Microsoft, Zune & The Music Mafia

46 Comments

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.

46 Comments

Last Man

Yesterday I was playing a song in my mind when along comes the DRM Police.
They fine me because I did not have any right to remember the song from a CD that I paid for.

I guess they can now read your mind

awakened

IMHO, the problem with music is in the content. Technology has evolved and the formats have changed, but the music industry is STILL offering what they offered 10-20 years ago, music. If you’d like to me to pay 15$ for an album or 1$ for a song, you need to offer me something more than just the song, especially when it’s so easy to turn on my radio and listen to it, or even (yes, yes) download it illegaly.
It’s the same with the movies. Companies keep complaining about movie piracy and loss in the cinema business when all they offer at your local cinema (or even a good cinema) is slightly better sound and picture than your HOME cinema! GET REAL people! There’s NO way I’d pay YOU 10$ to do something I could enjoy the same in the comfort of my living room!
So put your money into new technology, get me interested or get lost! YOU, need to keep releasing albums, it’s your job, but “I” get to chose whether what you’re offering is worthwhile.
The company does pay a hefty million dollars to the artists to release their music and they expect the world to bear the price. I’m sorry but there are a LOT more important people than Paris Hilton in the world I’d rather give my money to.
So, downloading illegally? Unless you have something BETTER to offer me, yes I will.

Allan Orr

Once again an example of the companies that don’t have a concept of the bigger picture IMO.
The claim of P2P hurting sales has been made in pretty much every media industry. What amuses me is that the companies that have embraced electronic distribution have in some cases it appears tripled their overall sales those that have remained obstinate in the face of reality have perhaps suffered a little from piracy, OTOH in many cases they’ve been boycotted by their customers for their attitude, RIAA being a perfect example, while it hurts some good people I personally refuse to let any of my money go to a group that have resorted to suing children and grandparents to “protect” their “rights”.

On the other hand Baen who have their free library for people to browse online have grabbed my attention with some truly inspiring authors that without this means of access I might never have looked at at all, now I’m trying to get my local bookstore to order in the Honor Harrington books by David Weber. Jim Baen (who died earlier this year sadly) was very much a visionary in the publishing industry whose midas touch is somewhat legendary in science fiction readership for supporting many of the best future authors to get off the ground, and his understanding of his customers. I know I’m not alone or even unusual in my willingness to buy something I have received through illegal means, ie I bought Evanescence’s “Fallen” after I discovered the group through a P2P download, I bought most of my anime collection only after watching downloaded episodes from the series in question.
When I have the money I buy what I like, when I don’t, or don’t know if I will like something I will download it first to check it out. Yes I know this is illegal, but I do not consider this immoral or unfair to the artist because if I bought something thinking I was going to like it and didn’t I might come to hate that artist and ignore them completely in the future and in some cases that would be truly a shame (an example from my own experience was the number of other people who would no longer touch Linkin Park due to the lack of new songs on Meteora).
In the long term what is most telling about the piracy despite the cry of foul by recording labels and other publishers is instead of the diminishing sales due to piracy they claim at times their overall sales seem to be escalating.

Here in Australia it’s a legal right to make a backup copy of any media for personal use, a fact that seems to truly annoy a lot of companies judging by the fact their anti copying methods are so prevalent and IMNSHO infringing on our legal rights. I own over 10,000 Australian dollars worth of computer and console games I bought new (not bargain bin prices or second hand there is probably another 10K there in truth). I own a DVD recorder which I bought for a single purpose to make backups of my ancient VHS collection which hadn’t been released as DVD, many titles still haven’t (at least not in Australia in some cases). The levy on recordable media annoys me because most of my own usage of CDs and DVDs is for archival or backup purposes, the few burns done of applications I do these days tend to be entirely legal ie my stack of free Linux distro discs.
I know I’m not unique, I know I’m not even rare, so why the heck can’t the companies see the big picture? They might like having pirates as scapegoats, but in the end I feel the only people hurting their sales are themselves, if this $1 per player will be used by UMG against Apple, their iPod and/or the iTunes store than UMG (and anyone else that follows suit) deserves to go bankrupt as far as I’m concerned, the iTunes store has out performed most labels when you consider market impact. iTunes might only be a small part of their overall revenue, but I wonder how many indie artists are at least thinking of using iTunes to get noticed by the global community.

Do people pirate media? Yes.
Do these pirates buy the original media? Not all, but a quite respectable percentage do.
So why do the big companies complain? IMO it seems so they can justify the unrealistic prices they put on a lot of media when it is released. Some people even believe them.

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steve

I figure Apple pays UMG between $50 and $100 million per year right now. With no signifcant incremental costs. Walking away would be an awfully big bet that UMG would sell just as much music only through other channels. They certainly wouldn’t electronically–the whole world isn’t going to instantly dump their ipods just cuz a record label wants them to.

Since Apple makes very little profit on the iTunes store, Apple loses more prestige and convenience for its customers than money.

Realistically, UMG would not sell just as much. They’d sell some more CDs, but some of the sales would go to other labels online, some replaced by piracy, and some just not happen. Distribution and convenience matter.

Apple has real leverage here because it delivers real cash. Without it, UMG has to go back and cut budgets, close labels, drop artists, and layoff people.

And the $1 is just the camel’s nose under the tent. I’m sure the labels think they should have most of Apple’s profits.

I love the way they talk about how their revenues are down: like somehow they’re entitled to a certain level of our cash in perpetuity. Yes artists should control and get compensated for their work. But middlemen have no such inherent rights–they need to add value or die. The bad old days of few options for artists and consumers made them fat, lazy, corrupt and arrogant.

Oops. Digressed into rant.

GJD

p2p might be mainstream amongst tech blog commentators, but if I was to ask around the pub who had heard of, never mind indulged in p2p downloading, I’d get shrugs and confused looks (and possibly a beating, depending on the boozer). But if I asked who owned an iPod, I’d get a big show of hands. I can count ten iPod owners in my office, and only 1 of them uses P2P services (and he’s the biggest music buyer of the lot). The rest can scarcely cope with ripping their own CDs in iTunes.

Of course P2P traffic represents a huge chunk of internet traffic, it doesn’t take many users downloading season 5 of 24 at 8Gb a pop to dwarf all the of the ordinary web page impressions! The internet is mainstream, but the majority of internet users are either unaware, uninterested, confused by or afraid of P2P downloading. We’re talking about grannies, mothers, office workers, school kids, not just students and techies.

r.pad is spot on. When I was at university, we had high speed internet, and it was the early days of P2P, the wild west. Anyone could download music – it was easy, unrestricted, unchallenged and fast. Plenty of songs were cbeing downloaded, but plenty more CDs were being bought. It isn’t a matter of honesty, it’s purely about convenience, laziness. To some it’s easier (and more fun) to spend the time required to get to grips with P2P, others enjoy shopping for CDs and find it easier to get their music that way. And plenty more will do both.

r.pad

I dunno stevenk…maybe being a college professor gives you a skewed view. When I was in college and if MP3 players were around, I probably would of had some pirated music since my budget was tight. Still, even then most of my music collection was comprised of CDs that I bought second hand. CD burners were around, but I didn’t copy from my friends.

Now that I’m an adult (arguably) I can afford the music I want. There are zero pirated songs on my iPod. Most of the songs are burned from CDs I own. There’s a decent portion of songs and videos I purchased from iTunes as well. More and more I find myself purchasing from iTunes. I’m starting to think that physical media is just stupid; I rather waste space on my iPod and PC hard drive instead of space in my apartment.

Ranjit Mathoda

I think this deal is a clever piece of judo by Microsoft. They become more friendly to the record companies than Apple currently is, and they cause the record companies to seek the same deal from Apple. Which hurts Apple much more than it hurts Microsoft, because it aims more directly at Apple’s business model and business situation.

Ranjit

See my post on the subject here: http://www.mathoda.com/archives/86

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