Universal Music Group parent Vivendi calls Apple iTunes contract terms ‘indecent’

&mpApple iTunes“Vivendi condemned as ‘indecent’ the contract terms between its Universal Music Group (UMG) unit and Apple Inc, the computer maker whose iTunes online store dominates the digital music market,” Astrid Wendlandt reports for Reuters.

MacDailyNews Take: If it was so “indecent,” why did they sign the contract? Of did it have some “indecency time bomb” built into it that only just now went off?

Wendlandt continues, “Vivendi is one of many large media companies that are trying to challenge Apple’s grip on the digital entertainment market and obtain more control over pricing. It said it was in talks with rival distributors.”

MacDailyNews Take: Oooh, we’re sure Apple’s shakin’ now!

Wendlandt continues, “‘The split between Apple and (music) producers is indecent … Our contracts give too good a share to Apple,’ Vivendi Chief Executive Jean-Bernard Levy told reporters at a gathering on Monday organized by the association of media journalists in France. At present, UMG, the world’s largest record company, gets 0.70 euro ($0.99) out of the 0.99 euro retail price charged by iTunes, Vivendi said. Among other things, Levy called for the remuneration of a new release to be higher than for a 30-year-old classic. ‘We should have a differentiated price system,’ he said.”

MacDailyNews Take: Reuters must have left out some things because we swear we heard someone say, “We should have a differentiated price system, so that we can charge more. After all, we are a greedy music cartel. We want a ‘differentiated’ system, which (wink, wink, nudge, nudge) really means we want to charge more for what people are buying and less for what they’re not, thereby giving the false impression of lower prices while we’re actually charging and making more money. They don’t call us fargin’ greedy bastages for nothin’. Capisce?

Wendlandt continues, “UMG renews its music distribution contracts with Apple every month after having failed to agree a longer-term arrangement earlier this year. The music publisher can end its contract with Apple at one month’s notice, but Levy declined to say whether UMG was ready to bypass Apple altogether. ‘We are in a phase during which many different actors are talking to each other … We are trying to put in place several projects to ensure that music is better remunerated … We are not just talking to Apple,’ he said.”

MacDailyNews Take: Oooh, big man. Go ahead and do it, Mr. Big. Come on, do it, we dare you.

Wendlandt continues, “Levy forecast that ‘in the not so distant future,’ traditional music products such as DVDs and CDs would make up less than 50 percent of music publishing revenues. At the half-year stage, digital music sales made up 15 percent of UMG’s total music revenue.”

MacDailyNews Take: 90% of which comes from Apple’s iTunes Store which is why Levy talks like Mr. Big to reporters, but dutifully signs the dotted line of his monthly iTunes contract like the neutered wimp he is.

It’s a good thing that no reporter named Penny was there or Jean-Bernard Levy would have smashed right through the podium, grabbed her, and started screaming, “It’s mine, ya understand? Mine, MINE, all MINE!”

Full article here.

63 Comments

  1. PC Apologist…

    Given that the contract was with UMG, it was probably signed by an authorised officer of that Vivendi subsidiary. And that officer would have been authorised by Doug Morris, the current CEO and Chairman of UMG who has held that position since November 1995, assuming that Morris himself did not sign the contract.

    Morris has been a member of Vivendi’s management board since April 2005, which doesn’t exactly imply that his actions as CEO were repudiated by the board of his parent company.

    I sometimes go out of my way to hold a contrary position to MDN, but in this case their take is so close to being 100% on the money that the difference is barely detectable by analogue instrumentation: the simple fact is that UMG – along with the rest of the music industry – gladly signed on the dotted line at the establishment of iTMS, simply because they had no choice given that their industry was being strangled by piracy and the fact that – despite sinking a bucketload of cash into Microsoft technologies – they had failed to develop a single commercially viable service.

    Here’s an interpretation of Levy’s position…

    “Mon dieu, we have been trying to sell this fucking record company since 2003 and nobody wants to take it off our hands because they have no idea whether the business will be viable once digital becomes dominant and artists realise they no longer need us to market, manufacture and distribute their ‘product’ on a global basis.

    I think we need to make the company more profitable in the short-term, so some sucker like that brainless fuck-wit Bronfman will indulge in a massive ego-trip and pay us an unreasonable amount of money.

    God, I wish Vivendi was still a sewage company: at least we knew what shit we were dealing with in those days.”

  2. My mistake — he owns 20% of a friggin US TV network. Pretty good, still, no?

    MCCFR — that NBC and UMG are simultaneously resisting Apple’s pricing model suggests that the move is from the Vivendi/Universal side of things. Like I said, I’m not familiar with the ins and outs of their management, just a possibility to consider that someone new has come in with new ideas.

    But even if you have the same guard in place, wanting to leverage the success of the digital distribution market to increase profits isn’t unreasonably greedy. Is it?

  3. @PC Apologist..You know you’re right Apple as the retailer should totally let the record companies control the price of certain tracks. This will give them a true lesson of supply and demand. I don’t know anywhere where that works unless you have a monopoly or there is collusion. With the EU about to skewer Apple for charging different prices for the same tracks in the member nations let’s have a party.

  4. @MCCFR

    Unfortunately, the record labels see things as being different than you enumerated. They look at it like this:

    “Previously, I received 70% of $16, giving me $11.30 for every album purchased. Now, I get 70% of $0.99, giving me about 70 cents for every TRACK purchased. Previously, everyone would buy the entire ALBUM just to get the one track that they liked. Thus, 1,000 consumers would give me $11,300. Now, those disgusting consumers can get away with just buying the sole track that they want, thus only giving me $700.” Of course, this is not necessarily true in reality, since many (if not most) of the people purchasing the individual tracks in today’s day and age would not have purchased the album anyway, but that logic escapes the record label execs.

    The record companies LOVE bundling, since it artificially forces you to purchase content for which you have no desire, thus, in their opinion, inflating profits well beyond what they normally would have received.

  5. The funny thing about this ‘indecent’ pricing is that they don’t make any more per song selling to WalMart. I went to WalMart, and the first album I saw was Kenny Chesneys new album. The album has 11 songs, and costs 13.88 which means each song is 1.26.

    From that 1.26 comes WalMarts cut, the cost of producing a physical disc, a cover, a printed booklet, shipping, stocking, etc.

    Their secret complaint is in the ability for the consumer to ONLY buy the good songs on an album, not the price of the song.

    My biggest surprise with iTunes is that there aren’t artists skipping the cartels and selling directly through Apple. Where are the MC Hammers?

  6. I don’t think this is simply greed. I think they’re trying to protect a business model that doesn’t work. Why should “new” music cost more than “old” music? Are we really to believe that the latest Britney single is work more than an old Beatles song? It would make more sense to charge more for popular longs (greatest hits) than less popular songs. So Queen’s famous Bohemian Rhapsody would cost more than Queen’s obscure Barcelona.

    Even in new music, it would make more sense to charge more for popular new pop albums from famous stars, and less for new emerging artists.

    What I think this is really about is protecting the music industries hugely wasteful process of producing new music. The “rock star” recording sessions with plenty of drugs, girls and catering. And then flying everyone around, also with drugs, girls and catering to promote the new album, etc. Everyone knows great music can be produced in a garage these days, but what fun is that for record execs who want to spend lavishly and live the highlife on the companies dollar.

    The fact is that most record companies wouldn’t be profitiable but for their existing libraries which make it possible for them to lose money with wasteful spending on the new releases. The problem is, back in the old days the record companies had better methods of trying to push the new crap. Yes, the record store would have some oldies, but they would be pushed in the back and the new stuff displayed prominently. Moreover, people would only have limited access to older music. Just enough to keep the record companies profitable, but not so much that they have less choice and are more inclined to test out new material.

    ITunes has destroyed that. I bet what is really scaring Universal is that now that people have access to more choice, they are generally spending more money on classics and independents and not on the big over produced “new” music.

    Everyone I know says they are already spending more money on iTunes than they want to. Universal should be able to understand that if they charge more, and people don’t shift to piracy, people will simply buy less music. I mean, there’s only so much a teenager or the average worker can afford to pay each month for music. Giving them less music for the same amount of money doesn’t make sense long term if they want to keep music lovers happy. Universal won’t get more money, and customers will be less happy.

    In other words, the average consumer can only afford maybe 30 bucks a month on music. Universal will get about a fourth of that because they control about a fourth of the music. If they raise prices, it’s unlikely people will start spending 50 bucks on average. They will simply buy less music. After all, Universal and others were trying to push subscriptions so you could have all the music you want for various prices as low as $10 a month. I’d bet all but the most casual iTunes store user pays a lot more than that for music.

    However, if you change the pricing systems so people spend the same, get less music, and more of the money is shifted to new music, Universal’s motives might make more sense. Older music still props up the industry, because it is incredibly profitable, but by being cheap it keeps music fans from completely rebelling and heading back to piracy. Yet the new Britney single that Universal spent half a million dollars to produce and two million dollars to promote costs more and makes the books look better because it sold for $1.50.

    I bet some accountant ran the numbers at Universal and said “Look, we get 90% of our money from our old catalogue and only 10% for new music. Because it costs so much to produce, most of our new music isn’t profitable, in fact, the entire new music division is bleeding money like crazy. If we simply stop producing new music, or make it cheaply (like picking up independents) we’ll make a ton of money.” At which point, the egos of the record executives exploded. Stop wasting tons of money making over produced new music? Are you crazy! Let’s just charge more for it!

    Crazy thing, if Apple would allow it, it might just work. You go onto iTunes and 90% of the music you buy is only 99 cents. But when there’s a hot new single, you grit your teeth and pay $1.50 or $1.99. If all the music was $1.99 you might give up on the iStore and head for Pirate Bay. So once again, Universal’s catalogue could be used to prop the rock star life it’s executives want to live and justify wasteful practices.

  7. All of you trying to work out Apple’s share of an iTMS purchase, remember that this is the Euro price being quoted. Sales tax on the iTMS in the EU is 15% on top of purchase price, but is included in the advertised cost.

    So 13 cents immediately gets swallowed in tax, leaving 86 cents actually available. Take away the record company’s 70 cents and 5 cents for the credit card companies and Apple gets just 11 cents to pay for the bandwidth/storage/development costs and make a profit.

    Hardly indecent. Most retailers will run on far bigger markups than that.

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