“Microsoft Corp. has agreed to pay Universal Music Group a fee for each new Zune digital music player it sells when the iPod rival launches next week, the companies said on Thursday,” Yinka Adegoke reports for Reuters.
“The groundbreaking deal could redefine the digital music business pioneered by Apple Computer Inc.,” Adegoke reports. “Microsoft is trying to break into an industry closely aligned with archival Apple, which is credited with nearly single-handedly building the legal Web music world with its iPod players and iTunes music store.”
Adegoke reports, “But Apple does not give a cut of sales of iPods to music companies. It only pays labels for songs sold on its iTunes music store.”
“‘We felt that any business that’s built on the bedrock of music we should share in,’ said Doug Morris, chief executive of Universal, owned by French media giant Vivendi,” Adegoke reports. “He did not disclose the amount of the fee for the Zune, which launches next Tuesday.”
“The iPod has a nearly 80 percent share of digital media player sales, and its iTunes music downloads site is also the dominant online music store,” Adegoke reports.
Adegoke reports, “Like other record companies, Universal has a revenue-share deal with iTunes but no share of iPod sales. ‘We have a current contract with him and at the end of that I’m sure we’ll negotiate,’ said Morris, whose company accounts for nearly one in three CDs sold in the United States. Morris said the deal could set a precedent in negotiations with other device manufacturers, including mobile phone makers, who are increasingly seeing music as important to the future of their businesses.”
Full article here.
We’ve been saying for quite awhile that Microsoft seems to want the Zune to fail; the choice brown, the muddled business plan, the crippled Wi-Fi, the hobbled DRM-laden “sharing”, the weak advertising, the fake scroll-wheel, the “uncoolness” of Microsoft, the lack of a compelling price advantage, the lack of video content, etc. But, we couldn’t figure out why Microsoft seems to want the Zune to fail. We thought maybe they needed a tax write-off or they were just mismanaged and/or deluded. But, maybe their “plan” is to set a precedent for the next round of iTunes Store negotiations? Perhaps Microsoft hopes to hurt Apple by trying to force this weird profit sharing on iPods?
To share hardware profits with the music labels makes no sense. Did phonograph makers share record player profits with music labels? No. Did Sony share Walkman profits with music labels? No. Do AM/FM radio makers share profits with music labels? No. Do TV makers share profits with TV networks and producers? No.
We do not see Zune becoming much of a success. Universal Music Group certainly isn’t going to get rich from Zune sales. We just can’t imagine Steve Jobs caving and sharing iPod revenue with the music labels; not with iPod+iTunes market-dominating clout.
As we’ve said before, if Zune, improbably, shows any real traction, Steve Jobs can simply license FairPlay to device makers and/or music outfits (already smarting from being stabbed in the back by Microsoft’s abandonment of “PlaysForSue”) and consign Microsoft Zune to a quick death by isolation.
One would safely assume that Apple can draw up the licenses at very favorable terms and companies will still jump at the chance to participate in the iPod+iTunes ecosystem. Surging Mac sales (and sales into new markets, ie. “iTV,” “iPhone,” etc.) will more than make up for any iPod and iTunes revenue losses engendered by FairPlay licensing (remember, this licensing won’t happen for quite some time).
Apple can quickly and effectively make Microsoft Zune a very remote island that will have no chance of competing or generating meaningful revenue for Microsoft. The result will be that Apple controls the standard and owns the best-known brands while still selling the device(s) (iPod family) and the online content service (iTunes Store) that started it all. Microsoft would have no recourse and would shut down the isolated, unprofitable Zune brand.
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