The rapidly evolving world of digital music is divided into three main components: production, distribution, and playback. For the past six years or so, Apple has had a dominating lead in the playback sector; the company reported in April of this year that it had sold its 100 millionth iPod, making the iPod the fastest selling music player in history. The phenomenal popularity of the iPod in turn helped make Apple's online music store, iTunes, a major player in the distribution of digital music.
By the time the 100 millionth iPod was sold, iTunes already had sold more than 2.5 billion songs and 50 million television episodes. According to a recent report by the Wall Street Journal, iTunes has become the No.
3 seller of music, behind retail giants Wal-Mart (No. 1) and Best Buy (No. The hype surrounding last Friday's release of the iPhone (which Apple describes as "the best iPod yet") heightened concerns on the part of content producers that Apple will solidify its already-firm control of digital music.
The combined success of the iPod and the iTunes store has given Apple tremendous leverage in dealing with the third segment of the digital music industry: the content producers. Its leverage is only enhanced by the fact that the content sector is by far the most fragmented, consisting of a raucous hodge-podge of record labels, recording stars, garage bands, and even solo artists. It was no coincidence that just two days before the announcement that the 100 millionth iPod had left the shelf, Apple announced that it would begin selling some song tracks without digital rights management (DRM) restrictions, a step that most content producers have strenuously resisted.
Nonetheless, Apple CEO Steve Jobs predicted that by the end of 2007, half of the music in the iTunes store would be DRM-free. "We are going to give iTunes customers a choice -- the current versions of our songs for the same 99 cent price, or new DRM-free versions of the same songs with even higher audio quality and the security of interoperability for just 30 cents more," Jobs said in a press release at the time. "We think our customers are going to love this.
" Now, however, at least one major content provider is pushing back. According to various unnamed sources, Universal Music Group is planning to reject a long-term deal with Apple for the distribution of its digital music. The companies originally signed a two-year agreement in 2004, and a one-year extension of that agreement expired last month.
There is no suggestion that Universal will remove its entire vast music catalog from iTunes, but moving to an "at will" arrangement would clearly be an attempt to restore some balance in the relationship between the two companies. Universal has the largest market share of any music company, and the threat of the loss of artists including Sting, Sheryl Crow, and Jay-Z might enable Universal to negotiate better terms with Apple. At the same time, however, Universal almost certainly cannot afford to walk away from Apple's dominant online music store, or at least not until a viable competitor arises.
Industry analysts are reluctant to comment on the rumored development until the results of the contract negotiations are made public by the two companies. Calls to Universal Music and Apple were not immediately returned. The rapidly evolving world of digital music is divided into three main components: production, distribution, and playback.
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