Universal Gets a Cut of Zune Sales

[Darius Wey]

<div class='os_post_top_link'><a href='http://today.reuters.com/news/articlenews.aspx?type=technologyNews&storyid=2006-11-09T031549Z_01_N08407877_RTRUKOC_0_US-MEDIA-MICROSOFT-UNIVERSALMUSIC.xml&src=rss' target='_blank'>http://today.reuters.com/news/articlenews.aspx?type=technologyNews&storyid=2006-11-09T031549Z_01_N08407877_RTRUKOC_0_US-MEDIA-MICROSOFT-UNIVERSALMUSIC.xml&src=rss</a><br /><br /></div><em>&quot;Microsoft Corp. (MSFT.O: Quote, Profile, Research) 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. The groundbreaking deal could redefine the digital music business pioneered by Apple Computer Inc. (AAPL.O: Quote, Profile, Research). Rivals including cell phone makers eventually could pay for hardware sales as well as for the music itself, Universal said. 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. 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.&quot;</em> <br /><br />At this stage, we're not quite sure how this adds up. None of the <a target="_blank" href="http://www.microsoft.com/presspass/press/2006/sep06/09-28ZunePricingAvailabilityPR.mspx">pre-loaded content</a> appears to belong to Universal or its sub-groups, and they still get a cut even if the user doesn't load a single Universal track on to the device. So what's going on? Perhaps Microsoft and Universal are getting ready to ink a deal that will put the Zune in a favourable light, and this is just a woo tactic to keep Universal from getting too cozy with Apple. We'll be keeping our eye on this one.

[Aaron Roma]

Hmm.... seems like an awful suspicious move at this point. I'm extremely curious to see what's behind the curtain on this one.

[Janak Parekh]

Ugh. There'd better be a really good reason for this. I can't stomach the idea as it sounds right now. :mad:

Edit: much of the blogosphere thinks this was a part of the deal Universal inked with Microsoft for the new Zune Marketplace store, and Universal is trying to build leverage for all future stores to cover piracy costs. I have to say that no one else thinks it's the beginning of an interesting exclusive. I hope you're right, Darius. :o

--janak

[Dyvim]

Check out this iLounge article (http://www.ilounge.com/index.php/news/comments/microsoft-to-pay-universal-for-every-zune-sold/8957)

which in turn references this NY Times article (http://www.nytimes.com/2006/11/09/technology/09music.html)

Apparently Universal forced Microsoft into this agreement by threatening to not allow MS to sell their music in the Zune store.

[Jason Dunn]

Ah yes, a lovely strong-arm play by the big music studios: we don't just want to make money off the songs we own that you're selling for us, we want to make money off the hardware that you made! This is insane...!! :mad:

[Aaron Roma]

This just has disaster written all over it. The implications of such a deal gives me headaches. This is a disaster for consumers, but did MS have a choice in the matter? Without the existing leverage that Apple would have in such a negotiation, it would be a hard call to tell Universal where to stick it.