Apple Strong-Arms UK Record Labels

Last week, Apple announced that it will be lowering prices on its UK iTunes store to reflect standardized pricing in Europe. The company currently pays more in Britain than to European record companies in order to sell music. (Source: apple.com)

"This is an important step towards a pan-European marketplace for music," said Steve Jobs, Apple's CEO, in a statement. "We hope every major record label will take a pan-European view of pricing."

And what happens if the music labels refuse the price reduction?

In the same statement, Apple said it will, "reconsider its continuing relationship in the UK with any record label that does not lower its wholesale prices in the UK to the pan-European level within six months."

Apple is making these demands to settle an anti-trust case brought against the computer maker by the European Union. UK customers currently pay 79 pence ($1.55 USD) as opposed to 99 cents ($1.45) in Europe. The European Commission, the anti-trust regulator for the EU, claimed last Spring that some of the largest recording companies in the world were illegally forcing British customers to buy songs at inflated prices by confining their purchases within the UK store. (Source: bloomberg.com)

Jonathan Arber, analyst for the media consultant group Ovum said in an interview with Reuters that this move is, "likely to further damage Apple's already fractious relationship with the major labels." (Source: reuters.com)

Last February, Jobs distributed an open letter asking record executives to agree to drop the digital rights management (DRM) software that protects downloaded songs from piracy. He argued that most digital music was already unprotected since purchased songs accounted for less than 3% of the average iTunes library. (Source: apple.com) Jobs pointed the finger of blame at the record companies, claiming that they forced Apple into the DRM arrangement. Although collectively shaken by this announcement, so far only EMI has agreed to drop the anti-piracy protection on iTunes.

The record companies have not announced that they will comply with Apple's announcement, but they still have six months to do so. Of course, the only other option is to follow NBC's decision to completely remove its brand from the iTunes store. However, with the iPod's secure position as the number one mobile device for music and video do they really have a choice?