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7/3/2007
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Universal Refutes Apple's iTunes Negotiations Claim

Whether or not it's walking away from profit, Universal's dissatisfaction with Apple may reflect Apple's push to eliminate DRM.

Apple appears to be in a state of denial. The company reportedly told the San Francisco Chronicle that it is still in negotiations with Vivendi's Universal Music Group.

"We are still negotiating with Universal," an Apple spokesman told Chronicle staff writer Ellen Lee. "Their music is still on iTunes and their not re-signing is just not true."

Peter Lofrumento, a Universal Music Group senior VP, sees things differently. He emphatically denied that Universal was still negotiating its iTunes contract with Apple. "UMG has decided not to renew its long-term agreement with Apple's iTunes service," he said in a phone interview. "UMG will now market its music to iTunes in an at-will capacity, as it does with its other retail partners."

Lofrumento, however, acknowledged that negotiations could resume at a later date.

Apple representatives did not return calls or e-mail messages seeking clarification.

On Monday, both the New York Times and the Wall Street Journal reported that Universal had told Apple that it would not be renewing its contract to sell digital songs through Apple's iTunes Music Store.

According to the New York Times, 15% of Universal's online music revenue during the first quarter of the year came from Apple and other online stores.

Market research firm NPD said in March that iTunes accounts for 70% of the legal music download market. While the number of households using paid digital music download services has reached 13 million, almost three times higher than it was in 2004, the average number of files purchased by the average iTunes user has declined 11% since 2005.

Tim Bajarin, president of consulting firm Creative Strategies, characterizes Universal's position as a negotiating tactic. Apple's relationship with Universal "is an important one because Universal is one of the largest record labels out there and they have a lot of content on iTunes," he said. "But it's a two-edged sword. Walking away from iTunes means walking away from profit. There's no other potential partner out there that does the same kind of volume as iTunes."

Bajarin believes Universal hopes to win a concession for variable pricing from Apple. Currently, songs on iTunes cost either 99 cents or $1.29 for a limited set of songs without digital rights management technology.

Universal's dissatisfaction with Apple may also reflect Apple's push to eliminate DRM. Apple CEO Steve Jobs "is moving to a DRM-free world, which Universal hates," said Bajarin. "Universal is in a precarious position because DRM-free is something that certain elements in the industry are ready to back."

In April, Apple and EMI Music announced that EMI's entire digital music catalog would be made available on iTunes without DRM protection. Apple began selling EMI's DRM-free songs on May 30. And according to Bloomberg News, EMI senior VP Lauren Berkowitz reported that sales of Pink Floyd's "Dark Side Of The Moon" rose by 350% in the week following the launch of iTunes Plus.

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