting Apple out as a distribution channel. [...]
http://tdt-tanduc.com/forum/viewtopic.php?p=35
About
Advertisement
-Bruce Springsteen tickets-
-Led Zeppelin tickets-
-The Eagles tickets-
-Jonas Brothers tickets-
-Trans Siberian Orchestra tickets-
-Billy Elliot tickets-
-Phish tickets-
-NBA Basketball tickets-
-Other tickets
More Audio
More Video
Slayin' It
Advertisment
Categories
Recent Comments
Recent Posts
(Alan Tanner)
(Jonathan Glazer)
Most Commented
(Marc Webb)
Tapes N Tapes - Hang Them All
(Jonnie Ross)
(Fatima Robinson)
Tags