Apple, as most of you know enjoys the lion’s share (over 70%) in the online music business. Apple has managed to execute deals with major music companies and has a significant portfolio.

However recently (early July) one of Apple’s key partners Universal Music Group (Vivendi, world’s biggest music corporation) refused to renew its contract with Apple to sell their content via iTunes store. Universal obviously is looking for much more favorable terms, which is leading to this impasse. Both companies would suffer as a result of this. As 1 out of every 3 songs sold in America come from Universal, Apple would loose this significant chunk if the deal does not go through. Universal too could risk up to $200 Million as a result.

Vivendi gBox Google

That was just the beginning. This past week Universal announced a key deal involving Google and gBox, part of its 6 month experiment to sell DRM free music. Under this deal Universal will purchase advertisements through the Google AdWords program. This is not related to Google’s Music referral service but purely ads deal. These ads will direct the user to gBox where they can purchase songs for $0.99. gBox a online music service, which until now was in stealth mode has been forced out as a result. The service is scheduled for launch on August 21st.

This is a very potent combination as Universal will tap into the significant search advertising market. This tag team will also offer DRM free music at $0.99, which is full $0.30 less than Apple’s DRM free version. The music will be offered in DRM free MP3 format.

So should Apple be worried? Would this really hurt Apple’s music business?

I don’t think so…

Back in Feb at the AllThingsD Steve Jobs mentioned that less than 3 percent of songs downloaded to their iPods are purchased via iTunes. That indicates that users still download content from other services and majority of them rip it off CDs. Secondly Apple has very slim margin on the music sold via iTunes at 99 cents. Apple’s intent has never been to make huge sums of money via this channel. The goal has always been to sell more iPods, where it enjoys much larger margin.

Hence I don’t think this partnership will hurt Apple in a big way. gBox will still allow users to download music to their iPods. Yes the Universal/Google/gBox partnership will certainly hurt iTunes sales, however it will do little to hurt Apple’s revenues, which makes most of its dough from iPod sales.

So in conclusion, it doesn’t matter where users buy their music from, as far as they download it on their iPod, Apple folks are happy campers.