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TMO Scoop - Contract Length Was Barrier to iTMS Deal, Music Indie Group Says

by , 8:00 AM EDT, June 16th, 2004

The Association of Independent Music (AIM), representing Europe's independent labels, confirmed for late on Tuesday that a disagreement over the length of a contract to sell their artists music was the main reason Apple Computer launched its iTunes Music Store in Great Britain, France and Germany Tuesday without a majority of music from smaller groups and artists.

AIM spokesman Sam Shemtob told The Mac Observer the sticking point in negotiations with Apple was the length of the agreement and his group's insistence that their be a review of royalty fees every six to twelve months.

"We were far off on a number of important issues with Apple," Mr. Shemtob said. "Whether Apple was negotiating with AIM or with the labels separately, they wanted a three year contract and we wanted a two year agreement. In addition, we wanted a universal price review after six or twelve months. They didn't want to give us that. We were having trouble finding common ground."

Mr. Shemtob said the main reason AIM and indie labels wanted the right to negotiate royalties every six or twelve months was the constantly changing market for online music downloads.

"This market is changing each and every day," he said. "Who knows what growth there will be in the next year. Independent artists deserve the right to look at the situation on a regular basis and re-think their strategy."

Mr. Shemtob said another issue was Apple's unwillingness to have an adjustable royalty price that would go up as the retail price goes up.

"We wanted an agreement that said there would be an escalated royalty percentage paid to indies if and when the retail price went up," Mr. Shemtob commented. "Apple again was unwilling to discuss such a clause."

Mr. Shemtob confirmed that similar contractual agreements Apple rejected were successfully negotiated with other online music services, such as Sony Connect, the old and new operations of Napster, Yahoo, OD2, Wippit, O2 Music and Sony's Japanese operation, Computer Network So-net.

"We don't understand why we could come to an agreement with these other companies, but not with Apple," Mr. Shemtob said. "The terms they wanted certainly hurt the deal."

Executives representing some of Europe's major independent labels confirmed to The Mac Observer Tuesday that while Apple refused a shorter contract length and no price review option, it apparently negotiated such a deal with Vivendi Universal SA's Universal Music, one of the world's largest record labels.

"It's our understanding Apple agreed to a two-year contract with Universal and agreed to re-visit royalty pricing every six months," one executive who asked not to be identified, told TMO. "Why couldn't they agree to a similar deal with us?"

Mr. Shemtob said Apple had opted to negotiate with indie record labels individually when it had the opportunity to negotiate as a whole with AIM. Mr. Shemtob also said Apple had approached many indie groups and labels in just the past few days, making it almost impossible to reach an agreement in time for Tuesday's iTMS announcement.

AIM was on hand at the Apple announcement Tuesday, handing out fliers outside the Old Billingsgate Market on the banks of the River Thames explaining their stance on the negotiations with Apple.

Apple refused comment on its negotiations with the independent European labels, citing its long-standing policy to not comment on its business arrangements.

Missing indies a setback to overcome, analysts say

Industry analysts who watch the European computer and online music business feel the launch of the iTunes Music Stores without a large majority independent music artists is a black eye, but something Apple can overcome and capitalize on if they move quickly.

"They are launching without the indie artists that currently make up 22 percent of UK music sales," said analyst Simon Dyson of Informa Media, based in London. "This is a bit of a downside for Apple. It's almost a quarter of UK sales. I'd imagine they (Apple) are disappointed with that."

"I think indies perhaps want to have an offer of what you'd get as a major record label," Mark Mulligan, a media analyst based in London with Jupiter Research, told The Mac Observer, Tuesday. "The perception, whether it's right or wrong, is that independent labels feel they have been undervalued."

Mr. Dyson said he'd be surprised if the indie labels are not on board soon.

"It's such a big share of the UK and European markets that Apple needs to have them on board very soon," Mr. Dyson said. "I think it will get done sooner rather than later."

"How important is it for Apple to have these indie labels on board? It all depends entirely upon what sort of success iTunes has against its competitors," Mr. Mulligan said. "If Apple believes they really do need to have those labels on board then they will come back to the table with an improved offer, I'm sure. I think they'll come to some agreement soon because I think domestic content is absolutely key to European music services and so much of domestic music is tied up in independent record labels."

Observer Comments

Show: Subjects Only | Full Comments
View Name:RealityCheck -   Troll Posts: 392 Joined: 06 May 2004
Subject: Apple's Closed iTunes-iPod System Will Fail
Close Name:Biff Posts: 1479 Joined: 08 Apr 2004
Subject: Haha RC.

iTMS is #1 and growing, but who cares? I personally still buy my music on CDs. The iPod is what makes Apple money and I love my iPod (along with 3+ million other people). And when I buy some more Macs in the next year I will make more money for Apple.

View Name:Guest
Subject: Oops. RC can't spell: "manufactures" :)
Close Name:Biff Posts: 1479 Joined: 08 Apr 2004
Subject:

You mean it IS a miserable failure. Get your tense right!

View Name:Guest
Subject: Indie important, but they need Apple more.
View Name:Guest
Subject: Apple's Closed iTunes-iPod System Will Fail
Close Name:rossco63 Posts: 18 Joined: 16 Feb 2003
Subject: shut up and buy something

The urge to buy controls you, and you know it. Doesn't matter if it's cdroms or mp4s. Who cares if you don't like iTunes' selection? Just go buy a used cdrom. It's all gonna end up on an iPod eventually. You can't beat Steve. I'm going to miss the corner record store--not. I haven't been in one for years. And they were never as cool as the one in High Infidelity. And the snot nosed clerks were usually a$$4013$...

View Name:Guest
Subject: Happy to have the service,
View Name:Guest
Subject: iTunes is one of the lowest prices and largest selections
View Name:Guest
Subject: Lessons to learn?
Close Name:kenaustus Posts: 602 Joined: 27 Jun 2003
Subject: AIM needs to look at the US indies

It's fine to put up blocks to keep off the store, but maybe AIM should look at what Apple has done for indies in the US.

The biggest benefits Apple provides are FAIR access to indie music, 30 second previews and a consistent (and fair) price for all songs. If AIM wants to block out this new market, let 'em. It's their loss, as well as their performers' loss.

6 Month reviews: How stupid - when was the last time Apple changed the price on the US store?

Review royalty percentages if prices go up? Duh, if you get X% on the current price you will get X% on an increased price, which will be an increase . . . Hard to figure that out, is it?

'Tis sad that AIM can't figure out the potential of the Apple market, both in the UK/Europe and internationally, including the US. If they wanted to negotiate something that would increase sales and profits then negotiate adding all of their music to the US store and giving it a fair shake on the store promotions.

Close Name:KitsuneStudios Posts: 2488 Joined: 25 Oct 2001
Subject: Re: Apple's Closed iTunes-iPod System Will Fail

Quote
Anonymous wrote:
Buy an iPod and you're stuck with only one on-line music store, iTunes that has the hIghest prices and worst selection.


Incorrect. While you cannot buy WMA audio, you can purchase music from MP3 vendors, like http://www.emusic.com , http://www.audiolunchbox.com , and http://www.magnatunes.com , not to mention the two russian sites (of unknown legitimacy) that offer music in MP3, WMA and AAC.

You are entitled to your opinion of Apple's marketing. However, since Apple retains the #1 spot for both MP3 players and audio downloads, Apple has enough of a head start to retain this business model. In my personal opinion, as long as Apple can compete favorably with the WMA collective as a whole, they should continue to do well. As long as they continue to make Quicktime and AAC an integral part of the experience, they can continue to make inroads with Quicktime as a video solution against Real and WMP.

View Name:Guest
Subject: How does AAPL do it??????
Close Name:dynamicv Posts: 51 Joined: 06 May 2004
Subject: kenaustas, in the UK things are different

The indies here get regular airplay on mainstream radio, there are TV programmes that feature their music, and indie bands get coverage in the newspapers. You only have to remember that Oasis are signed to an indie label to realise just how big an indie band can get here through existing channels. American indie bands need iTMS in a way that UK indie bands don't.

View Name:Guest
Subject: AIM/Apple need to sign 3 year no Price increase
View Name:Guest
Subject: Independent Labels are greedy
Close Name:NubeDiMorte Posts: 5 Joined: 17 Jul 2003
Subject: Look at Southern California...

Namely San Diego... San Diego, L.A. and NewYork, as well as Dallas, has about 95% of the indie bands in the U.S. Here in Laguna Beach, Orange County, CA the only radio stations that I even get reception from play indie. (RFTC, Hot Snakes, No Knife, everything Swami Records, White Apes, Mission to Burma, etc.) On the two major stations, 91x and 94.9 (indie station) the only thing to listen to at night, especially sunday night is indie (Big Sonic Chill!!!). Any way... the indie movement where I go to school in denver is growing too. But any way... all my friends and I listen to indie... my friend is a local DJ and only spins Indie at his stations in Irvine and Santa Clera (i.e. San Jose). Its the culture now... so the argument taht things are different in the UK is only true to a point... but what do I know... I'm just a yank ^_^... any way the indie labels are outa their minds just as kenaustus said... oh ya forgive the spelling.

View Name:Guest
Subject: Organizations that 'represent' artists
View Name:Guest
Subject: Ban Reality Check
View Name:Guest
Subject: miserable failure?
View Name:Guest
Subject: itunes
Close Name:kenaustus Posts: 602 Joined: 27 Jun 2003
Subject: Reality Check isn't really that bad . . .

He just forgets to take his meds from time to time.

Close Name:Biff Posts: 1479 Joined: 08 Apr 2004
Subject: RC can adapt to his surroundings.

He has learned to also post as a guest so more people will see his posts. Evolution at work!

View Name:Guest
Subject: iTunes Miserable Failure?
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