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In a deal likely to foreshadow future agreements between makers of digital
music players and content companies, Microsoft said it
will pay Universal Music Group (UMG) a cut of each upcoming Zune device
sold.
Expected to launch Tuesday, the Zune player faces stiff competition from Apple's
iPod, which dominates the digital music market. Microsoft hopes to emulate the iPod
and iTunes success by offering the $249.99 Zune in conjunction with a
Web site where consumers can purchase music.
Microsoft refused to comment on reports the pact will give UMG and the
artists it represents $1 for each Zune device sold. The licensing agreement
was in addition to the standard payments made to music publishers, Microsoft
said.
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The software giant said it plans to offer a "similar arrangement" to other
music labels.
Currently, companies such as Apple, pay music publishers a cut of the songs
they sell through their music stores.
"This move demonstrates there can be a win-win situation where consumers
have a great experience while labels and artists are also fairly
compensated," Doug Morris, UMG Chairman and CEO, said in a statement.
The music industry has long felt digital music devices, such as the iPod
contributed to ripping CDs and the use of file-sharing rather than
purchasing music.
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"We look forward to working with the industry to make sure labels and the
artists have a very bright future," Bryan Lee, Corporate VP of Microsoft
Entertainment and Devices, said in a statement.
The tactic could put some pressure on Apple. The Cupertino-based company's
agreement with UMG is set to expire next year. "There could be some pressure
on Apple to reconsider their stance," Gartner's Mike McGuire said.
However, Apple is in a much better negotiating position than Microsoft. With
Apple driving much of the digital music market, there could be an industry
stand-off, he said.
McGuire said it would be unlikely that Apple gave music publishers a cut of
the sales of its wildly-popular iPod.
Today's licensing agreement "raises the stakes on everyone else," McGuire
said.
The industry is undergoing transition, according to the analyst. Until
consumers move totally to digital music purchases agreements such as the one
between Microsoft and UMG will be seen more often, according to McGuire.
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