Apple No Longer Calls the Tune

Sick of all the recent iPhone iHype? You're in luck. EMI and Universal Music Group are providing some much-needed Apple schadenfreude.

Just as the computing giant begins to navigate the tricky mobile phone market, there may be some clouds on the horizon for iTunes, Apple's astonishingly successful digital music business.

EMI and Snocap recently announced a deal aimed at cutting out music-selling middlemen like the iTunes store.

The record label and digital music distribution company will pair up to allow artists to sell music directly from their MySpace pages, blogs, and web sites. As with EMI's other online offerings, the music will be DRM-free, meaning it's compatible with a large variety of devices and free of limiting digital encryption technologies. EMI says that some artists and will start selling music shortly at $1.30 a track using Snocap's "MyStores" technology.

Just on the heels of that deal, the Wall Street Journal reports that according to an inside source, Vivendi's Universal Music Group is planning not to renew a long-term deal to sell music through iTunes.

Universal, which sells one in three albums in the U.S., will continue working with Apple to sell music and videos -- but on a month by month basis, rather than continuing to be locked into a long-term contract.

The new arrangement would put Apple iTunes on equal footing with the majority of Universal's retail partners, giving the world's largest music company more flexibility to ink new exclusivity deals with other partners.

Could this be the beginning of the end for Apple's digital download dominance? Apple currently has more than 70 percent market share of all digital music sold in the United States, and has overtaken Amazon.com to become the third largest retailer of music in the United States (behind Wal-Mart Stores and Best Buy).

But the four major labels have long expressed frustration at Apple's iron grip on digital music sales, which has allowed the record companies little deal-making leverage as more and more of music sales move online.

Now EMI and Universal have set off warning shots, demonstrating a commitment to diffusing Apple''s power by supporting rival music sellers; it remains to be seen how Apple's relationships with Sony BMG and Warner Music Group, the other two major rights holders in the music industry, will change going forward.

Should power continue to shift in favor of the labels, Apple might be forced to negotiate on some of the record companies' biggest pain points -- such as changing the song pricing structure, and improving interoperability between music sold by competitors and Apple's iPod.

by Liz Gunnison