Microsoft Corp. has broken off licensing talks with the four global music companies, and, by doing so, raises queries about the software giant’s plans to start a subscription-based music service, according to the Wall Street Journal, which cites unnamed sources.
The Journal reported negotiations broke down Friday over what Microsoft considered high royalty rates sought by EMI Group, Warner Music, Universal Music, and Sony BMG.
Microsoft has not announced a subscription music service, but it was widely expected to make such an announcement soon. However, the company said the breakdown in its talks with the labels would indefinitely postpone a launch, according to two of the people close to the situation, the Journal said.
Full article (subscription required) here.
Perhaps it’s not the proposed rates at all. Maybe Microsoft has simply realized that its music service is a nonstarter due to lack of interest in subscription-based, Windows-only, Apple iPod-incompatible schemes with millions upon millions of iPods flying off the shelves each quarter. Complaining about rates publicly and ending talks is either a face-saving move or weak negotiating tactic.
(Note on negotiating tactics: Steve Jobs is not complaining publicly about rates Apple doesn’t have; he’s complaining publicly about “greedy” record labels attempts to change those prices. Jobs is doing so in order to preserve a rate structure that’s already been established by his market-dominating iTunes Music Store. Microsoft can’t even seem to get a music deal off the ground. Hence our position that Apple is negotiating on strength vs. Microsoft on weakness.)
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I think MS is just sitting back. They will let Apple do the negotiating (and take all the publicity heat). Once Apple hammers out a deal with the record labels, MS will swoop in and offer the same deal (or marginally better).
Apple leads, MS follows.
The problem for M$ is that since they won’t have but 1/10th of the marketshare (at best) that Apple enjoys, they’ll have a very difficult time getting the same kind of deal that Apple does. So I don’t think swooping in and offering the same deal Apple ends up with will work for them.
Actually I’ve got to agree with Reality Check on this one. Quite often if you can’t get your way in negotiations you walk away, knowing full well that the other party(s) will return to the negotiating table with modified proposals.
I’ve personally used the same tactic in professional negotiations. I did it when I worked for a trade union in the music industry. I’ve also applied this recently when I negotiated with a trade union. Likewise I also teach this to my students as it a means of applying pressure to the other side.
I refer to Paul McCarthy (1992) “Developing Negotiating Skills and Behaviour” CCH. Sydney, Australia on p77 under the title “Walkout”.
“This is a means of directly indicating the strength and finality of your position, and of radically restructuring the expectations of the opponents.”
This tactic should be used sparingly because it can debase the whole negotiating process. Microsoft is using this once and I doubt they would use it again.
Likewise Microsoft is saying to the labels “Look you want a subscription model and so do we but we won’t pay what you want. And what is your alternative… Apple’s ownership model?”
We all know the labels despise the Applemeister’s model and would love to “rent out” music. The company from the Dark Side is giving them a reality check. After some time they’ll come back and carve up the pie.
Similarly they recording companies will then be a position to play Apple off against Microsoft.
Examples of this tactic being used are:
Negotiations with North Korea. On separate occasions North Korea has walked out and so has the USA.
Negotiations for a truce in the Korean War.
North Vietnam walking out of negotiations with America to end the Vietnam War.
etc.
(P.S. I didn’t mention Real because they’re a bit player. See Real as the Rio of downloads. Now you see them and soon you won’t.)
Yeah, this isn’t over. MS is leveraging, that’s all. And yeah the Record Labals are showing EVEN Microsoft how greedy they are. At least they are being greedy biatches consistently. I’m sure MS is trying to leverage Apple’s dominance against them.
MW “record” … go figure.
The part I find most enjoyable about this news, is remembering what all those analysts and media talking heads kept repeating, while iPod crushed the competition: “It will be hard for Apple to maintain its dominance when Sony and Microsoft enter the business.”
iPodder: “Never said “the issue is dead”. What I said is that if you think this is normal negotiation practice for Microsoft you are the one living in the unreal.”
Now it sounds like you are renegotiating your statements your made previously….you work for Microsoft????
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Tip: Read bikersrule´s note above.
I would love to have been a fly on the wall during those negotiations! I mean, talk about the battle of the Mega-Greedzillas! It would have been worth it just to see Ballmer go up against Bronfman. I doubt that Bronfman could take Ballmers barrage of chairs, F-bombs, and the relentless shower of his toxic sweat though. The only super powers Bronfman seems to have superhuman greed and stupidity.
RC: could you quote me where I said the issue is over?
“RC, you are kidding right?! Part of normal negotiating? LOL “the company said the breakdown in its talks with the labels would indefinitely postpone a launch, according to two of the people close to the situation, the Journal said.”
What do you think the above is going to do to M$ stock?! Is normal negotiating shooting one own’s foot? Never have seen this from Micros*t: ruling themselves out? Be a true Reality Check.”
I made you a favor. My point was and is: This is NOT normal negotiation from Microsoft. They have been hit in the face and had to publicly step down and their stock is having a big hit. Normal negotiation and backing off the table is when you have the upper hand.
So I still re-iterate my point: M$ is not in the position to make the label accept its terms. It will be the other way around. A totally NEW negotiation for M$. They are the weak party at the table.
My bet is the labels are trying to push the terms that theywant the entire industry to use, including Apple. But let’s face it, if Microsoft has to charge $1.50 for people to purchase the latest 50 cents or Britney single, while Apple is still at .99 cents. Then that places any Microsoft store at a distinct disadvantage, regardless if subscription services are the bulk of fees. Plus, I’d also assume the labels want to limit the “Plays for Sure” initiative on which songs can be transferred to portable media such as MP3 players, and a whole host of other restrictions.
The labels will be back because they feel they need to knock Apple of the cart. But let’s face it, the record labels are pushing a duel agenda, they want Apple gone, and more control in setting prices. Microsoft is a good place to start since its behind in the game. But if they can push Microsoft to accept their terms, then the renewal contracts for every store that isn’t Apple will go exactly the same way. And that makes it hit or miss if thats good news for Apple or not.
“Examples of this tactic being used are:
Negotiations with North Korea. On separate occasions North Korea has walked out and so has the USA.
Negotiations for a truce in the Korean War.
North Vietnam walking out of negotiations with America to end the Vietnam War.
etc. “
The one who can successfully employ the tactic of backing off the table is the one having the upper hand. OR someone here believes North Vietnam had lost the war when they walked out of table.
Apple can back off the table – and they did with the “raise the price” negotiation. M$ is not even in the business as yet. From what negotiation could they back off? They are asking a deal and Record companies stated their term: take it or leave it. M$ left. Do not see a back off.
Anyway, this is my opinion of course. You see M$ able to make labels accept its terms. I see the opposite: M$ will have to accept their terms sooner or later.
This is not dead by any means. This is important to them as Ballmer alluded to to in their employee meeting. Also, the labels are desperate to get out from under iTunes (the new MTV) and want a subscription model. Problem is, no one buys anything on this model. You listen, streamrip if you like, then get rid of what you don’t like. It seems the “subscriptions” the labels wanted were “too greedy”. But, they will be back. They don’t want iTunes as the only player. Cutting off their noses to spite their face…
MS and Apple is probably working together on this one. The record labels are probably asking MS for higher royality. If MS agrees, then Apple will have to follow MS when current contract expires. By MS walking away from the table, Apple has better chance of forcing the record labels to agree to same terms as current contract. Once Apple renews the contract, MS can come back and restart negotiation again.
EXCELLENT NEWS!!
Yes – pour another glass of champagne SJ!
MS has today a big secret presentation for all their european divisions here in Westerpark, Amsterdam, The Netherlands. The theme is music and probably the revealing of their own music-player…..
I am honestly surprised that the labels would be driving a hard bargain with Microsoft. As terrified as they are of Apple controlling digital music, you think they’d do anything in their power to prop up a competitor. I guess this just shows that the labels truly don’t think with their heads, guts, hearts, or any other part of their body. They think only with their wallets. Long-term be damned, cash is king.
What?? I can’t believe this article. I mean isn’t MS famous for coming late at the party doing the embrace extend and playing “we are the leaders cause there is no one left.”
something must be up their sTeeve.
October 4, 2005
History records this date as the start of the Apple hegemony.
ipodr: “Normal negotiation and backing off the table is when you have the upper hand.”
M$ has the upper hand. (When one has $gazillion in the bank M$ can wait – heck with all that cash they could buy all the music companies.)
The record labels don´t want an Apple monopoly.
Everyone knows what everyone wants – they are just haggling over price.
In this situation it was either M$ walk away or the record companies. M$ won this round….and will win the next.
I find it interesting that all the record companies are colluding on price fixing. Isn´t this against the law?
Is it a coincidence that the Republican Party and Microsoft are both collapsing under the weight of their own greed and corruption? I don’t think so.
Secondly on dvd formats, several companies including apple announce that they are going the blu-ray way and then just to pick a fight MSFT goes the other way
Actually, HD-DVD uses proprietary MS software for authoring (of course), whereas Blu-Ray uses Java.
hey Ben, if differential pricing applied everywhere, why do all movies cost the same to see and/or rent? I pay the same to see a great film as a piece of dreck!
I noticed MDN put an ammendment on it “take” about negotiating tactics after at least one post questioned it. I time stamp on that ammendment would be a nice touch.
As for the contents of that ammendment “Note on negotiating tactics: Steve Jobs is not complaining publicly about rates Apple doesn’t have; he’s complaining publicly about “greedy” record labels attempts to change those prices.”
How does MDN know that the record companies haven’t already put forth a draft rate structure? I don’t think Steve Jobs and Apple are so naîve as to complain about record companies’ greediness before the record companies even put forth a proposed rate structure. That would make Apple just plain silly – particularly if the rate structure were 99¢ and under (which is highly unlikely).
And Microsoft negotiating from weakness? Underestimating them is a dangerous game when they have more free cash than Apple has market cap.
MDN: “Microsoft can’t even seem to get a music deal off the ground. Hence our position that Apple is negotiating on strength vs. Microsoft on weakness.”
Well, why would MS try to even get a music deal off the ground if the prevailing deal (Apple’s and/or Napster’s subscription deal) won’t even begin to pass muster with the labels now? The labels are upset with the current deal. I don’t think Microsoft is to blame for that. That isn’t weakness, it’s prudence.
The more I think about the more strength there is with Apple and Microsoft sticking to their guns (as others have mentioned above).
Most of you got it all wrong. You don’t screw over Mr. Bill to his face. The records company heads are used to screwing over artist. Mr. Bill is used to screwing over corporations and people. You don’t disrespect Mr. Bill. Even Steve his good buddy knows that.