Universal Music CEO Doug Morris looks to break Apple’s iPod+iTunes dominance

“These are tough times for the music business. In 2006, the number of CDs sold worldwide fell 10 percent, the largest one-year drop ever — steeper than in any of the so-called Napster-era years from 2001 to 2004. Early indications suggest that 2007 will be at least as bad,” Seth Mnookin reports for Wired.

“Over the past several years, [Universal Music CEO Doug Morris] has been one of the most staunch and vocal proponents of aggressive copyright enforcement, at one point publicly blasting MP3 players as merely ‘repositories for stolen music,'” Mnookin reports.

“Last summer, though, Morris seemed to change direction. After years of tightening controls on his company’s content, he agreed to let Amazon.com and other online retailers [notably, not Apple’s iTunes Store] sell unprotected MP3s of Universal songs… Universal wasn’t the first big label to offer unprotected tracks; the EMI Group had begun selling DRM-free songs in May. But with its small market share, EMI’s decision seemed unlikely to have much effect on the market. Universal, on the other hand, was setting out to change things. In particular, it hoped to end Apple’s near monopoly on legal digital downloads,” Mnookin reports.

Mnookin reports that Morris “admits to being fairly ignorant about technology and insists that his job is to nurture the creative side of the business — work that’s being threatened by all of this other nonsense… Today, when he complains about how digital music created a completely new way of doing business, he actually sounds angry. ‘This business had been the same for 25 years.'”

“This year, 22 percent of all music sold in the US will move through iTunes. “If iTunes gets up to 40 or 50 percent, they’ll have too much power for anyone else to enter the business,” says James McQuivey, who analyzes the digital music industry for Forrester Research. If the labels want out, they have two choices: Find a way to unseat the iPod or allow iTunes’ competitors to sell unprotected files that can play on Apple’s ubiquitous device,” Mnookin reports.

Mnookin reports, “Morris is determined to do whatever it takes… Total Music is designed to unify Apple’s competitors in what amounts to a coordinated attack on the iPod. The details are far from finalized, but in Morris’ conception a Total Music subscription would come pre-installed on devices like the Zune, the Sony PlayStation, or a mobile phone. Universal is well aware of the difficulty of convincing consumers to pay for music subscriptions, so Morris wants the devicemakers to pony up the cash themselves, either by shelling out for a six-month introductory offer or by assuming the cost forever. This would be money well spent, Morris argues, because it would help the Microsofts of the world eat into the iPod’s market share.

Mnookin reports, “Unfortunately, Total Music will almost certainly require some form of DRM, which in the end will perpetuate the interoperability problem… Morris is incredulous. He’s once again talking about how his job should simply be finding and breaking new acts.”

Please read the full article as it contains much more than we could adequately condense here.

In the full article, Morris discusses the birth of Apple’s iTunes and its subsequent growth, “We were just grateful that someone was selling online. The problem is, [Steve Jobs] became a gatekeeper. We make a lot of money from him, and suddenly you’re wearing golden handcuffs. We would hate to give up that income.”

It’s clear why Zune continues to be pushed upon an unreceptive market: the labels are desperate for a way out before it’s too late (device makers are desperate, too: Universal got Microsoft to pay a ridiculous $1 per Zune royalty, regardless of whether any Universal content is ever played on the device). But, contrary to Forrester Research’s Microsoft’s McQuivey, we firmly believe it already is too late. Apple won long ago. Sheer momentum will complete whatever remains of the job. Zune is the WNBA of the digital media device world. In other words: boring mediocrity that real people couldn’t care less about propped up by vastly larger organizations with agendas unrelated to the product itself. Ginned-up “interest,” even with very well-heeled backers, cannot sustain failure forever.

The labels are desperate because they face a serious threat. Established acts (Radiohead and Prince, to name just two) have already let their contracts with the music labels lapse and simply gone straight to the consumer. Why pay royalties to the likes of Doug Morris when you can keep the bulk of the profits that your work and talent generates? More musicians will follow, many likely via Apple’s market-dominating iTunes Store, certainly in iPod-supported formats, if they wish to reach the largest possible audience.

Universal Music is acting like a dinosaur because it’s headed up by one. Doug Morris is a 68-year-old technophobe who just wants things to go back to the way there were: fat profits from overpriced CDs packed with filler. Trying to stuff the genie back in the bottle is an exercise in futility. If Morris doesn’t wise up by, oh, five years from yesterday, that’s how he’ll end his career: swept away by a tidal wave while trying to stave it off with only a finger in the dike. His business long ago passed him by and it seems certain that he has little hope of catching up, much less leading it on a new productive path.

The music subscription model, as we’ve repeatedly said on these pages and, as the market has proven, is a pipe dream. But that mirage of an easy, sustained flow of money tempts them further into the desert with each passing day. Business models that fly in the face of human nature are doomed to failure. People want to own their music, not pay a monthly fee that, if and when it goes unpaid, kills their music.

Even if Microsoft or some other corporation(s) somehow managed to assume all the cost of the entire music industry forever (lunacy), it won’t matter as the music is out there already and will continue to be out there for free. DRM — no matter what they come up with — will be circumvented: if you can hear it, you can steal it. And is the irony not thick that a company called “Universal” would want their music to be anything but? If they actually do try to go DRM-free with Total Music, then Apple is already way out front with iPod and iPhone, so there’s no real reason for consumers to change to other company’s devices. As long as Apple keeps doing what it does best – innovate – then Apple will continue to dominate the device market which is where the real profits are anyway.

This is likely why Jobs called for the end of music DRM: he’s confident that Apple can sustain its dominant position in the device market by continuing to make the best products. As we pointed out earlier today, just 3% of the music in the average iPod is from the iTunes Store. The rest was ripped from CDs that the music industry itself provided and still provides DRM-free and/or via piracy. The iTunes Store is nice, but if it disappeared right now, iPods (and iPhones) would still sell just fine.

Obviously, Universal and, indeed, most of the music industry, needs new blood. It’s unclear if they even understand what they’re supposedly fighting: iPod, iTunes, iPod+iTunes, piracy, the consumer, what exactly are their targets and objectives? Really, we’re just guessing in our headline. And should they even be fighting or should they instead work towards becoming useful entities that help — not hinder — musicians to connect with their listeners? People need to embrace change, not hopelessly try to block it, or they will not survive. As these dinosaurs like Doug Morris fade away, the fortunes of everyone in the music industry will improve dramatically.