While Apple’s new cell phone business is off to a solid start, the Cupertino company faces some challenges in their bread and butter. iTunes is the largest distributor of digital music content, and that’s thanks to the deals Apple has made with the studios. Now the world’s biggest music shop is not renewing its iTunes contract. Universal Music Group executives have anonymously confirmed that the studio is making this change.

According to Reuters Universal intends to sell its music to Apple “at will.” This means they can sell what they want when they want, and if problems arise music can be pulled off iTunes at a moments notice. The big studios have asked for increased prices and other amenities from Apple, and Jobs has universally said no way. By moving to an “at will” philosophy Universal Music Group would have more control in price setting through iTunes. If Apple doesn’t like it then the music is gone.

It’s a move to generate leverage, and anyone who thinks Universal would seriously consider removing their labels from iTunes is brain damaged. According to the New York Times Universal made roughly $200 million in the first quarter of ’07 through iTunes. Like it or not, Apple controls the lions share of digital music distribution. Not only have that, but the majority of digital music listeners have done so through an iPod. By removing yourself from iTunes you slap the face of your consumer. Then again the music industry is quite fond of stupidly attacking their customers. So a removal of content from iTunes would be par for the course.

iTunes has recently become number three in total music sales – behind Wal-Mart and Best Buy – to add even more power behind their stance on pricing and features. A move against Steve Jobs by Universal may not be the smartest move. The studios may need to stand up to Apple to get additional benefit from the digital music juggernaut, but pulling songs won’t be the way to go.

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