“So the big Zune news this week is that Microsoft’s deal with Universal Music Group includes a per-unit royalty on each Zune player they sell,” John Gruber writes for Daring Fireball. “What we’ve got here is a nice, warm, shit sandwich from Universal Music, and Microsoft concluded that they had no choice but to eat it. Oddly enough, this puts me in the same boat as Paul Thurrott,1 whose analysis of the deal — Microsoft Caves to Universal in Music Deal — almost completely jibes with mine. Thurrott writes:”
Sensing that [Microsoft] was in no position to bargain, given the failure of its previous digital music initiative, PlaysForSure, and the uncertain nature of its new Zune go-it-alone approach, Universal demanded the per-player royalty payment. The deal comes “after weeks of tense talks,” according to a report by “The New York Times”.
If Microsoft had vetoed the payments, it would have been forced to go to market with only a portion of the music available on the Apple iTunes Store. (Universal sells one-third of all music worldwide.) That limitation would likely have killed Zune before it even had a chance to fail in the market on its own. Meanwhile, Apple hasn’t been forced to make a similar deal because it enjoys the dominant position in the market. If Universal pulled out of the iTunes Store now, that action would harm Universal more than Apple.
Gruber writes, “Don’t get me wrong — if this deal somehow does wind up polluting Apple’s deals with the music labels, Microsoft won’t be shedding any tears. Misery loves company. But this is Universal’s idea, not Microsoft’s.”
Gruber writes, “Far from seeing this Universal dollar-per-Zune deal as some sort of nefarious Redmond plot, I think it’s actually giving Microsoft a nice taste of its own medicine. Thurrott is right: Microsoft needed Universal’s support, Universal knew it, and they’re making them pay.”
Gruber writes, “Even in the worst case, I don’t see this precedent as posing much of a problem for Apple (or, really, for Microsoft, for that matter — one dollar per unit amounts to a rather small turd in this particular shit sandwich). A few dollars on a $249 iPod amounts to very little. I mean, they lose one dollar on each unit just by pricing them at $249/$299 instead of $250/$300 — another couple of dollars for the record labels wouldn’t amount to much.”
Gruber writes, “Apple, though, surely will continue to resist, if not outright laugh off, such deals. Partly out of general principle, but mainly because unlike Microsoft, Apple has leverage over the music labels because they have something the labels need: popularity.”
Full article with much more here.
So, what do you think, did Microsoft just get PlayedForSure by Universal or are the Microsoft sleazebags trying to poison Apple’s future negotiations with the even sleazier music labels or is it a combo platter of a “nice, warm, shit sandwich from Universal” with a tall glass of Microsoft poison?
Related articles:
Universal Music Group CEO calls iPod users thieves – November 11, 2006
Following Zune deal, Universal expected to demand iPod royalties from Apple [UPDATED] – November 10, 2006
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 shows iPod owners significantly less likely to steal music than the average person – January 13, 2006
Warner’s Middlebronfman: ‘We sell our songs through iPods, but we don’t have share of iPod revenue’ – October 05, 2005
Warner CEO Bronfman: Apple iTunes Music Store’s 99-cent-per-song model unfair – September 23, 2005
Real CEO Glaser calls Apple iPod owners thieves – May 11, 2006
Microsoft CEO Ballmer: ‘Apple iPod users are music thieves’ – October 04, 2004
You go first.
“shit sandwich”, an appropriate metaphor to describe the brown and squirting Zune.
I don’t think Universal is going to end up making much on this deal.
I don’t know how much of this deal had to do with iTunes as much as it has to do with the future of Zune. (In fact, it may be kind of arrogant to assume every deal that any company makes revolves around “poisoning” the iTunes water.)
Zune Marketplace and iTS is nothing without content, so the labels have the upper hand. Especially when it talks with an upstart like Zune.
Then again, Zune’s strategy may be to give labels a small buck if they allow better deals. I think this is all about long-term deals, though: Zune may be in a better bargaining position because they’ve ponied up a bit of change.
After all, MS is still making a profit on each Zune sold, just “not as much as [they] would like to” according to the Execs.
This is a UMG thing and expect WMG’s Bronfman to start in on this topic soon.
As I’ve said already: Apple should use its cash and market cap to acquire WMG and EMI ($8 billion combined) and give it to Eddy Cue as his personal plaything.
In the words of the Emperor Palpatine: “Kill them, kill them all”.
Well,
This arrangement was created by a genius and nothing less ( most likely by the Universal Music Group ). This is an exmple of a very important key move played by the music industry to once again take further control of the “industry” and its profits. It all hinges on Microsoft’s success however. If Microsoft is able to market their product and create an installed base, this will allows or would give greater strength to Univerasal to alter its contract with Apple Computer. Hence, they sell music and make even more money from both key groups ( Apple and Microsoft ) while dictating the rules of the contract. If however Microsoft does not do well, in the short term, they have lost nothing ( Universal Music ) and Apple will not be affected. This is an opinion.
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Well let’s see. . . just in the last week or so Microsoft refused to say which labels would be a part of the Zune Marketplace at launch. Then recent reviews mention the Zune Marketplace only having 2 million songs compared to iTune’s 3.5 million. Then just a few days before launch, voila, a deal with Unversal was struck. You figure out what happened.
Does anyone really think that Microsoft, which has been working on the Zune launch for months, suddenly prior to launch decided they wanted to “make sure the artists got paid”, but only artists on Universal? Please!
Classic example (Universal) of digging in the heals, rather than adapting.
If Apple were to accede to Universal’s blackmail, it will do nothing but benefit Apple. With the sole exception of maybe the Sansa, all other manufacturers of portable music players are struggling to make a profit (assuming they are).
If Universal is getting $1 per player, and has a 33% share of total music sales (at the label level), then ostensibly, with all labels charging a prorated share, the total fee would be $3.00 per player.
Add another $3.00 to your COGS, that in the face of the iPod is barely breaking even, and all of a sudden it is non-profitable. This would be especially true of the smaller for the smaller/weaker manufacturers.
Now if you current device has been abandoned by MSFT (PlaysForSure) and now your manufacturer has gone out of business, how likely are you going to be to buy another similar product that has the same potential problems? If one in ten owners opted for the iPod instead, Apple gains 2% of the player market as a result.
So, Universal collect a couple thousand dollars, tops?
Enough to buy the Universal executives a nice lunch, no more. They’ll go hungry the next day.
So I just found a Torrent site, didn’t even understand what that was until yesterday when I heard the news about the Universal deal, and grabbed my first (and hopefully last) illegal song. Actually probably not illegal since it was from the last LP I bought in 1984 and I never wanted to repurchase on CD. BUT IT WAS A UNIVERSAL ARTIST.
I’ve been using various MP3 players for 7 years (the 64meg one held 8 songs) and owned the first generation ipod, happily ripping all of my CD’s and since the iTunes store purchasing over 300 songs. Never stole anything and always made sure all my clients and friends understood what Napster, Limewire, etc were about and not to use them.
F*** it now, these Music companies deserve it for not understanding what their customers want in the 21st century. Metalica deserved it when they attacked everyone and made it so difficult for me to get music legally and UMG has to stop with the strong arm tactics.
Said it before: If UMG get $1 for every Zune sold, by this time next year they should have enough to buy…
….1 Zune !
Just found a website on that first mp3 player, the Diamond Rio, actually it had 32 megs and I had an extra 32 meg chip. Boy did that thing suck, the player was okay but the software sucked, then came the Arcos brick which would randomly wipe all my mp3’s so you had to ‘reload’ all your CD’s since they were only stored on the player.
Software people, it is all about software and instead of making a piece of shit player maybe MS should think of a way to sell something that makes the ipod better via SOFTWARE, you know the thing they made billions doing 10 years ago.
Sorry for the rant…. carry on.
MW: radio, how funny is that.
Played, for sure
You’re a turd sandwich.
-giant douche
Can’t wait to read the reviews on Zunes software.
This song won’t “squirt” to my friend and that song won’t “squirt”
Everyones has been hammering on the aesthetics of Zune but wait until people buy, use and refuse the Zune.
Knowing Steve Jobs like we do, he would NEVER cave in and pay blackmail money to Universal. When (not if) Universal tries this with Apple, they will laugh in their faces. Universal will most likely back down. If they don’t, what would happen?
Let’s say Universal pulls their content from iTunes Store. Who gets hurt? Apple loses a little bit of sales. Universal loses more sales $ than Apple since their slice of the download pie is greater. Here’s the important one – THE ARTISTS lose money. When that happens, they get pissed off.
It is in the best interest of Universal to keep it’s Artists happy or they will flee to another studio. In the end, Universal stands to lose the most from a showdown with Apple.
Steve, stick to your guns and blows these greedy bastards away. There is no need for a Universal to even be in the picture anymore. They know it and are clinging desperately to the end of the rope.
A war between Universal and Apple would be a bloody affair, especially when Apple is skirmishing on so many fronts in so many huge markets – movies, music, computers, consumer electronics, television. The fact that, in the space of just a few years, Apple came out of relative obscurity to challenge some of the most powerful, entrenched industries in the world is endlessly amazing.
It will be interesting to see which path Apple chooses for it’s music business: to continue as a distributor, or to leverage it’s considerable power and influence to provide an end-to-end solution that stretches from the artist to the consumer, cutting out the old guard of the record companies, and working instead with a growing number of smaller, smarter labels.
UMG is just a faceless entity to me – I think I’d actually enjoy watching them go…
Is Universal required to refund $1 for every Zune that gets returned to the dealer?
MDN Magic Word: one
As in I gave you 1 dollar, now give it back to me!
Given that 95% of songs are ripped from CDs, MS should have released the Zube with NO Music store.
This would have made the PlaysForSure partners happier, given them time to focus on adding Podcasts, saved a fortune in software development for the store and given themselves time to work out a better deal with more friendly labels.
This bad deal has set their future in concrete.
MW: without!
Microsoft is getting their own shaft fed back to them.
This is little different from contracts MS has with most major PC makers, where Microsoft is paid for a licence of Windows on that PC–EVEN IF WINDOWS ISN’T INSTALLED ON IT! In so doing they discourage the PC makers from offering “naked” PCs or Linux pre-installed, since they’re already paying the Windows tax anyway.
If this weren’t a calculated move to try and screw over Apple, I’d be laughing at the schadenfreude. For once, Microsoft got into bed with someone, and it is THEY that are getting f-ed over, however willingly they are in it.
Apple has iTunes. What does Microsoft have that is comparable to iTunes? What digital music stores can users download music to Zune? Is Microsoft obligated to pay someone (e.g. Universal) for the privilege of Zune tapping into a music database that Microsoft cannot manage or control?
Reminds me of the South Park episode of the Turd Sandwich vs. The big, giant Douche – u pick who’s M/S and who’s Universal
M$ will do anything to create a monopoly. Enter some sleazy deal with Universal and hope that when Universal try to do the same for Apple, it causes problems for our favourite fruit company.
Fact is though, Apple have far more negotiating power than M$ in this business and will still be dictating terms when the contract comes up again.
It will be interesting to see how the digital market is expanding. Apple have not released figures for a while. It could be that despite a lot of iPods being sold, the use of iTS may be limited.
Personally I would like to see older music being sold for 50 cents per song. I can legally buy CDs for 6 bucks each from Your Music.com with the flexibility to rip at whatever rate I desire. I definitely feel that if the market is to expand, back catalogs especially should be sold on iTS at a discounted rate. It would encourage the increased use of the service without gouging the market.
Universal probably expects few songs to be purchased through Zune Marketplace, so this is Universal’s best bet to squeeze cash from Zune. As much as I deplore Universal’s pretext that music fans are inherently thieves and that a tax of honest citizens is necessary to protect their profits, I have to admit this is one smart move by Universal to milk Microsoft and consumer before the first attempt is made to download a song. When Zune’s DRM is eventually broken, I guess that Universal, using the precedent of having already easily extorted money for each Zune sold, will demand Microsoft pay even more cash to Microsoft’s musical master using an extremely advantageous sliding scale for calculating compensation.
However, if it is true that most people rip tunes from CD to their iPods, what legitimate case does Universal have to demand a share of iPod profits as the tunes were sold on CD before ripping? The only advantage to iTunes is the capability of users to choose the few songs from each album rather than purchase the entire CD. I have to wonder if artists will strike deals with Apple directly to market their music and leave the greedy old dinosaurs to disappear into history.