Universal mulls hardware-based music store


— 6:00 AM on October 15, 2007

As major record labels begin to untie online music from digital rights management software in an effort to spur demand, Universal—the world's largest record label—is reportedly cooking up an entirely different business model. BusinessWeek has received word that Universal CEO Doug Morris is spearheading a new service that will tie music sales to hardware players and cell phones.

Dubbed Total Music, the service entails getting hardware vendors to "absorb" the cost of music subscriptions in order to make music free to the eyes of consumers. BusinessWeek quotes an executive who saw Morris' presentation about the service as saying, "You know that it's there, and it costs something." However, the executive adds, "you never write a check for it." Naturally, the success of such a scheme would depend on how exactly how much hardware vendors would need to absorb:

The big question is whether the makers of music players and phones can charge enough to cover the cost of baking in the subscription. Under one scenario industry insiders figure the cost per player would amount to about $90. They arrived at that number by assuming people hang on to a music player or phone for 18 months before upgrading. Eighteen times a $5 subscription fee equals $90. There is precedent here. When Microsoft was looking to launch a subscription service for Zune, Morris played hardball. He got the tech giant to fork over $1 for every player sold, plus royalties. Total Music would take that concept even further. "If the object is to wrest control of the market from Steve Jobs," says Gartner analyst Mike McGuire, "this is a credible way to try it."

A $90 surcharge might be tough to work into budget players akin to the $79 iPod shuffle, but it could be feasible with pricier devices. As we reported last month, research firm iSuppli worked out that Apple's $149 iPod nano costs Apple just under $60 in parts. Parts for the $199 model add up to $82.85, the firm found.

According to BusinessWeek, Sony BMG is already a potential partner in Universal's scheme, and Morris is said to be in talks with the Warner Music Group, as well. Being three of the world's "big four" record labels, Universal, Sony BMG, and Warner would control around 75% of music sold in the United States if they joined forces, BusinessWeek says.

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