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Universal bypasses Apple to sell unrestricted songs online

Times Staff Writers

Moving to blunt Apple Inc.'s growing power, the world’s largest music company is bypassing the iPod maker to sell thousands of songs in an unrestricted digital format through many other online music stores.

Universal Music Group said Thursday that it would begin selling current and back albums -- from a collection of stars as diverse as 50 Cent, Maroon 5, Amy Winehouse and Johnny Cash -- without anti-piracy software that restricts their use.

Online retail partners include Best Buy Co., Wal-Mart Stores Inc. and Amazon.com Inc. -- but not Apple’s iTunes music store.

A power struggle between Universal and Apple Chief Executive Steve Jobs accomplished what years of consumer complaints could not: persuading the top recording company to remove the digital handcuffs that try to prevent people from illegally sharing their music.

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“It seems like a bold-faced move to blunt Apple’s influence,” said Mike McGuire, vice president of research at Gartner Inc.

Universal called the effort a test to see how sales and piracy rates would be affected when it sells songs in the MP3 format, which can be copied freely and played on any computer or mobile device.

The lack of software will make it easy to put copyrighted music on file-sharing networks, but doing so is still illegal. Universal said it hired a firm to monitor piracy during the test period, from Aug. 21 to Jan. 31.

Publicly, Universal said it excluded Apple so that iTunes could serve as a “control group” to make sales comparisons easier. Songs sold through iTunes are wrapped in digital rights management software that prevents them from being shared on more than a certain number of computers and played on devices other than Apple’s iPod and iPhone.

Universal Music CEO Doug Morris said in a statement that the test would “provide valuable insights into the implications of selling our music in an open format.”

But people familiar with Universal’s strategy cited another strong motivation: to help Apple’s competitors in order to reduce Jobs’ growing clout with the music industry.

Cupertino, Calif.-based Apple’s dominance in digital music sales -- Apple is the No. 3 music retailer overall, according to NPD Group -- has given the company major leverage in negotiating pricing, availability and other issues with the major record labels.

Apple began selling music only four years ago. But with digital downloads replacing CDs for millions of people, Apple’s supremacy in the fast-growing online business has left it trailing only Wal-Mart and Best Buy in overall music sales.

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“That’s far too much power for anyone to have, especially someone who has not seen things eye to eye with the music labels in the past,” said James McQuivey, an analyst at Forrester Research. “So Universal, and I would expect others, have said, ‘We need to get hands on this market. We need to stimulate growth in more than one place.’ ”

Apple declined to comment.

Analysts and industry executives said that whatever Universal’s motivation, consumers would benefit, especially if the other major labels follow suit.

“One of the biggest frustrations for the consumers is that there are too many formats out there, and what they play on an iPod might not be able to be played on other MP3 devices,” said Mehrdad Akbar, director of Best Buy’s music sales.

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Aram Sinnreich, a senior analyst at Radar Research, said digital software locks annoyed law-abiding consumers while doing nothing to stem piracy. CDs have no restrictions, so their songs can be turned into MP3s and spread online.

Universal’s move follows a decision in April by EMI Group, the world’s fourth-biggest record label, to sell MP3s on iTunes and elsewhere. EMI executives have said they saw an increase in sales as a result, especially in Europe, where the company had a stronger position to begin with. The company declined to comment on Universal’s move.

EMI’s unprotected tracks have a higher sound quality and are sold for $1.29, instead of the standard 99 cents. Universal expects most retailers to charge 99 cents for its unencumbered tracks at various quality levels.

Universal recently refused to commit to long-term distribution through Apple, a move that gave Universal the right to offer exclusive tracks to smaller retailers.

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Analyst McQuivey said Universal’s strategy probably wouldn’t cause consumers to flock to Apple’s rivals. But the announcement comes at the right time for online bookseller Amazon, which he said was preparing to make a serious bid for the online music market.

It also put pressure on the two other major labels, Sony BMG Music Entertainment and Warner Music Group, to follow suit.

“It’s less a question of whether they do it and more a question of when and to what degree,” said Susan Kevorkian, an analyst at research firm IDC.

Rob Glaser, chairman and CEO of RealNetworks Inc., hailed the Universal test as a milestone in the development of the digital music market.

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“When you get the biggest music company in the world putting this much content out, and it’s the second company to do it, I think it’s a tipping point,” Glaser said.

McQuivey predicted that if unrestricted music catches on, Universal will be forced to offer the same unencumbered tracks through Apple’s iTunes.

“You’d be foolish not to take advantage of the billions of tracks being sold there,” McQuivey said. “It’s like being a hamburger supplier and refusing to sell to McDonald’s 20 years ago.”

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joseph.menn@latimes.com

dawn.chmielewski@latimes.com

Times staff writer Michelle Quinn contributed to this report.


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