Great article involving Universal VP talking about download stores. Looks like we are stepping up to the plate...especially w/ our relationship w/ Universal artists!!
Behind the music: Universal throws down the gauntlet to download stores
Does Universal Music Group's declaration that new download stores have to innovate really mean they are happy with iTunes' domination?
The Beatles ... still not on iTunes, thanks to EMI. Photograph: PA
At last weekend's Great Escape music festival and conference in Brighton, Universal Music Group's vice president of digital, Francis Keeling, made some revealing statements about his company's projected business model.
Though Keeling stated that UMG is keen to encourage as many business partners as possible, trying new models, he added: "We don't want lots of businesses launching the same old service that's in the market though." Speculation quickly turned to what he meant by the "same old service". Did he mean there's already an iTunes, and we don't need any more online record shops? iTunes is already by far the biggest download store.
Tom Frederikse, an attorney at Clintons who often represents digital music startups, says Keeling's statement is worrying: "It implies that Universal is not interested in any new download stores, unless the wheel can be reinvented. If so, I'll have to advise my clients accordingly."
Jon Webster, CEO of the Music Managers Forum, is equally worried by Keeling's statement. "There needs to be competition in order for us to see an evolution in the market space," he says. "The more places people can access legal downloads, the better."
Universal has the biggest market share of all the labels. In the first quarter of 2010, it topped the list with 33% of albums sold (runner-up Sony had 20.9%) and 33.8% of singles (Sony had 24.3%). Warner Music had 15% of albums (EMI had 13.3%) and 14.7% of singles (EMI had 10.4%). In other words, Universal and Sony control over half of the market, and they know the value that brings to the table when negotiating with new music services. Paul McCartney recently said that the reason the Beatles catalogue was still not on iTunes was because of EMI, not him.
In my opinion, Keeling's statement appears to sit uneasily with the British Phonographic Industry's commitment to support new, legal music services in return for the passing of the digital economy bill (DEB). The code of practice for the DEB is expected to be in place by the beginning of 2011. Under its terms, Ofcom will have to report to the secretary of state to show what rights-holders have done to make their content legally available.
"The size of the upfront payments these labels demand often prohibits startups to enter the market," says Webster. It's understandable that labels need a payment guarantee, especially with streaming services, to make sure that they're dealing with an "above board" company. But when it comes to à la carte downloading services, every use can be immediately paid for. It's a business model that has already been proven to work.
Music industry sources claim that a startup download service was recently asked to pay six-figure sums to the two biggest labels (apparently, this tends to be their going rate). The service eventually got EMI and Warner on board for a rumoured £25,000 each, while not being able to afford the other two majors. It's impossible to get a firm confirmation on the exact amount, as all the deals are covered by non-disclosure agreements.
Would it not be in the music industry's interest to encourage healthy competition among legal download stores, instead of leaving iTunes in a position where they're responsible for nearly 80% of the download market?
Asked for clarification, Keeling explained that his point is about the need for variety, not more of the same. "Our recommendation to business partners is that there is no 'typical' music fan, and so we would encourage a variety of stores and services, to target the diversity of music fans," he replied. "We want as many successful services as possible."
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