Microsoft ‘Raising Stakes’ With Zune?
November 9, 2006In a deal likely to foreshadow future agreements between makers of digitalmusic players and content companies, Microsoft (Quote) said itwill pay Universal Music Group (UMG) a cut of each upcoming Zune devicesold.
Expected to launch Tuesday, the Zune player faces stiff competition from Apple’siPod, which dominates the digital music market. Microsoft hopes to emulate the iPodand iTunes success by offering the $249.99 Zune in conjunction with aWeb site where consumers can purchase music.
Microsoft refused to comment on reports the pact will give UMG and theartists it represents $1 for each Zune device sold. The licensing agreementwas in addition to the standard payments made to music publishers, Microsoftsaid.
The software giant said it plans to offer a “similar arrangement” to othermusic labels.
Currently, companies such as Apple, pay music publishers a cut of the songsthey sell through their music stores.
“This move demonstrates there can be a win-win situation where consumershave a great experience while labels and artists are also fairlycompensated,” Doug Morris, UMG Chairman and CEO, said in a statement.
The music industry has long felt digital music devices, such as the iPodcontributed to ripping CDs and the use of file-sharing rather thanpurchasing music.
“We look forward to working with the industry to make sure labels and theartists have a very bright future,” Bryan Lee, Corporate VP of MicrosoftEntertainment and Devices, said in a statement.
The tactic could put some pressure on Apple. The Cupertino-based company’sagreement with UMG is set to expire next year. “There could be some pressureon Apple to reconsider their stance,” Gartner’s Mike McGuire said.
However, Apple is in a much better negotiating position than Microsoft. WithApple driving much of the digital music market, there could be an industrystand-off, he said.McGuire said it would be unlikely that Apple gave music publishers a cut ofthe sales of its wildly-popular iPod.
Today’s licensing agreement “raises the stakes on everyone else,” McGuiresaid.
The industry is undergoing transition, according to the analyst. Untilconsumers move totally to digital music purchases agreements such as the onebetween Microsoft and UMG will be seen more often, according to McGuire.