Universal's Apple Turnover?

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Things are getting more challenging for the music industry. The latest competitive plan to hit the news wires seems less innovative than confusing and misguided.

Vivendi's (OTC BB: VIVEF.PK) Universal Music Group has joined up with Sony's (NYSE: SNE) and Bertelsmann's Sony BMG and is still negotiating with Warner Music Group to try a new tactic: creating an all-you-can-eat subscription service that would push customers to devices other than Apple's (Nasdaq: AAPL) iPod, such as Microsoft's (Nasdaq: MSFT) Zune. Theoretically, hardware makers would offset the cost of low-priced subscriptions in return for the opportunity to push their music players. (In another bizarre aside, a Business Week article says Vivendi's CEO called the one-third cut Apple gets on iTunes sales "indecent." One might think the industry would see that a 70% cut is better than no cut of any money at all from file-sharing sites.)

I've long dismissed subscription services; I just don't think they do it for true audiophiles -- the iPod segues into the desire to enjoy and show off a music collection -- and that seems to bear out. Subscription services, including Yahoo!'s (Nasdaq: YHOO) Yahoo! Music, Napster (Nasdaq: NAPS), and RealNetworks' (Nasdaq: RNWK) Rhapsody, lag dreadfully in comparison to download sales.

Meanwhile, TechCrunch reported Yahoo! Music's Ian Rogers' diatribe against the music industry's backward thinking. Rogers pointed out that "inconvenience doesn't scale" given the onerous, DRM-driven hoops consumers must jump through because of the industry's (not Yahoo!'s) demands. His point is well taken, considering that Yahoo! Music's website gets "tens of millions" of visitors every month but its subscription service is lagging. It's this poor performance, in addition to Yahoo!'s recent strategy changes, that led the company to shift away from its subscription service to focus more on advertising-supported music.

Interestingly, Apple has dropped the price on its DRM-free tracks to its old $0.99 benchmark; maybe it wasn't making any friends by trying to charge consumers more (while trying to make the majors happy). Maybe Apple's realizing it's not immune to consumer outrage on this score, either.

It's a crucial time for the music industry, but a service that seeks to lock consumers out of hardware and services they've already embraced isn't a surefire approach. The industry may be in a war for its future livelihood, and while it consistently shows it has big guns, its aim (or lack thereof) still seems like it will make more enemies than friends.  

For related Foolishness, see the following articles:

• The Music Industry's Downward Spiral
• Good Riddance, Major Labels
• The RIAA Wins, but What Does It Lose?