“In a first-of-its-kind arrangement, Microsoft Corp. is paying a major record label a percentage of the sales from its upcoming Zune portable music player in order to license songs for Microsoft’s digital music store, which launches next week,” Ben Charny reports for MarketWatch.
“So far, Vivendi’s Universal Music Group is the first to agree to what Microsoft calls a ‘ground-breaking’ royalty arrangement. Financial terms of the deal announced Thursday weren’t disclosed,” Charny reports. “The Vivendi deal, according to a company spokesman, marks the first time someone licensing music has ever agreed to pay for the rights using a percentage of music player sales.”
“The arrangement raises speculation that many more record labels will require a percentage of a music device sales, when applicable, to license anything from their catalogs. In particular, UMG is expected to demand the same royalties from Apple Computer Inc., makers of the iPod music player, when UMG renegotiates its licensing deal with Apple next year,” Charny reports. “From the record labels’ perspective, the extra cash is to help compensate artists for the thriving market for pirated music. A recent JupiterResearch study concluded that up to 95% of music tracks on a typical iPod has [sic] not been paid for.”
Full article here.
[UPDATE: Nov. 10, 12:19am EST: The last sentence quoted in the MarketWatch article above has been amended to read: “A recent JupiterResearch study concluded 95% of music tracks on a typical iPod are not purchased online.”]
Ben Charny seems to lack the basic ability to read and comprehend a simple report. JupiterResearch’s report,” Portable Media Player Owners – Understanding iPod Owners’ Music-Buying Habits,” released September 14, 2006 does not conclude that “up to 95% of music tracks on a typical iPod has [sic] not been paid for.” In fact, the report’s author, JupiterResearch analyst Mark Mulligan, has blogged (see: Straightening the Record) the following regarding the report:
So this report got a lot of attention in the media, which shows how much interest there is in the topic. However some of the coverage has been quite selective in which parts it has highlighted and some have even used it as evidence for Apple-bashing. So for the record here are the key thrusts of the report (all of the below refer to Europe): MP3 player owners of all types (iPods included) don’t regularly buy much digital music. iPod owners are actually more likely to buy digital music than other MP3 player owners. Free online music consumption significantly outweighs paid, significantly more so for owners of non-iPod MP3 players. Device owners are much more likely to buy CD albums online than digital albums.
The facts: up to 95% of the tracks on a typical iPod are not tracks that were purchased online. Most tracks on a typical iPod come from CDs that users have legally purchased and ripped via iTunes. That’s what the report really says, Mr. Charny. That’s a big difference from the outright falsehood you’ve reported. You call iPod owners thieves. How’d you like to be called a liar or an incompetent idiot that’s incapable of basic reading comprehension? You probably wouldn’t like it one bit, right? Seriously, get it right or get another job; you’re obviously not very good at this one.
In fact, Mr. Charny, the truth is that iPod owners are significantly less likely to steal music than the average person. iPod owners are “substantially less likely to download using filesharing software with only 7% of iPod people downloading illegally compared to 25% on average. And they’re more likely to be buying CDs, with your everyday iPodder buying 2.3 albums a month compared to the average of 1.8,” XTN Data reported in a January 2006 report. XTN Data surveyed over 1,000 UK and US music buyers to arrive at the data. XTN Data also found that 50% of iPod owners regularly download music from Apple iTunes Music Store. Sorry to further confuse you with actual facts, Mr. Charny.
Contact: Ben Charney via browser-based email form here.
Complaints to MarketWatch can be directed here.
As far as Universal demanding the same ludicrous royalty scheme from Apple Computer Inc. to which Microsoft capitulated with Zune: Universal needs Apple a helluva lot more than Apple needs Universal. If Universal doesn’t want to sell music to what will then be in excess of 100 million iPods sold via what will then be a U.S. top five music outlet, Apple’s iTunes Store, then Universal can go pound sand. If Universal makes such a bad decision, they’ll be crawling back to Steve Jobs on their hands and knees within weeks begging for forgiveness. If they want to play hardball with Steve Jobs based on a deal they made with the sleazebag Redmond Zunatics, they should understand that a Jobs fastball thrown straight to the head will sideline them not just from that game, but from many games to come.
Related articles:
Microsoft attempts to poison Apple’s licensing deals with music labels – November 09, 2006
Microsoft to pay Universal for every Zune sold – November 09, 2006
Study reports the obvious: most music on iPods not from iTunes Store – September 17, 2006
Study shows iPod owners significantly less likely to steal music than the average person – January 13, 2006
USA Today’s Baig: Microsoft Zune is no Apple iPod – November 09, 2006
Forbes: Microsoft’s Zune stinks; like ‘Microsoft Bob,’ only more embarrassing – November 09, 2006
NY Times’ Pogue: Zune should come in green to match Microsoft’s iPod envy – November 09, 2006
Mossberg: MS Zune has ‘too many compromises, missing features’ vs. ‘thin, sleek, elegant’ Apple iPod – November 09, 2006
Microsoft to pay Universal for every Zune sold – November 09, 2006
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
Microsoft rigs Zune with tricky pricing and proprietary money schemes – October 03, 2006
Why Microsoft’s Zune won’t kill Apple’s iPod – October 03, 2006
10 Apple iPod vs. Microsoft Zune myths – October 02, 2006
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
Analyst: Microsoft Zune’s as good as dead on arrival – September 28, 2006
Microsoft sets 30GB Zune price at $249.99 – September 28, 2006
How Microsoft’s Zune can kill Apple’s iPod – September 21, 2006
Microsoft’s Zune insanity – September 21, 2006
The Microsoft Zune 1.0 dud – September 20, 2006
Microsoft’s underwhelming Zune a ‘viral DRM’ device – September 18, 2006
SanDisk teams with RealNetworks against new common foe: Microsoft Zune – September 18, 2006
Creative does Apple’s dirty work by immediately attacking Microsoft’s Zune – September 17, 2006
Motley Fool’s Jayson: Microsoft’s ‘just plain ugly’ Zune a meager offering, not an iPod killer – September 15, 2006
What’s in a name? ‘Zune’ a French-Canadian euphemism for penis or vagina – September 15, 2006
Crave at CNET: ‘Microsoft Zune, all the excitement that brown can bring’ – September 15, 2006
Microsoft’s Zune underwhelms – September 15, 2006
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
Analyst: Microsoft Zune won’t spoil Apple’s biggest iPod Christmas ever – September 14, 2006
Microsoft unveils Zune 30GB player, Zune Marketplace; declines to disclose prices – September 14, 2006
Analyst: Microsoft’s Zune an ‘underwhelming’ repackaged Toshiba Gigabeat; no threat to Apple iPod – August 30, 2006
Microsoft confirms brick-like Zune to be made by Toshiba – August 25, 2006
Microsoft Zune is chunky brick made by Toshiba – August 25, 2006
Microsoft to sell single Zune model this fall, rumors of Wi-Fi capability were greatly exaggerated – August 10, 2006
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
Thoughts on Nani’s comment:
******
Actually, many people in the music industry consider tracks that have been transfered from the original purchased medum (CD) to another medium (iPod) to be ‘un-paid for’ ..
Carefully read the link below to understand the legal aspect of this idea.
http://en.wikipedia.org/wiki/Audio_Home_Recording_Act
The law actually considers such transfers to have value to the copyright owner. We will likely see the industry become more dilligent in enforcing their implied rights to charge for such transfers, including more fees on hardware.
*******
Why is it we can move an artist’s print from our old house to our new house, but we can’t move an artist’s song from our compact disc to our hard disc. The labels are most certainly out of their skulls, because i own that song, same as i own that print.
i don’t support this universal license blah blah that microsoft just let loose on the world, but isn’t this a capitalistic version of what they already do in canada? what if the riaa creates a right organization to collect a license fee per player. something similar to ascap and bmi.
Crow,
You can move a print from your old house to you new house, just as you can take any CD that you own from your old house to your new house.
What the copyright law does is to make it illegal to make a copy of anything that is copyrighted.
I’m personally in favor of personal use exemtions to copyright, but it really should be clear to everyone that copyright law is about THE RIGHT TO COPY things.
That’s whay it’s calkled COPYright.
In fact you can’t legally make a perfect copy of that artists print just because you own it.
Enforcement of such copyrights is really rare. It obviously can’t be enforced if you make a copy for personal use, but the copyright owner has the legal right to persue any means within the law to get compensated for copying of their copyrighted material – as the law stands.
An example of this is the use of licensed graphics in the media. Technically you can’t just cut and paste any image you want and use it any way you like. There are copyrights and licenses on just about all media.
There is always a legal difference between something you actually buy and a copy of that thing.
From the US Copyright office
http://www.copyright.gov/title17/92chap10.html#1001
(a) Digital Audio Recording Devices. –
(1) Amount of payment. – The royalty payment due under section 1003 for each digital audio recording device imported into and distributed in the United States, or manufactured and distributed in the United States, shall be 2 percent of the transfer price. Only the first person to manufacture and distribute or import and distribute such device shall be required to pay the royalty with respect to such device.
“If record labels and companies demand royalties as a group, Apple will have to capitulate or close the iTunes Store”
If record labels and companies demand royalties as a group, Eliot Spitzer or any seeking-fame replacement, and/or the Dept of Justice will be on them for collusion in a second.
If the labels refuse to deal, Apple will appeal directly to consumers and artists. In selling over 1.5B songs in just over 3 years, Apple has given almost $1B in royalties to those labels. How could 65 cents a song not be enough, when the labels no longer need to pay for manufacturing, distribution, and the margins needed for brick-and-mortar stores?
But if they want to cut off iTunes, no matter, people will then fill their iPods with CDs and pirated music. And the remaining labels will continue to reap the revenues.
In any case, Apple has seen this coming and the iPod is rapidly moving away from being just a music player, thus the leverage of the music labels is decreasing.
Screw getting to the top on my own merits. I’m going to turn tricks the whole way there.
I’d tell them to go pound salt.
Leave it to M$ to mess up a market for everyone else!
If MS can’t play in the sandbox then no one can – cause M$ went and crapped in the sand!
And they wonder why there customers are leaving in mass!
In 5 years time M$ will be worthless – can’t happen too soon!
Universal trying to extort royalties out of Apple makes me think of the scene in “The Godfather Part II” where the Nevada senator tries to extort a bribe from Michael Corleone. Not a good idea.
If Universal attempts to use their relationship with MS to extort iPod royalty payments from Apple, they may be in for a rude awakening. And not just from Apple.
I don’t think the other labels are going to be too thrilled about Universal’s arragement with MS, and, for some reason, I doubt MS is going to offer them similar arrangements. MS has got to be figuring the other labels will join Universal against Apple to make demands for royalty payments on the number one selling music player.
This will work only if the labels engage in collusion. Personally, I think the labels are showing signs of falling out with one another. But, be that as it may, if the labels do collude against Apple and pull their music from iTunes, Apple has an ace up its sleeve.
Licensing FairPlay to all of MS’s Plays For Sure partners. Or I should say former PFS partners, as most will probably desert MS in droves and the labels wouldn’t dare pull their music from them as the Zune would surely hit the fan if they did.
The RIAA, speaking on behalf of music labels, believes that transfer of music, via an audio device, to the brain, via the ear is an infringment on their copyright. They will require individuals that purchase music to have a small chip implanted in the brain that will automatically deduct funds the individuals bank account. Further, manufacturers of all devices capable of producing audible music from any media, such as CDs or vinyl, should give some portion of the revenue from such items to the content providers. This is to partially compensate “the artists” for people aside from the purchaser that have heard the music. Several studies have shown that 95% of the enjoyment from music was stolen by individuals that did not pay for the music.
Nani – you make many good points. One question is: if taken to court, would/could the courts decide that ripping CDs is fair use. The other is: why the fsck haven’t the copyright laws been updated to account for the technology of today. There are several examples of copyright law being updated for the good of consumers.
Most sure 70% of the people who read this article are in fact iPod users and they have been ofended and misinformed by this bozo. He owes his audience an apology: he has labeled them as thieves and pirates.
(sorry for my english).
next up,
Technology develops faster than laws can be put in place – but there are provisions in the existing law which establish a legal basis for what Microsoft is doing – and which could very well result in Apple being forced to do the same.
Ever since the advent of consumer recording devices, going all the way back to the first cassette decks, the music industry has fought for a percentage.
They have attached fees to digital recording equipment since the DAT (digital audio tape) recorder. So this is not a new issue.
I’m old enough to remember when you had to plug a cassette deck into a turntable in order to copy a record album. Back then the music industry was somewhat concerned about people copying music that way, but it was obvious that cassettes were inferior to the original vinyl, so they were mostly silent about such things.
When Digital Audio Tape came out, the music industry made sure that the machines and the tape was too expensive for consumers. A DAT cassette cost more than a record album.
CDRs come in ‘Data’ (cheaper) and ‘Music’ (more expensive because of music licensing fee) formats because the RIAA has the legal power to insist that the makers of CDR media provide some compensation for the fact that people are copying music.
Anyone who thinks that the RIAAA will just go away is kidding themselves.
I expect that royalties will be tacked onto all media devices which don’t already have them in the next few years. Get used to it.
http://www.law.duke.edu/journals/dltr/articles/2002dltr0023.html
The Audio Home Recording Act
¶10 In 1992, Congress passed the Audio Home Recording Act34 (“AHRA”), an amendment to the federal copyright law. Under the AHRA, all digital recording devices must incorporate a Serial Copy Management System (”SCMS”).35 This system allows digital recorders to make a first-generation copy of a digitally recorded work, but does not allow a second-generation copy to be made from the first copy (users may still make as many first-generation copies as they want). The AHRA also provides for a royalty tax36 of up to $8 per new digital recording machine and 3 percent of the price of all digital audiotapes or discs.37 This tax is paid by the manufacturers of digital media devices and distributed to the copyright owners whose music is presumably being copied.38 In consideration of this tax, copyright owners agree to forever waive the right to claim copyright infringement against consumers using audio recording devices in their homes.39 This is commensurate with the fair use exception to copyright law, which allows consumers to make copies of copyrighted music for non-commercial purposes.40 The SCMS and royalty requirements apply only to digital audio recording devices.41 Because computers are not digital audio recording devices, they are not required to comply with Serial Copy Management System requirement.42
¶11 It is clear from the language of the AHRA, and subsequent judicial interpretations of the statute, that Congress did not anticipate ten years ago that the SCMS would be inadequate to contain the impending home digital recording explosion that was galvanized by the Internet. However, the CBDTPA bill and the new anti-piracy technologies appear to be the music industry’s effort at making an end run around the AHRA. Instead of passing this new legislation, it would be more appropriate for Congress to amend the AHRA, which strikes an appropriate, albeit outdated, balance between music distributors, electronics manufacturers and consumers.
¶12 Pirated music has become such a large issue that it undoubtedly warrants the attention that it is receiving. However, with so many divergent interests involved, it is not feasible for all of these groups to be left to work this issue out among themselves, which is what the CBDTPA suggests. Congress must take charge to enact legislation that will fairly balance the interests of all of these groups, and the CBDTPA legislation is too partial to the music industry to be the proper avenue for such an undertaking. Rather, Congress should look back to the AHRA as a starting point and further develop that statute to accommodate for the societal and technological changes that have occurred in the last ten years. This new AHRA, in conjunction with the new paid subscription based online music services being offered by the music labels, has great potential to result in an amicable understanding among all parties involved.
¶13 One change that is absolutely necessary for the AHRA is to require PC hardware and software manufactures to also pay a royalty tax and comply with the SCMS requirement. Although the primary function of a PC is not to record copies of music, for all practical purposes, PCs pose the biggest threat to copyright holders because they not only allow users to copy music onto the hard drive for downloading onto a blank CD, but also permit consumers to share music on the Internet.
¶14 An amended AHRA would cover all the bases for the music industry: they would continue to recover from digital recording device manufacturers for music copied on CD burners, which IT manufacturers likely would happily pay rather than install anti-piracy safeguards on their products; they would now be compensated for music downloaded on home computers; and they would autonomously be able to collect from individuals via the online subscription services, a well that will probably not run dry as long as the subscription fees are less expensive than purchasing the music in a store.
@ don’t they tax mp3 players in canada?
This was struck down in Court and everyone who paid the levy was entitled to a refund some time last year.
MS is using a common strategy. Where you have market weakness, you underprice, in order to force the market leader to match, thus cutting their profits, which have a greater impact. In this case, MS’s royalty payments will be a pittance compared to what Apple might have to pay, given Apple’s dominance.
In some ways, this could be payback for Apple setting MS up for a license/royalty payments to Creative for their heirarchical menu system.
Anyhow, in this case, I think Steve has enough ammo to stand his ground against greedy Bronftard.
I am a sales manager at a car dealership. I negotiate every day to put food on the table, and I am very good at it.
One very important rule to remember, for any negotiation, is that he who can say, “No,” and walk away, has the upper hand.
M$ < Universal <AppleThe biggest fish in the pond gets to make the rules.
Business Week’s Hesseldahl weighs in with another opinion on Zune for Ballmer to consider:
“..by this time next year, it will be considered a dismal failure”.
The answer is that what MS does on this issue doesn’t stack up to a row of beans.
If only we could just ignore them. Sigh…
I find it ironic that MS was forced by the DOJ to stop charging PC manufacturers for Windows on all PCs made even those sold without Windows, yet now Universal will charge MS for all Zubes sold even if they contain no Universal songs.
It seems that Universal may soon get a phone call from the DOJ!
Maybe everyone is missing the obvious. Since MS is not going to be selling a lot of music downloads Universal may have decided to see if they can’t at least get a couple of bucks from the sale of _both_ the Zunes foisted on the gullible public before they are squirted and flushed by the fools who bought them.
This ‘market research’ report is crap.
It’s been funded by Microsoft, so of course it’s gonna say the stuff it says – because M$ has paid for the research.
And the rubbish saying that ‘95% of music on ipods in unpaid for’ is total bollocks. How can they say in one breath that ‘95% of music on ipods is NOT downloaded’ (e.g PAID FOR cds that you own) and then say that ‘95% of music on ipods in unpaid for’???
Doh! – The two statements are hypocritical.
Also, M$ basically ‘paying off universal’ (giving them a cut of zunes sales $) is NOT a groundbreaking agreement.
The Mafia have been doing this for decades paying off politicans. All it is is trying to get into bed with universal, and therefore putting pressure on Apple to cut its ipod profits and have to do a similar deal with them.
Typical M$ uunderhand business tactics as usual and tactics of a company desparate to get hold of a market that it cannot compete in legally.
Also, not making the zune ‘compatible’ with the ‘plays fore sure’ scheme is a great way to piss off every other windows partner who have made digital music players for the scheme.
What this says is M$ have severed their ‘partners’ and that they are gonna make a closed system.
Do a deal with the devil and u are gonna get burned – it’s as simple as that!
What Apple should do is when the itunes contract is up for renewal next year they should just say to Universal “Yep, you can have a $% share of every ipod sold from now on BUT YOU WILL HAVE TO CANCEL YOUR DEAL WITH MICROSOFT AND THE ZUNE”.
Apple plays it’s trump card!
Unvisersal will go with the Apple Deal as they will make more money.
Job done.
I’d say 60% pirated. 38% bought and ripped onto iTunes. 2% bought online would be a closer estimate of where the songs come from. Numbers vary. But i’d say thats pretty close.
If the record companies want to make money on iPod sales, then they can buy AAPL shares like the rest of us.
-jcr
I’d say 60% pirated. 38% bought and ripped onto iTunes. 2% bought online would be a closer estimate of where the songs come from. Numbers vary. But i’d say thats pretty close.
Based on what? Your musings? Well that’s certainly concrete.