Universal Music will try anything to throw a wrench into the well-oiled machine that’s the iTunes music store. They just announced a deal to sell DRM free tracks to 4 other online music stores.

After all, it’s not like Apple delivers some $750-$800 million dollars into Universal’s coffers … oh wait, they do.

And yet, Universal will do anything to try and make it as annoying for consumers to load their iPods.

Why?

That’s difficult to say because the only logical explanation would paint them as underhanded schemers and this is, er … I’m pretty sure … something no one has ever accused the music industry of being …

First, let’s examine the situation. You have a format (CD) losing favor with customers (20% drop in sales) and a format growing much faster – digital music (54% increase in sales) but that’s not good enough because the profit margins are lower on digital music sales – well according to the music industry – while most industries would be glad there a new format that requires NO returns, no packaging, no printing of artwork, no shipping, no in-store promotions and no inventory hassle (Apple can tell them to the second 24/7 exactly how many tracks have been sold) … or so you would think – the music industry somehow would rather prop up a format that requires manufacturing, printing, shipping, in-store promotions and returns – why?

Because that’s a lot of inventory and “promotions” going in, out, on docks, in warehouses, in transit, being returned, etc, etc … that NO ONE has any idea where it is? And no one knows if everyone is being credited correctly royalty and sales-wise?

Is there another explanation?

CD’s are also DRM free so it’s not as if Universal lawyers can claim it’s “all protected” so you’re doing the “right thing” by buying CD’s.

And it’s clearly a format losing favor (no thanks to the industry’s original greed).

And instead of trying to embrace the new digital format with a retailer that people are happy to buy from – that finally created a format and a transaction platform that people like, Universal wants to throw a wrench into it.

Because all tracks are $.99? Okay but albums are variable priced from $6.99 to $13.99 so it ultimately serves the labels in that when the entire CD cost is lower, then the $.99 single track is not as enticing of an offer and in effect, the labels make more or less depending on if the buyer clicks to buy the entire album or just some singles so in some cases, they make more by selling a few singles AND Apple even encourages you to “upgrade” to the album with the ‘we’ll give you credit for the tracks you bought’ – something not offered when the labels were selling 45 or CD singles … still not good enough for them?

And on top of that, it’s not as if Apple isn’t receptive to working with them to crafting new revenue streams – who else has built a thriving market for something they considered free promotions – music videos? Or that Apple is more than happy to sell an EP-like “album” of 2-4 original tracks or live versions for $4.99 or more … but instead of taking advantage of that … us fans/suckers will pay $2.99 for a single plus an extended version, right … instead, they’d rather just moan they are no longer just rolling in money as they did in 1991.

And, this is not including ONE HUGE PACHYDERM of WOLLY FREAKIN’ MAMMOTHs in the room … ILLEGAL DOWNLOADS!

Yes, they have it tough – there are not a lot of industries where your primary product is essentially available free if you click and search but if you are that industry – do you go out of your way then to annoy the ONLY consistent and massive retailer? Apple has sold over 3 billion tracks or put some $2.x billion in their coffers (after Apple’s cut) where the alternative is essentially ZERO. $2 billion+ seems like an amount most manufacturers would rather pocket than ZERO. But then we are talking about the music industry.

Oh, they are afraid that Apple will get too big … oh, capitalism too hard for you? Do you want to run home to mommy (would that be Mrs. Piano Roll?). They don’t seem to go out of the way to annoy Wal-Mart who sells about 30% of all CD’s in this country AND who they are willing to make special CD cover artwork AND special “clean” tracks as not to frighten Wal-Mart’s customers? They also offer Target #2 (about 15% of the market special versions also).

So, a store retailer that can make a break a CD (if Wal-Mart doesn’t carry the CD, the road is much tougher) and the industry will do whatever it takes to make WM happy but another retailer because they are digital is way too scary to accommodate?

Sure, Apple has a higher percentage market share but it’s easy to replace Apple for the consumer. I just have to go down to the store or order a CD online – convert the tracks I want at a higher fidelity, scan the high res artwork and then sell the used CD for 75% of what I just paid for it.

OR I can download an illegal version that’s a) not copy protected and b) often is higher fidelity than Apple’ iTunes.

I can’t really replace a store bought CD – going to another store (if there is another store) is not much different than not buying it at WM so again, we circle back – why is a CD retailer with power to move/make/break your CD much scarier than a digital store selling a lower res version that competes with “free.”

Weird. Strange. In this case, inconceivable might actually apply and we do know the meaning of the word.

So, the music labels failed with trying to launch their own online stores, they got very little revenue from Real/Rhapsody and the paid Napster. Add in Sony’s Connect, Yahoo Music, and early WMA stores … they were all fine niche businesses but not a multi billion dollar industry until Apple came in.

So Universal is going to try again to prop them up: Amazon, Google, Real & Wal-mart – by offering them exclusive DRM free tracks for $.99

It will FAIL again.

Why?

CONVENIENCE. Only iTunes is more convenient than downloading illegal tracks.

While illegal downloads are winning by sheer numbers, what’s #2?

iTunes.

A choice that people have made 3 billion times because they just want to load and listen to music.

Yea, those consumers – bastards that we are. We actually want to listen and use your product.

What idiots we are.

iTunes is clearly the most convenient but it does cost money.

Illegal Downloads – less convenient, I can search a dozen ways and pick from another dozen ways to download, some are dead links or bad converting but people are willing to put up with a little more because it’s “free.”

The other 4 stores (or most every other iTunes competitor?) – about as convenient as the illegal choices and NOT free. Try to search for a track on any of the four services listed above … Not only do the torrents and Limewire have them all beat, I’ll bet Google MP3 search works faster and more precise than the Google music store search (in addition to – Google has a music store?). Real is still in business? Wal-mart.com – don’t you need to click 12 times if you want to buy 12 tracks from one album? (used to be true – fixed?) or Amazon which had a nice search engine until MSFT paid them money to switch to LIVE and now will offer to sell you only the Harry Potter book because that’s what 80% of the search results return.

If there were no illegal downloads, this strategy might make sense – to try and bring in more competition – that I would actually understand but they don’t actually seem to understand the market conditions as it stands now.

Will they sell some tracks – sure – a couple thousand more here and there while iTunes will sell in the hundreds of thousands … people who loath DRM to their core will buy CD’s or download tracks illegally. People who don’t care either way – they just want to hear music. They will plug in their iPods/iPhones and search the iTunes music store – if it’s there?

ONE click will load and sync (and they can start listening in 10 seconds).

If it’s not there, fire up Limewire, an mp3 search or a torrent …

Why? Because if I am willing or have the know-how to spend the extra minute in searching for the track illegally, downloading it onto my computer and dragging it into iTunes and my iPod – why bother paying for it or spending 5 minutes searching a new PAID site not knowing if the track is really there – and since it’s a limited test, does it have DRM anyway?

That’s the reality of the situation the music industry refuses to face.

Instead of embracing the digital world where they can connect DIRECTLY to a million fans, they have set up a stand by the dump and wonder why there are flies and they are surrounded by thieves.

What are they trying to hang onto?

The CD was once a huge cash cow but so shiney lead toys for kids to chew on – that time is past – but why are they are so willing to risk alienating the only successful online store to hang onto a past that is NEVER COMING BACK?

Are they as stupid as they look and sound?

Or is there something else we’re missing … something more nefarious?

What are they thinking and why?