April 12, 2007 10:05 pm

Music labels ask Apple to adopt subscription

The world’s biggest music companies are expected to ask Apple to introduce a music subscription service to its iTunes digital media store as part of negotiations to renew their agreements with the computer company.

Those discussions will begin in earnest next week when Universal Music, the largest record company, sits down at the bargaining table with Apple. Universal’s competitors, Sony-BMG, Warner Music and EMI, have either commenced talks with Apple already or are poised to do so, according to people close to the matter.

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This year’s talks are vital for the record industry because they come amid a continued deterioration in compact disc sales. As a result, one media consultancy, Enders Analysis, predicted this week that global music sales would fall to $23bn in 2009, down 16 per cent from last year.

Executives at Universal and other labels believe a subscription service could prove more lucrative for them than iTunes’ prevailing model of charging consumers 99 cents per track because it would increase consumption of music. It would also entitle the labels to a share of monthly payments, in addition to small licensing fees each time their songs are played.

Record companies may also renew their request for variable pricing on iTunes as they try to ramp up their digital profits.

The negotiations offer another example of the tensions between traditional media companies that create content and the technology groups that distribute it online.

The record industry, in particular, has long been frustrated that Apple has reaped most of the profits of the burgeoning online music market through sales of its iPod player. By contrast, they have earned only modest royalties from digital music sales because most of the songs on iPods and other devices result from illegal download.

Nonetheless, music companies have largely been forced to accept Apple’s terms as iTunes accounts for about 75 per cent of online music sales in the US in spite of competition from Microsoft’s Zune and other services.

“They’re desperate for an iPod killer so that they won’t be beholden to Steve Jobs,” said one music executive familiar with the discussions.

Apple did not immediately return calls, and the record companies declined to comment on the talks.

Last year, the labels backed down from their demand for variable pricing in the face of resistance from Mr Jobs, Apple’s chief executive.

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