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Summary:

The New York Times reports that Microsoft has cut a deal with Universal Music Group which will allow the music giant to get a percentage of the sale of its upcoming digital music player, Zune. The report says that the amount being paid to UMG is […]

The New York Times reports that Microsoft has cut a deal with Universal Music Group which will allow the music giant to get a percentage of the sale of its upcoming digital music player, Zune. The report says that the amount being paid to UMG is going to be at least $1 per $250 device. Microsoft is going to extend the same deal to others in the music business.

UMG had been holding off on licensing music to Microsoft, which would have threatened Zune plans to take down iPod and Apple. Classic Mafia shakedown: pay us or else. The argument being made is that people are not buying enough via digital downloads, so the music industry should get a piece of the hardware action.

The New York Times brings up the tired old study that shows 20-songs per iPod to support the music industry argument. Music industry argues that people are ripping their CDs and putting music on their iPods. Or they are stealing their music from P2P networks!

“It’s a major change for the industry,” said David Geffen, the entertainment mogul who more than a decade ago sold the record label that bears his name to Universal. “Each of these devices is used to store unpaid-for material. This way, on top of the material people do pay for, the record companies are getting paid on the devices storing the copied music.”

Copied music? What a bunch of crap? Any business that perceives its end customers as crooks and thieves should go the way of the a broken ice cream cone on a hot summer afternoon. The CDs I buy, I pay for, and I can do whatever with them. Play them on my CD player, rip and transfer to my MP3 player, or simply put them in the microwave and nuke the damn thing.

In this battle of the monopolists, Microsoft blinked and decided to pay up. (Would this have happened a few years ago, when Microsoft ruled the technology planet?) Remember how Jobs stood up to these music industry bullies. Today they are asking $1 a device; what is to stop them from asking for say $10 or $20 per device down the road. This shakedown should result in a serious investigation into the music industry cartel.

If Apple had to pay at least $1 per device for every iPod sold over past two fiscal years, its cost would be $62 million at minimum: or about one more song per device. If music industry cannot sell one additional song to consumers (and has to blackmail for more money) then, you as a business, have lost grip over your core competency.

By Om Malik

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  1. That line about the iPods being used to house unpaid for music ripped from P2P networks is old and tired and simply false.

    I may be just outside of the mainstream, but I’ve purchased more than 1,200 songs from the iTunes music store in the last 3 1/2 years. I don’t buy CDs any more at all.

    The iTunes Library Confirms This: http://louisgray.com/music/

    Those 1,200 songs represent more than 1/3 of my iTunes library. The rest? Overwhelmingly from CDs I already owned, which I imported, and a small percentage from DJs who offer their works (often hour-long sets) as downloads via the Web. Web-focused pioneers including DJ Lithium, DJ Irish and Underworld are good examples here.

    iPod and iTunes won because they have the widest offering of music, they offer the greatest user experience, and simplicity. It’s so easy to find new music I like and so easy to download it. I don’t think Microsoft can outdo iTunes/iPod on features and the end-user experience, even if they try to buy their way in.

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  2. Fuggeddaboutit…

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  3. May be Music industry did not ask for this. Microsoft gave it anyways to set a new standard in this business. Microsoft with its cash in bank can afford to have its margin crunch down but it will make life very difficult for Apple if all music companies start asking for royalties. Also may be Apple can pay but imagine if creative will have to do the same thing. By doing this Microsoft can easily vault to number 2 in hardware business and that will not be a bad achievement for a 1.0 product. if you cannot win the game then change the game I (Microsoft) say.

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  4. The music mafia is very good at making up all sorts of “statistics” about supposed music piracy.

    http://australianit.news.com.au/articles/0,7204,20713160%5E15306%5E%5Enbv%5E,00.html

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  5. Misconceptions here. When you buy a ‘record’, you actually buy a piece of plastic or whatever. You do NOT buy the music. You do NOT OWN the music. Technically, even copying from your ‘own’ CDs is illegal. YES! What needs to be done is parallel to buying software, whereby you buy a CD and a box and a LICENCE to use the ‘software/music’ PERSONALLY. EDUCATION, people (and I include the music biz people in that!).

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  6. Microsoft Dances to Universal Music’s Shakedown Tune; Will Pay Uni a Buck a Zune…

    I woke up to some sad news today: Microsoft, once the most feared company in the world, is a total …

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  7. Missconeption again, when you buy a record, you purchase the right for you to listen to that record in any form of media you choose, you cannot however allow anyone else to here the recording (even in its orriginal form). This is also the rationale as to which the record labels would like us to pay again when buying second hand records.

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  8. A bit off-topic : What is the Zunes userinterface really like ? Is it so close to Creatives “patent” that Creative possibly will sue MS ?

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  9. Hang on… I may totally misunderstand here but I get the impression that this $1 is to cover any money that Universal is missing out on due to illegal music copying (i.e. downloading from P2P). Doesn’t that mean that if I buy a Zune I have also payed for the damage that illegal download apparently causes. If thats the case I could download more Universal music with a clear conscience knowing that I have already payed for the losses. That can’t be right surely?

    But if they’re making us pay for illegal download. Well then its payed for… So we can do more.

    This strange logic (again, if i haven’t misunderstood) just proves that record companies are being greedy.

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  10. Ridiculous! Perhaps Microshaft could recoup the cost by charging the clothing & accessories manufacturers that create the products that are used to carry the mp3 player?
    Ultimately it’s the consumer that pays. Just makes me less inclined to buy a Zune and less inclined to buy sub-standard downloads and copy protected CDs from backward major labels.

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