The Universal Music Group of Vivendi, the world's biggest music corporation, last week notified Apple that it will not renew its annual contract to sell music through iTunes, according to executives briefed on the issue who asked for anonymity because negotiations between the companies are confidential.

Instead, Universal said that it would market music to Apple at will, a move that could allow Universal to remove its songs from the iTunes service on short notice if the two sides do not agree on pricing or other terms in the future, these executives said.

...With the shift, Universal appears to be aiming to regain a bit of leverage — although at the risk of provoking a showdown with Mr. Jobs.

In the four years since iTunes popularized the sale of music online, many in the music business have become discouraged by what they consider to be the near-monopoly that Mr. Jobs has held in the digital sector — the one part of the music business that is showing significant growth. In particular, Mr. Jobs's stance on song pricing and the iPod's lack of compatibility with music services other than iTunes have become points of contention.

By refusing to enter a long-term deal, Universal may continue to press for more favorable terms from Apple or even explore deals to sell its catalog exclusively through other channels. If Universal were to pull its catalog from iTunes, Mr. Jobs would lose access to record labels that collectively account for one out of every three new releases sold in the United States, according to Nielsen SoundScan data.

On the flip, though, you have the executives' hope that exclusive Universal content will result in an exodus from the most popular download service—which seems slim, especially when one considers those competing services' lack of compatibility with iPods (and iPhones). (Unless DRM-free services like eMusic, or Amazon's still-not-launched digital store, are on UMG's radar at this point.) Since a large part of this dispute is about pricing, it's not entirely out there to wonder if Universal will try to negotiate for a piece of the music-based revenue Apple gets through iPod sales via a Zune-like revenue sharing deal as well, although it's pretty unlikely that Steve Jobs will be interested in that scenario at all. Either way, here's one piece of advice to the Universal folks: If you're hoping that new 50 Cent tracks will cause the masses to embrace Windows Media-based downloads, you may want to listen to his new songs first. Yes, the beat is better than his "Amusement Park" backing, but opening verses about Vitamin Water windfalls = not really the best way to entice people into dropping a lot of cash for a new portable-music setup.

Universal in Dispute With Apple Over iTunes [NYT]

Sony Connect To Close Music/Video Services; Focus on Servicing Playstation Group; 20 People To Go [paidContent]

I buy most of my music on iTunes, because the albums are only $9.99. When the new Linkin Park "Minutes To Midnight" CD came out, I went to iTunes and to my surprise, the album cost was $11.99. No extra tracks, no videos, nothing extra. So I decided to buy the physical CD instead.

I bought the CD for $16.99, and when I went to pop it into my Macbook Pro, the CD never showed up in iTunes. And it never displayed in the Finder. I thought maybe my mac goofed, so I ejected it and inserted it again. No dice. So I popped it in my work PC, and it opened Windows Media Player and allowed the CD to play, but, when I tried to view the CD's contents in Windows Explorer, it showed the tracks as 1kb files, which is obviously wrong. The true files are hidden. They secretly employed some type of copy protection to prevent my fair use. I have the right to copy or listen to my music on my computer.

Then I did a Google search and found out that other people had the same issues. Then I got angry. There was no disclaimer on the CD packaging. In fact, the CD had the compact disc logo, which as far as I know is a standard, but it seems that this Warner Bros. CD is not following the standard.

I decided to try the CD in my older Power PC iMac. It worked! I ripped the CD into iTunes and then added the tracks to my MacBook Pro. So I paid full price for a crippled CD from Warner Bros. And I pay for my music! Why are they trying to restrict my ability to open the CD on my Mac and rip into iTunes?? It's conduct like this that will cause people to stop buying CDs and download illegally instead.

From this point on, I will no longer buy Warner Bros. labeled CDs, nor will I purchase them on iTunes. I will acquire music from this label by using other means. Warner Bros., this is your fault!!! And if this happens when I purchase any other CDs from other record labels, they will no longer get my money. And I will tell everybody that I know.

Now, we know that Warner Music Group is pro-DRM, but really—forcing consumers who have been willing to shell out cash for CDs to jump through hoops just so they can transfer a brand-new record to their computers seems kind of cruel. And it's not just cruel to the consumers, either; it hurts the people who work at the label as well, since at this point any formerly paying consumer threatening to hold back his dollars can't be good for the bottom line. Haven't the powers that be at Warner learned anything from the rootkit debacle? Or is Warner just figuring that the Linkin Park album is the last album that'll enjoy big sales, anyway, so why not go out with a consumer-revolt bang?

New Linkin Park CD Has Hidden Copy-Protection [Len's Blog, via The Daily Swarm]

In a move designed to upend the traditional record label business model, Downtown Records and Internet entrepreneur Peter Rojas plan to launch an online-only record label that will offer its music for free and generate revenue only through advertising and sponsorships, The Post has learned.

Dubbed RCRD LBL and targeted for launch this fall, the venture aims to merge free, exclusive music with niche blog content to offer advertisers highly targeted sponsorship opportunities. Or, to put it another way, the label marries Downtown's ability to identify cutting-edge artists - the label's roster includes blog-beloved bands like Gnarls Barkley and Cold War Kids - with the architecture of Rojas' weblogs to create a next-generation online music company.

One source familiar with the project described it as a "curated YouTube or MySpace for music with an editorially driven filter."

While this new venture hasn't actually signed any artists yet, that hasn't stopped investors from being optimistic:

According to a preliminary business outline obtained by The Post, the venture offers advertisers three different levels of sponsorship packages that feature a combination of contest, podcast and "single of the week" sponsorships as well as advertising plug-ins that run over the course of several months.

Sources said the idea seems to have a lot of traction judging by initial conversations with Madison Avenue.

While these sources declined to provide revenue projections for the venture, they did say that they were "confident that the Web site will generate significant revenue early on."

While we agree that labels have to look beyond the idea of record sales being the prime source of revenue, we have to say that the label's prospects for success aren't certain—after all, they'll still depend on which artists the label signs, a list that is currently empty. Yes, Downtown has a great track record as far as spotting buzzy bands that get a lot of online attention, and the music's low cost will certainly help as far as stoking initial awareness—but the assumption that audiences will be as enthusiastic about these bands as advertisers are is a big jump, blogs or no blogs, and it's reflective of the "we will tell you what you'll like" attitude that's helped larger record labels get into the mess they're in right now.

USING ADS, NEW ONLINE LABEL OFFERS MUSIC FREE [NYP]

[Disclosure: Rojas is the Chief Strategy Officer for Weblogs, Inc., a competitor of Idolator's parent company, Gawker Media.]

Music giant EMI agrees takeover [BBC]

As another 400 industry pros loose there jobs it's worth remembering that...

* major labels are no longer controlled by people who care about music. They are owned by stockholders who care about profits.
* l abels can no longer control what gets played on the radio. Thanks to Eliot Spitzer and the FCC payola isn't what it use to be.
* with the internet offering unlimited media sources radio no longer has the clout that it used to anyway.
* free file sharing has forever devalued music.
* single songs downloads have killed the album purchase and thus gutted the profits labels saw from them.
* digital delivery is eroding the labels' gatekeeper status in distribution.
* consumers have more diverse competition for their entertainment $'s and time than ever before

All good points, although we'd also add that the actions of the labels against those people who may actually buy records has also driven away consumers. As have out-of-touch executives, and wrongheaded attempts to rectify the digital-market surge, and ... well, you get the point. Whether or not top brass at labels will as well is still up in the air, but the fact that the layoffs will likely hit the rank-and-file, and not the executive suites, makes us think that there's a long way to go.

Warner Music Group To Layoff 400. Is The End Of The Major Label Near? [Hypebot]

Just as people sit at home and buy songs from Apple Inc.'s iTunes for 99 cents a pop, several vendors have introduced a bricks-and-mortar version of that concept.

New machines, available from at least five different companies and now in operation in more than 150 record stores, Starbucks, book stores and big-box electronics stores across the country, allow consumers to pick 15 or so singles from various artists and burn them onto a CD.

George Daniels, who has run George's Music Room in Chicago for 38 years, installed one such machine, the Disc-Go Digital Studio, at his store.

"I love the idea of this machine because it puts me back in the singles business," said Daniels, who started his store with $100 and 100 45-rpm singles. "It will add something new to our store. A lot of people are willing to pay $1 or $2 for a song, but not $15 for a CD."

While it's too soon to say if the machine will help offset the "considerable downward trend" at George's Music Room, customers are interested. The store's phone had about 50 voice mails from customers the day after Daniels talked about the new technology on Herb Kent's radio show on WVAZ-FM 102.7. Retailer Dan Kealey has been using four Mix & Burn machines at his Replay Music, Movies and Games store in suburban Minneapolis since late 2005.

"We're bringing in new customers every week with this," Kealey said. "Once the customer uses it, they are hooked. They love creating their own compilations."

Our long-term devotion to all things mix-tape may make us biased, but we can see this doing well (once people get in the door), although its long-term success depends on the tracks available and the price. After all, while we do see a lot of "I will make custom mix CDs for you" fliers around our subway stop that have all of their contact-info stubs ripped off, we're guessing that those offerings are a bit more, shall we say, gray market.

Retail CDs get personal [Chicago Tribune via PopMatters]
Earlier: Record Labels Looking For New Way To Stop The Bleeding
[Photo via The Daily Ping]

"Other new format efforts have failed in the past, but we want to explore if there's a play to be made to come up with a replacement for the CD," says one executive who will attend the meeting. "While individual companies may have their own thoughts on new formats, when new ones are introduced it usually works better when everyone shares their ideas with each other."

We're just hoping that the innovation that comes from this meeting is something as forward-thinking as the record industry has proven itself to be over the past few years—perhaps the time has finally come for the "U-8," the 8-track-welded-to-USB innovation that is, at the very least, backwards-compatible.

RIAA, Labels Plan New Format Meeting [Billboard.biz]

An Edelman survey claims that more than a quarter of 18- to 34-year-olds in the U.K. and France would download film and music content illegally due to a lack of trust in the entertainment industry.

While technology companies rated highest in Edelman's report on levels of consumer trust among opinion elites, defined as educated, affluent and media informed, in France and the U.K., media and entertainment companies ranked behind only insurance companies in terms of the public's distrust. That distrust helps fuel piracy, argues the report.

Some 41% of 18- to 34-year-olds in the U.K. did not trust entertainment companies to provide them with value for money, compared with an even higher figure of 54% in France. In the U.K., 35% of those asked did not think entertainment companies respected the rights of people who pay for digital entertainment, with that figure rising to 46% in France.

"It's bad news for the entertainment companies in that consumers are saying they're used to getting what they want, when they want, without paying for it on the Internet," said Gail Becker, Edelman's global head of digital entertainment division. "People are asking if I am going to pay for my entertainment, what value are you going to give us?"

We've never quite fully understood the "you're an evil company, so therefore we're just gonna take it all without paying" reasoning; if that were the way the world worked, both OPEC and the G.O.P. would be out of business. But we can at least understand what fuels that distrust in the first place, especially in the U.K., where CDs usually cost about 2.2 million shillings (or whatever currency they use), and they still allow Stereophonics to release albums without prosecution.

Distrust fuels piracy [Variety]

Amazon, which is considered the best bet to challenge iTunes' supremacy in the digital world, is shooting to launch its MP3 digital download store in May, a target date it has yet to publicly acknowledge. (Amazon declines comment.) Meanwhile, sources familiar with the situation say Universal Music Group plans to test the sale of unprotected digital music files, including some of its classical music catalog conceivably including titles by Andrea Bocelli, at the new Amazon store and other outlets.

Universal has previously tested the sale of some isolated digital rights management-free music, from Jesse McCartney in the United States and French acts Superbus and Emilie Simon in Europe. But now the company plans to expand that initiative significantly by selling classical selections through download stores and subscription services, in the DRM-free format of the retailers' choice. Universal is planning tests in other genres as well, sources say.

It's unclear so far whether iTunes is included among stores slated to sell unprotected Universal music, and the label could not be reached to comment.

Universal's adventures in the DRM-free space should be excellent blog fodder over the coming weeks, given Doug Morris' penchant for cracking down on anyone distributing music in a way that isn't to his liking—and Universal's appointment of an executive strictly in charge of antipiracy measures. Whether or not those tests in other genres will include measurement of purchased files being swapped is up in the air, but the clock has started ticking: Apple announced that EMI's DRM-free offerings will definitely be available on iTunes next month.

Universal, Amazon beef up MP3 sales space [Reuters]

In the report—which Listening Post got its hand on—Enders forecasted music sales over the next five years by using a pretty chart, which we've placed after the jump.

As far as making up for that dip, we—and others—are thinking licensing content to distributors may be the way to go (look for more semi-appropriate ad tie-tins coming to a TiVo near you!). Mostly, though, we're surprised that the total forecasted dip isn't as severe as we thought it might be.

Study Blames Sliding Music Sales on Music Industry, Not Fans [Listening Post]
Earlier: Get Ready For Another Two Years Of Moaning About CD Sales (At Least)

The company predicts that overall music sales by 2009 will be half their level at the peak of the CD boom.

Global music sales are forecast to fall to 23 bln usd in 2009, down 16 pct from last year and far below the peak of 45 bln usd in 1997, according to Enders.

The report blames the industry's ills on the continuing effects of digital technology, which allows consumers to store large quantities of music on computers, and to cherry-pick tracks, rather than buying albums. Rising broadband penetration has also made legal and illegal music downloading easier.

You know, just once we wish that these reports would get creative as far as reasons behind dropping sales, or at least look outside the technology-will-kill-us box. Because there are so many other factors to look at—the increasingly satiated catalog market, for one. And these pat conclusions reported by Forbes are reminding us of a quote that we happened across a few days ago:

"Record executives no longer wake up in the night worried they are the ones who have turned down the next Michael Jackson. They've got a worse nightmare now: They sign up the next MJ and then make no money out of him! For every record they sell, 1,000 are copied to tape by fans at home and 100,000 are produced illicitly in Singapore and Taiwan! His video clips are stolen from satellite services and the world is awash with unauthorized posters and tee-shirts!"

That's pop scholar Simon Frith in an article on the shift toward making money from "rights exploitation," and not record sales, that ran in the journal Popular Music And Communication—and it was published in 1992, five years before the peak cited by Enders. So what happened in the interim? Oh, you know—the music industry adapted, even though they had to kick and scream the entire time while doing so.

Music industry faces another two years of declining CD sales - report [Forbes, via Hypebot]

These bands' records sell really well to a particular audience,'' says Adam Shore, the publicist for Vice Records, which aims to release the first volume this July (they're already the American home to high-profile acts Bloc Party, the Streets, and Charlotte Gainsbourg). ''But even though these artists are getting all this media exposure, they're not necessarily crossing over to a very casual record buyer.'' The plan of action? ''We're partnering with MTV2, and the focus is going to be Walmarts, big box stores, red states, and TV advertising — to really go beyond.... We don't really expect indie-rock stores to support this record. It's for the casual fan.''

So how will these casual fans get inspired to buy these comps? Our strategies after the jump.

Bargain-basement prices: Sure, slashing the cost of music is the nature of the big-box beast, but what if you made these comps really cheap, like $2.99, and stuck 'em in the checkout aisle?

Front-loading the comp with more popular tracks: Slap your biggest bands' most brooding moments on the front cover, and voila—you've got a 12-track maxi-single for the Postal Service song that people heard while picking up the season-five Law & Order DVDs at Target.

Bundling copes with the latest edition of Now: Just think of the pitch: "If you liked 'My Love,' you'll love that song where that English dude talks about being coked up at 11:15 in the morning." (Okay, maybe the exact pitch needs some work.)

Telling Kele Okereke to keep quiet about politics: At least until Volume 2 comes out—after all, a prominent place in Wal-Mart means that he's inching ever-so-closer to the Limbaugh radar.

Now That's What I Call Awesome [ew.com]

A decade ago, the music industry had all but stopped selling music in individual units. But now, four years after Apple introduced its iTunes service — selling singles for 99 cents apiece and full albums typically for $9.99 — individual songs account for roughly two-thirds of all music sales volume in the United States. And that does not count purchases of music in other, bite-size forms like ring tones, which have sold more than 54 million units so far this year, according to Nielsen data.

One of the biggest reasons for the shift, analysts say, is that consumers — empowered to cherry-pick — are forgoing album purchases after years of paying for complete CD's with too few songs they like. There are still cases where full albums succeed — the Red Hot Chili Peppers' double-CD "Stadium Arcadium," with a weighty 28 tracks, has sold almost two million copies. But the overall pie is shrinking.

In some ways, the current climate recalls the 1950s and to some extent, the 60s, when many popular acts sold more singles than albums. It took greatly influential works like The Beatles' "Sgt. Pepper's Lonely Hearts Club Band" and the Beach Boys' "Pet Sounds" to turn the album into pop music's medium of choice. ...

With Candy Hill, Universal paid a relatively small advance — described as being in "five figures" — to cover recording expenses. Ms. Shaw, who formed the group with Casha Darjean and Ociris Gomez, said the members had kept their day jobs working at an insurance company and doing other vocal work to be able to pay the rent at the house where they live together.

If one of their songs turns into a big hit, they hope to release a full album, and to tap other income sources, like touring and merchandise sales.

But turning a song into a hit does not appear to be getting any easier.

While it's impressive that the big labels have apparently made strides to adapt to this technology-driven shift, we have to note that the main financial hit is being taken by the artist; anyone who bought a copy of Aqua's Aquarium back in 1997 can tell you that the idea of the maxi-maxi-maxi single has long been a mainstay of labels' merchandising plans, and that the rise in individual track sales seems to be a direct response to consumers' low enthusiasm for remixes, computer-crashing multimedia "extras," and other slop that labels used to make consumers justify spending $14 and up on a single song. Whether or not acts like Candy Hill will thrive under this new model remains to be seen, although we have to wonder if the fact that the group's three members live together is merely a setup for the inevitable reality show that Universal will try to pitch once the promotional budget for their first single is exhausted.

The Album, A Commodity In Disfavor [NYT]

The hard-rock label/CD distributor The End may have Eurovision winners Lordi on their roster, but that doesn't mean that money isn't tight for them:

When Tower Records folded in October, The End lost a major distributor that was more friendly to indie labels than are mainstream giants Best Buy (Charts) and Wal-Mart (Charts). The fallout was immediate. "Suddenly all the big chains got very tight with their budgets," [The End CEO Andreas] Katsambas says. Sadly, he can't count on small record stores to pick up the slack. Hundreds of those have closed in the past several years, he says, "and you don't see any new ones opening up."

Meanwhile, back in Brooklyn, expenses are through the roof. The move from Salt Lake cost $30,000. His $6,000 monthly office rent is twice what he used to pay. Internet access is considerably more expensive in New York, taxes are higher, even trash pickup is an extra $200 per month. "Every month I sit down with my accountant," Katsambas laments, "and she says, 'Things are tight. How do we make it work?' "

To help out Katsambas, Fortune brought in three "experts" to give him advice. It's a pretty interesting read, even though the panel gave him pretty standard tips—blow out the label Web site with more artist information, look into licensing music for TV shows and commercials, try to get into revenue-sharing agreements with newer artists so that the label can profit from merchandise, and go digital:

Back in The End's plywood-paneled conference room, sparsely decorated with a Salvador Dali beach scene print, [former MTV Interactive CEO Nicholas] Butterworth asks, "Out of total sales for the label, what percentage are digital?"

"One percent," says [John] Cariaso, the sales guy. "Metal and hard-core fans would much rather buy a full CD. They want to be able to read the lyrics and listen to the whole album." That's a mixed blessing, replies Butterworth. On the one hand, it means The End is less vulnerable to digital piracy than the major labels are. Then again, digital sales generate 10 percent of total sales at a typical major label - not just singles that go for 99 cents on iTunes but also licensed ringtones that can sell for several dollars a pop.

"I think you should continue to investigate digital sales," says Butterworth. "The fact that digital hasn't taken off among this audience doesn't mean that it's not still going to be meaningful." He suggests experimenting on The End's own Web site rather than waiting for iTunes to figure it out.

Maybe the solution is digital content not available on CD, he suggests, or digital prereleases available one month before a new CD hits the streets - but only to preferred customers. "Your first, best customer is somebody who already likes the band," Butterworth explains. "But then I'd rather market to somebody who already has records from The End and knows the label."

While we see the value in experimenting with digital sales—hey, who wouldn't want a "Hard Rock Hallelujah" ringtone?—we're also curious as to whether or not Cariaso's claim that digital penetration in the metal market is low is true, and why that's so. Is it the relatively lousy quality of commercially available digital music, and the way it makes metal songs' crunch brittle? Or are metal fans, like their brethren in the indie-rock world, some of the last true believers in the concept of the album?

Heavy metal makeover [CNNMoney.com, via MetalSucks.net]
Earlier: Metal Fans Use Their Heads For Banging, Thinking

EMI, the third-largest music company, demanded an upfront payment to compensate for its risk in releasing the music without software that prevents copying, the people said. The retailers countered with a lower offer, which EMI rejected, and negotiations are now on hold, the people said.

Discussions included Microsoft, Apple Inc., RealNetworks Inc., Yahoo! Inc. and Amazon.com Inc., and a deal with some of them seemed close two weeks ago, the people said. CD sales slid last year, giving the idea traction as record companies look to reverse their fortunes. An announcement with London-based EMI had been planned for as early as Feb. 9, one of the people said.

"It's a setback," Harold Vogel, an independent media analyst in New York, said in an interview. "That this industry fights every change tooth-and-nail is not helping reverse the tide.'"

Well, not every change—but we digress. This "pay us more up front" scheme sounds suspiciously like the extortion deal Universal made with the Zune people; it's a smart move, in a way, because it basically provides a financial out should record sales will remain in their lackluster state. Even though one would think that freeing up format restrictions on digital music would reduce interoperability issues, and make more people at least able to buy music. That makes sense to us, anyway, which is probably one reason why we're not major-label executives.

EMI, Online Music Retailers Halt Copyright Talks, People Say [Bloomberg, via Hypebot]
Earlier: Steve Jobs' Music-Industry Rant Might Be Winning Hearts, Minds Of Record Execs

Crucially, Warner has reached an agreement with Impala, a trade group for independent European record labels, to end its opposition to a merger. Legal action by Impala derailed merger negotiations between Warner and EMI last year and threatened to disrupt a potential deal again. While it would be up to the European Commission to rule whether an EMI-Warner merger is anticompetitive, Impala's support makes approval more likely. U.S. antitrust authorities aren't expected to object because EMI doesn't have a strong position in the U.S.

Other hurdles to a deal also appear to be clearing. An antitrust decision on a related case — the reconsideration of the 2004 merger of Sony's and Bertelsmann's music operations — is due by summer. If approved, that will also remove one of the last impediments to an EMI takeover.

Meanwhile, EMI's labels are culling their ranks; an Australian music site is reporting that a few bands have already been dropped from the soon-to-be-merged label Capitol Records, including The Vines, the Dandy Warhols, and Fischerspooner. Oh, 2001—were you really that long ago?

Warner Is Closer to EMI Deal [WSJ]

EMI Group PLC, the London-based music company, said Tuesday it had received a takeover approach from its competitor and longtime suitor, Warner Music Group Inc.

In a press release, EMI said Warner had made a preliminary approach, although it was uncertain whether it would lead to a formal takeover proposal. A Warner spokesman couldn't immediately be reached.

"If a proposal is made, it will be considered with a particular focus on conditionality, the regulatory and operational risk profile, and on valuation in relation to the company's stand alone value and the value creation available from a combination," EMI's statement said.

This will be the fourth attempt at a merger—and the second in a year—for the two companies, which have both had their share of problems lately. If the companies were to get jump through all the requisite regulatory hoops and, finally, get together, the EMI/Warner hybrid would command about one-fourth of the worldwide music market. Although the prospect of greater dominance shouldn't make executives—or the stock market, which responded positively to news of this takeover—too excited; after all, it was lower-than-expected sales by one-time worldbeaters like Robbie Williams and Diddy that helped get both companies into their current, bruised state, and we doubt that news of this merger will be the defining event that inspires customers to want to start buying music again.

EMI Says It Received an Approach From Warner Music [Bloomberg]
Earlier: Idolator's coverage of EMI

Steve Jobs posted an essay, innocuously titled "Thoughts On Music," on apple.com today; instead of being filled with reflections on what his iPod's been bumping lately, though, he talks about digital-rights management and its future. He closes with a challenge to record labels:

Why would the big four music companies agree to let Apple and others distribute their music without using DRM systems to protect it? The simplest answer is because DRMs haven't worked, and may never work, to halt music piracy. Though the big four music companies require that all their music sold online be protected with DRMs, these same music companies continue to sell billions of CDs a year which contain completely unprotected music. That's right! No DRM system was ever developed for the CD, so all the music distributed on CDs can be easily uploaded to the Internet, then (illegally) downloaded and played on any computer or player.

In 2006, under 2 billion DRM-protected songs were sold worldwide by online stores, while over 20 billion songs were sold completely DRM-free and unprotected on CDs by the music companies themselves. The music companies sell the vast majority of their music DRM-free, and show no signs of changing this behavior, since the overwhelming majority of their revenues depend on selling CDs which must play in CD players that support no DRM system.

So if the music companies are selling over 90 percent of their music DRM-free, what benefits do they get from selling the remaining small percentage of their music encumbered with a DRM system? There appear to be none. If anything, the technical expertise and overhead required to create, operate and update a DRM system has limited the number of participants selling DRM protected music. If such requirements were removed, the music industry might experience an influx of new companies willing to invest in innovative new stores and players. This can only be seen as a positive by the music companies.

Much of the concern over DRM systems has arisen in European countries. Perhaps those unhappy with the current situation should redirect their energies towards persuading the music companies to sell their music DRM-free. For Europeans, two and a half of the big four music companies are located right in their backyard. The largest, Universal, is 100% owned by Vivendi, a French company. EMI is a British company, and Sony BMG is 50% owned by Bertelsmann, a German company. Convincing them to license their music to Apple and others DRM-free will create a truly interoperable music marketplace. Apple will embrace this wholeheartedly.

Jobs' j'accuse hasn't elicited a response from any of the majors yet, but we have to say, he was awfully nice to not bring up the whole abortive attempt at CD DRM that Sony tried out a while back. Anyway, we're sure Universal Music CEO Doug Morris is hard at work on his reply, and that it will consist of equal parts blackmail threats and "it's hard out here for a CEO" whingeing.

Thoughts On Music [Apple]

Van Morrison - Caravan (Live) [MP3, link expired]

Today we are announcing the merger of EMI's Capitol and Virgin labels in the US to form the Capitol Music Group, a front line pop, rock and urban label group. The combined artist roster, talent and market share of this new label group establishes Capitol Music Group as one of the US music industry's leading labels.

Other news in Nicoli's note: Andy Slater is out, Jason Flom is in. Full memo after the jump; if you have tips, you know where to send them.

Dear all,

As part of our recently announced restructuring program, and after careful review of our US operations, I now want to share with you some important new initiatives for EMI Music in America.

New Capitol Music Group

Today we are announcing the merger of EMI's Capitol and Virgin labels in the US to form the Capitol Music Group, a front line pop, rock and urban label group. The combined artist roster, talent and market share of this new label group establishes Capitol Music Group as one of the US music industry's leading labels. We will maintain operations in both New York and Los Angeles. Capitol Records and Virgin Records will remain as imprints under this new label group.

The music business shows exciting growth potential, but the environment remains extremely challenging. In order to thrive and meet the demands of a rapidly evolving and dynamic music market, we must re-think our operations, not only to make them more efficient, but also more effective and focused on creative excellence. By bringing Capitol and Virgin into one label group, we'll be better equipped than ever to promote and nurture artistic talent. We remain strongly committed to developing artists in America in all genres as this is a key repertoire source for the world, and to that end, we will maintain our A&R focus and keep a presence in both LA and New York.

I have appointed Jason Flom to lead The Capitol Music Group as Chairman and CEO, reporting directly to me. Since joining EMI in 2005 as Chairman and CEO of Virgin Records America, Jason has quickly proven his leadership abilities and artist development talents. He and his team have aggressively and creatively pursued digital opportunities that have made a demonstrable impact on the company's performance. His track record as a hit maker was well established prior coming to EMI, with artists he signed and worked closely with selling more than 150 million records worldwide.

I am confident that as leader of the Capitol Music Group, Jason will help elevate EMI's US front line label operations to new levels of success in the pop, rock and urban genres.

Andy Slater has today stepped down as President and Chief Executive Officer of Capitol Records, a post he has held since 2001. While here, Andy revitalized Capitol as a home for quality music and made significant contributions to the business, including breaking key artists from outside the US such as Corinne Bailey Rae, Coldplay and Kylie Minogue in an extremely competitive American marketplace. I thank him for his efforts over the years and wish him well in all that he does in the future.

More specific announcements about the management team at Capitol Music Group will be made shortly.

Additional Restructuring Initiatives

Our restructuring program will result in additional workforce reductions throughout our US operations. At the same time, we will increase our focus on building our digital capability.

Many of you will hear more about these changes in meetings with your department heads and HR.

These changes won't be easy. Some of you will be asked to take on new responsibilities and roles. But these measures are absolutely necessary for our business to succeed in a world where fans are evermore demanding and expect instant access to their favorite artists and music. We must be ready to satisfy rapidly changing consumer appetites. And, we have to be prepared to seize opportunities that we can't even predict today.

EMI's US Portfolio of Labels
The new Capitol Music Group, headed by Jason Flom will be part of a portfolio of labels that position us to be best-of-class in all genres in the US market. These labels will be supported by a talented central staff and reporting responsibilities will be as follows:
* Ivan Gavin, COO EMI Music North America, will continue to report directly to me, as will Colin Finkelstein, CFO EMI Music North America, and the legendary Bruce Lundvall, President and CEO of the Blue Note Label Group.

Ø Reporting to Ivan Gavin will be:
o Ronn Werre, President EMI Music Marketing, who will continue to oversee the US sales organization, EMI's successful catalog marketing unit and its strategic marketing and special markets units;
o Mike Dungan, Capitol Nashville President and CEO, who has been responsible for some of EMI's best-selling records in the US in recent years;
o Bill Hearn, EMI Christian Music Group Chairman/CEO & President, who continues to set the gold standard for the Christian market; and.
o Bill Hein, General Manager and SVP, Caroline Distribution, as we continue to develop a full service distribution and marketing operation for independent labels. Bill will also continue to oversee Astralwerks

EMI Televisa will continue to operate as EMI Music's US Latin label, with Rodolfo Lopez-Negrete continuing in his role as President, reporting to EMI Music Latin America's Marco Bissi.

Notwithstanding the anxiety that a restructuring program of this scale inevitably creates, I believe passionately that EMI has a tremendous future in America. I am excited by the opportunities open to us all and to our artists.
You have my assurance that we will get through these changes as quickly as possible so that we can get on with our business of finding and nurturing the best artists, serving consumers and delivering music to fans whenever, wherever and however they want it.

With best regards,
Eric
January 2007

Indie labels account for some 80 percent of new music releases in major markets but only about 30 percent of total revenues, according to industry data for 2005, partly because the majors spend more on marketing and have — until recently — maintained tight control over distribution channels.

Merlin's first deal is a partnership with Snocap, the company that will power MySpace's digital-music stores; songs by Merlin-affiliated artists will be sold as MP3s, although, as Coolfer notes, the lack of digital rights management isn't too big of a stretch, as most of Merlin's member labels already distribute MP3s through eMusic. Will these moves have a ripple effect of making majors embrace DRM-free downloads faster? And do you like how we avoided posting a picture of the wizard up there?

Indies Aim to Grab Share of Online Sales [AP via Newsday]

Sheridan Square has basically shuttered its frontline V2 record business as part of restructuring to focus on its catalog releases and the future opportunities presented by digital distribution.

Today (Jan. 12), the company let go its V2 staff, including president Andy Gershon, and will reorganize the business in its Nashville office, where the company's COO Michael Olsen will oversee the catalog business. About 35 people are believed to have lost their jobs as part of the restructuring.

As part of that move, the company will retain the White Stripes catalog, but will no longer issue new music by the duo or other frontline artists such as Moby or the Raconteurs, sources say. The only genre the company plans to participate in the frontline going forward is gospel.

The biggest loser in this restructuring? Garage revivalists The Mooney Suzuki, whose new album, Have Mercy, was scheduled to come out Jan. 30. And are the Blood Brothers—who were previously signed to the doomed imprint ArtistDirect—one of the unluckiest bands ever?

V2 Restructured, White Stripes, Moby Become Free Agents [Billboard]
Previously: Record Labels: They May Be In Some Sort Of Trouble

Music biz hopes to profit from consumer content [Reuters]