“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.
Related articles:
Warner’s Middlebronfman: ‘We sell our songs through iPods, but we don’t have share of iPod revenue’ – October 05, 2005
Analysts: Microsoft Zune may end up being a flop – November 08, 2006
Are 58% of iPod owners really thinking of a Zune switch? – November 08, 2006
Survey: 58% of iPod owners planning another MP3 player purchase will consider Microsoft’s Zune – November 01, 2006
Zune is from Microsoft, but Microsoft doesn’t want anybody to know about it – November 07, 2006
Microsoft Zune to be US-only, no firm plans to launch anywhere else globally – November 03, 2006
Five Microsoft Zune TV commercials – November 02, 2006
JupiterResearch: Apple’s iPod will dominate for foreseeable future; Microsoft’s Zune insignificant – October 25, 2006
Ellen DeGeneres Show gives away Microsoft Zunes, studio audience goes berserk – October 23, 2006
More Microsoft Zune myths explored – October 20, 2006
Five more Microsoft Zune myths – October 18, 2006
Microsoft Zune intensifies chaos in Apple iPod+iTunes also-ran market – October 16, 2006
Newsweek Q&A: Apple CEO Steve Jobs discusses iPod’s impact, Microsoft’s Zune, and more – October 15, 2006
Microsoft’s Ballmer: Zune device not money loser, wishes Apple’s 30GB iPod was $299 instead of $249 – October 11, 2006
Microsoft’s consumer electronics track record: long string of failures – October 11, 2006
MP3.com founder: ‘Zune will be an expensive failure for Microsoft because consumers aren’t stupid’ – October 06, 2006
Microsoft fails to secure key Zune domains – October 04, 2006
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Why Microsoft’s Zune won’t kill Apple’s iPod – October 03, 2006
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Analyst: Zune could lead to ‘civil war’ between Microsoft and Windows Media partners – September 29, 2006
Thurrott on Microsoft’s Zune: ‘The makings of a disaster, what the heck are these people thinking?’ – September 29, 2006
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How Microsoft’s Zune can kill Apple’s iPod – September 21, 2006
Microsoft’s Zune insanity – September 21, 2006
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Crave at CNET: ‘Microsoft Zune, all the excitement that brown can bring’ – September 15, 2006
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Enderle: Microsoft Zune ‘a design mistake’ – September 15, 2006
Microsoft hypocrisy exposed with Zune: What ever happened to ‘choice?’ – September 14, 2006
Analyst: Microsoft Zune with fake scroll wheel ‘hardly an Apple iPod killer’ – September 14, 2006
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Microsoft to spend hundreds of millions, several years on Zune trying to catch Apple iPod+iTunes – July 27, 2006
Zune: Apple cannot lose. Microsoft cannot win. – July 26, 2006
“Do AM/FM radio makers share profits with music labels? No.”
ehhh, yes they do. They pay a royalty every time they play a song.
—
HAHAHA .. that’s radio _stations_ you smart ass.
The Advocate said: “Yes, the labels force DRM, but they did not force proprietary iPod only DRM..”
What’s your point? Is there another, better, DRM out there that could have been used instead?
It’s not really iPod only DRM – it will play on both macs and peecees. Please show us a more open DRM, oh wise one…
Don’t forget, DRM only applies to iTunes Store – Rip your own music without DRM. If DRM bothers u so much, get off your fat arse and go and buy the CDs. Or sit on your fat arse and order the CDs online from amazon or something. Keep in mind that you can’t do this with the Zune, as it will apply DRM to even your own music.
And meanwhile, David Pogue of the NYT has given his verdict…
Zune has no adavantages, is not cool, is a load of hassle, awkward to use, and is the result of a lot of wasted effort by Microsoft because it is green with envy.
Oh, and the iPod has a list of advantages that go all the way to Steve Ballmers house and back again.
His review will stop about 50% of Zunes prospective 5,000 sales in its first year.
How anyone feels the need to support anything done by Microsoft beats me.
Guys, guys, (and Gals), Microsoft is only following its OWN model.
Did the vast majority of PC makers pay Microsoft (a content provider) a fee REGARDLESS if Windows was installed on the computer or not?
YES!
The hardware makers paid MS a fee per system sold even if the system did not ship with a Windows OS or any other MS product indstalled. Microsoft thinks that all hardware makers should pay them this fee… and now they are a hardware maker and it is only reasonable to pay Universal (the content provider) a fee for their hardware, even if it doesn’t ship with any Universal content. It’s the way things are done… the Microsoft way.
How would it work though? How do they fairly split the amount they pay between everyt record company on earth? What if you’re a classical music fan, does your share only go to classical labels. It’s ridiculous.
What’s being missed here is that Universal’s cut will come straight from the users pocket. And sure enough, the other labels will want ‘in’ on this little scam too.
Now it begins to make sense why Microsoft is putting out a uninspiring, lumpy, old-tech Toshiba box – rather than developing a cutting-edge challenger to the iPod. Microsoft will get this stuff dirt-cheap, ramp up the price-point to match the iPod, with the difference – of, say, $50 a unit – going directly out the backdoor into the label’s bank accounts. I’d be pretty annoyed if I learnt that possibly a fifth of the good money I paid for this product had nothing to do with its value but was a private ‘tax’ for the labels.
The Zune is a DOG. We have to admire Microsoft’s advertising agency for making the association that only two things in this world come in shades of black, white and brown… Zunes and dog shit.
It seems that the music companies are trying even harder than Microsoft to kill the legal online music business.
It’s a wonder they sell anything at all.
Guys, I think you’re missing the very simple explanation for this fee MS is willing to pay:
If I remember correctly, the Zune is supposed to come with some music pre-installed at delivery – and of course the label who owns those pre-installed tracks will want to see royalties for them.
Simple as that.
Not that I’d want to have my player clogged with unwanted music out of the box (which I’d have paid for through the price of the player in any case), but as far as I can see, that’s the reason.
Maybe the labels should pay APPLE for every iPod it sells, since another iPod in the world is another avenue for the labels to sell a song.
For them to ask an MP3 player maker to pay THEM is absurd and just goes to show there is no limit to their greed.
I think I’ll fire up Limewire and collect a dozen more tunes, just to celebrate the MS/labels new deal.
why only pay Universal… what about the other recording companies? and independent labels… and podcasters? they should be getting a piece of the pie too… bad move by msoft… opening a can of worms…
This is the true story
No one’s got any sympathy or love for them (the Labels), because they’ve systematically been shoring up their figures in the short run – squeezing money into Universal to make up for their catastrophies; Warner Brothers have been coping with huge debt; EMI have been desperately trying to hold their stock price up so somebody would buy them; BMG has been wondering how the fuck they’re going to pay somebody back money for whatever it was, so they don’t go public – and Sony are in a terminal mess.
So all of them have been draining profit. It’s “get the money in, boys, get the money in. “
So they’ve raped them. They’ve raped their whole business model, and no one’s got the time or energy to think about their business.
Microsoft comes along and throws Universal what seems to appear to be a better bone with the Zune, but it’s smaller because iPod sales have already sucked the new market almost dry, for computer users that is, the non-computing uing market is being ignored by Apple so far.
Apple needs to come out with a new iPod/PDA device that doesn’t require a computer to accces iTMS
Just a “Smart Dock” device that hooks to the phone line with built in DSL straight to iTMS with backup hard drive.
Select the music and let it download overnight, of course Apple doesn’t have local phone numbers for DSL. 🙁
But they better do something, I’m tired of filling up friends iPods for them.
Sorry link to Quote “Big Labels are F*cked…”
http://www.theregister.com/2006/11/03/peter_jenner/page2.html
They dare not jump off the iPod bandwagon.
why only pay Universal… what about the other recording companies? and independent labels… and podcasters? they should be getting a piece of the pie too… bad move by msoft… opening a can of worms…
It seems that MS only uses Universal “preloaded” content at delivery…
Zune vs iPod – Which media player is right for you? | ClubZune.net
Just a “Smart Dock” device that hooks to the phone line with built in DSL straight to iTMS with backup hard drive.
Select the music and let it download overnight, of course Apple doesn’t have local phone numbers for DSL. 🙁
But they better do something, I’m tired of filling up friends iPods for them.
This could easily be the stupidest idea ever presented on here.
M$ is trying to ruin the market for everyone and then pick up the peices once everyone’s out. This is pathetic and ought to be against the law. They’re going to loose money on ever Zune they sell just to destroy the competition just like IE vs. Netscape. Same tactics.
It’s not “profit sharing.” Zune will not produce a profit for quite a while (If it survives). What M$ are doing is their standard practice: come out with a 1.0 ripoff, slowly buy market share until they own the market. And screw everyone along the way.
Seems like everyone gets money from Zune, except M$.
Hey, wake up man! “Radio makers” as in the hardware, as in the little boxes with wires and speakers and stuff. Not “radio stations” paying for content. Paying royalties for content and paying just to build a piece of hardware are two radically different things.
The average person buys only 20 songs from the iTunes store.
Most music or other things (podcasts) comes from other sources.
Thurmann was partly right. At one time major radio makers were also content providers.
Can you say RCA?
“MDN,
Did phonograph makers sell records that would only play on their phonograph? No.”
–they did, however, sell phonographs players that played only phongraphs not other forms of playable media.
“Did Sony sell cassette tapes that would only play on Walkmans? No.”
–They did, however, sell walkmans that played only casettes, not other forms of playable media
“Do AM/FM radio makers broadcast radio signals that can only be received on their radios? No.”
They do, however, sell radios that only receive radio signals and not other forms of signals.
“Do TV manufactures produce programming that will only play on their TV’s? No”
TV manufacturers do not produce programming and neither does Apple. They do, however, sell TVs that only receive TV signals and not for instance a CB signal even though some people might find that handy.
“Does Apple sell content (which is owned by the labels) that will only play on the iPod? YES.”
No they don’t. The content Apple sells plays on any computer with iTunes on it. Anything sold from iTunes can be put in CD format and played in a cd player and recorded to a casette to play in a walkman.
It seems that instead of restricting content, Apple has opened up new worlds of opportunity.
OK, so true $1 per Zune isn’t exactly a ton of money, but it proves just how greedy the music industry has become.
It hinestly makes me sort of glad that Zune is promoting indie artists over big-name musicians. The indies are the ones who deserve it: They are loyal and modest.
So if Microsoft was going to take a loss when the player was at $299, then they lowered the price to compete with Apple, then they pay a fee for each Zune sold, this is going to be bleeding money from Microsoft. But of course, that’s only if they sell many Zunes. Way to but into a market for less than 5% market share Microsoft. Way to operate with the interested of your owners in mind. You’re fired!
This is a very mob-like deal, kind of like “protection” money. Its bad business, very bad.
Like it or not, and for all of its apparent hassles, the only way to give the consumer and the retailer any kind of real freedom is to make it all pay-as-you-go. Consumers, and now retailers, are more and more getting trapped into these coporate back-door deals that are killing the number of choices we should be experiencing, especially with the technology to do it.
Nope, its bad business very bad, and if Apple is compelled to follow this business model in the long run, we’re all screwed.
So if Microsoft was going to take a loss when the player was at $299, then they lowered the price to compete with Apple, then they pay a fee for each Zune sold, this is going to be bleeding money from Microsoft. But of course, that’s only if they sell many Zunes. Way to but into a market for less than 5% market share Microsoft. Way to operate with the interested of your owners in mind. You’re fired!
Yes, Microsoft will be losing money with every Zune sold. But they are going to make up for it by selling in volume!