Universal Music get fee for every Zune sold
By Ryan Block 
posted November 9th 2006 12:54AM
posted November 9th 2006 12:54AM
We're not exactly sure how they finagled it, but Universal Music announced it plans to collect a share of the thin margin Microsoft's going to make with each Zune, receiving an unspecified amount for each player sold. In typical RIAA boot camp style, Doug Morris, CEO of Universal said, "We felt that any business that's built on the bedrock of music we should share in." So, if we have this straight, according to Universal, any music-playing device sold should provide some profit to them -- even if that device will never play a song recorded by Universal. And likewise, Microsoft has no problem setting a new precedent to butter up a big label partner like Universal to possibly be seen as a favorable alternative to the Jobsian iPod-stranglehold on legal music distribution when Apple's Universal contract is up. (Remember, this isn't the first time the music industry said it wants a cut of hardware sales.) Is it us, or did something start to seriously reek in here?[Thanks, Eric]
Why bash Micros^%$ on this? Because they are being complicit in an extortion scheme that extends that extortion from the music sales to hard drive based player sales, even if I never listen to Universal crapola, or already have legal copies I'm just ripping to the Zune. Remember also that Canada ruled the Ipod levy illegal, and Apple refunded the money to customers. I can't believe the MS fanboys here. But hey, makes no difference to me; just encourages me to find alternative sources. I mean, if I'm paying a fee to offset "piracy," then I'll definitely make sure that doesn't go to waste.
While I don't like this development, there doesn't seem to be anything illegal or shady about this deal.
Keep in mind, Microsoft has had deals like this in the past, only it went the other way. They used to (maybe still do) charge PC manufacturers a fee for every computer they sold, regardless of whether Windows was installed or not. For example, if Dell sold a PC with Linux on it, Microsoft got a fee from Dell. Not exactly the same, but sorta similar.
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MS is paying Universal for every Zune sold? Correct me if I am wrong, but isn't Universal amongst the labels that will be available on the Zune Marketplace?
If MS is paying a label who's songs are available on their Marketplace, how much are they going to pay the labels who are NOT on their Zune Marketplace?
After all, aren't those artists the ones who have more exposure to Zune-user piracy?
The practice does reek.
[sound effect]Sound of screeching tires[sound effect]
Well any thought of me getting a zune has just gone out the window. Just when you think MS has finally got something right, they go ahead an ruin it. I knew the Zune was too good to be true.
In the hope of becoming #1 MS sold their soul to the devil (if they hadn't already) and set an extremely dangerous precedent where only we the consumer suffer.
Hopefully when the contract with Universal is up Jobs doesn't fall victim to this extortion attempt.
Lol wow you people are dense... the studios get a cut anyway from total hardware sales on mp3 players... microsoft is just giving the larger studios an additional small cut from total sales... its called getting in good graces with the companys that matter.
What are you people cussing about the price for the unit didnt go up a dollar its still the same as the ipod's price... its just microsoft takes a buck less cut from any profits... stop whining.
This isn't for hardware share - there are a few songs on the Zune already that are Universal tracks and they had a hand in creating some of the online music distribution design. Research before conspiracy is always a good thing.
I guess all the radio manufacturers are going to have to start sharing the profits of the radios they sell. And maybe they should go after the television, VCR and DVD manufacturers for the movies they play. I sure hope this gets overturned. If not, I'd hate to see the world we live in 10 years from now.
This is good. It confirms that Hollywood has realized it has nothing to offer in the way of music so has to make its money elsewhere.
That MS would be so naive to entangle itself in this slow death suggests it also has nothing to offer.
Listen to any music station and ask yourself how much demand there can be for 50's thru 70's rock. Listen to internet radio and ask yourself how many of these artists are signed with a Hollywood studio.
This is simple. When Universal made a deal with Apple at that time they never though that iPod is going to be so big or digital music will catch on so quickly. Now they want in. So they must have told MS that unless they agree MS will not get any music from them. I dont think MS likes this deal but they did not have any choice.
By the way two more points:
1. MS has said that they will offer the same deal to other record companys. (They might get sued otherwise).
2. It was Universals argument the MOST of the music used on PMP are illegal (remember its illegal to rip yr CD). As we all know only 15% of people legally download music so Universal wants a cut for the device which stores so much of their content.
I really hate this but another way to look at this is that its business. But something must be done. This is stupid.
"(remember its illegal to rip yr CD)"
No, I don't remember that. I remember having fair-use rights.
Pogue's review of the Zune was not too flattering either: "Trying Out the Zune: Ipod it's Not"
http://www.nytimes.com/2006/11/09/technology/09pogue.html
But, as others have said, this is only round one.
Actually its technically illegal to rip yr CD. But even if we count that out all survey shows most of the music are downloaded illegally or gotten from friends. According to Universal they realize that digital is the way of future and they want in. I dont like it a bit. But in case we do not have any choice then I would like to see the restriction of 3 days or 3 plays be gone. Since they have a cut in the device then there should be no problem sending files from one Zune to another at all.
"Actually its technically illegal to rip yr CD."
Prove it. You're not breaking encryption as with a DVD, so fair-use stands.
Wow, I sometimes forget how many Microsoft haters there are out there. I think there are four potential reasons why this might have happened.
If I had to guess on the why, it might be -
(a) for pre-loaded content
(b) for copyright concerns re: sharing for 3 times / 3 plays
(c) for better access / exclusive access / first access (i.e. a platform exclusive like Halo or Grand Theft Auto in video games)
(d) for more artist content for the Zune store
There are plenty of logical reasons why this might occur, the 3 times for 3 plays swapping is probably the answer. Remember that the Zune comes pre-loaded, not everythign pre-loaded is going to be a hit. So I'd imagine that some companies took payment in forms of promotion of their artists while Universal is requesting direct payment.
re: the people selling radios should pay a fee as well
Actually the broadcasters - the radio stations - do this today. The Zune becomes a model with the 3x for 3 plays the Zune itself can broadcast the music. Probably easier from an accounting standpoint
to just pay them a percentage up front.
I declare that they no longer be called the "music industry." They shall heretoafter only be referred to as the "anti-music industry."
e.g.:
"You know they've reintroduced the death penalty for anti-music industry directors?"
"No, I didn't. For what offense?"
"What do you mean, offense?"
(with props to Douglas Adams)
actually it has everything to do with their buisness plan. They are now moving to this "Entertainment Connected" thing, or whatever they call it. So its all part of their new buisness plan.
Maybe this sets a bigger precedent. The cover story is that Universal is charging this "fee" to Microsoft, in return Microsoft gets the liscences(sp?) for Universdal's music. Now the real reason behind this is because universal is mad because only about 10-20% per ipod has legally downloaded music. So this is a way to get back their money. SOOOOOOOOOOOOOOOO........................
Whoever has a Zune can now download any music from any anywhere from any company charging this fee because the company is being compensated. hmmmmmmmmmmmmmm....... SO FREE MUSIC FOR ALL!!!!!!
According to the Slashdot links, David Geffen specifically views this deal as being justified by the stipulation that each of these devices will hold pirated music. I view this really overt attitude as dangerous as well as irritating. This is a pre-piracy fee. Universal could have made this deal without the attitude, purely from a business perspective. But the reality is, they didn't.
In other words, they assume Zune owners will be getting music for free, so in exchange for allowing the Zune marketplace to sell their musical product line, Universal gets a per-unit fee, paid for essentially by the Zune purchaser. Which means that you are paying extra because Universal wants you to pay for music piracy as a part of being able to purchase their products online legitimately.
I was considering picking up a Zune, because I'm a gadget freak and I'm looking for a new media player. But there's no way I'm getting one of these now. It's totally ass backwards.
Don't you guys get it? Microsoft is paying Universal to compensate for piracy. Clearly this means it's ok to pirate Universal music. Thanks Microsoft!
it's embarrassing how much hype the Zune gets.
And how predictably most react to 'the evils' getting a cut of the hardware price.
Yet nobody talks about royalties paid by every artist/producer when buying hardware utilising proprietary digital formats (MP3, WMA, WMV, AAC, etc). MP3 has huge licensing costs, for instance. Windows Media, too.
Every single piece of creative output the majors want to get a cut of. The idea is for the independents never competing with the 'big boys' in the digital future. Make no mistake about it; that's what it's about.
Your culture shaped by corporates. The art you see around you every day.
Nobody talks about the potential FLAC and Ogg Vorbis have for independent content, not this fake 'independence' Microsoft sells you to give Zune some 'image' and credibility - as if it's good for independents!; the very image they are going for to market Zune, sell content...and continue to pay peanuts to artists.
...in collaboration with the record industry (who they MUST do deals with to get where they want to be).
If Microsoft's hardware 'wins' their formats 'win' and years from now a new 'standard' is created...which they will continue to collect high royalties on for all future digital music/video purchases. Do we want this?
More of the same price-gouging. More middlemen 'representing' artists? Negotiating ultra-low royalties and telling them to hit the streets if they don't agree coz they have no options?
Or do we want to support and nurture independent content in royalty-free formats and hear and see something more REAL out there?
On top of this, nobody comments on the fact the Zune player:
1) locks you in to using XP/Vista. Nothing else. No Mass Storage mode to use on any OS without software like so many competitors.
2) locks you in to Digital Rights Restricted infestations like "3-days-or-3-plays" so-called "sharing" via wireless
3) locks you in to Microsoft's formats. Oh and AAC, because iPod is so popular now they'd be mad to not support tunes ripped from people's own CDs in iTunes (yet they will never support iTunes store tracks, of course...Apple won't license their oh-so-tempting Digital Rights Restrictions)
4) Locks you into using their proprietary Zune Media software to get tracks on the device.
Like I said, the Zune hype is un-freakin-believable. And the news that the industry has 'cut a deal' with Microsoft shouldn't even raise an eyebrow here. Both want mad profits. One wants to control the formats of every creative output now and in the future, for unforseen future control of the digital marketplace and royalties like you haven't seen.
The other has plenty of clueless artists by their side who signed up on the dotted line to have labels 'represent' them.
Both need each other.
All the while the Zune competitors offering SANE media players with open formats and working on virtually any operating system with no requirement for proprietary software to get songs ON and OFF the device are all but ignored by the masses.
The Zune hype is un-freaking-believable.
I am sure that Microsoft offered Universal a share of the "profits".
It was the same case when SCO sued IBM. Microsoft, that had nothing to do with the problem paid SCO about 16.6 mil for licenses. Do Microsoft sell Linux? Unix? No. But they had to help SCO pay their bills against Linux.
Now, by paying a share of the hardware sale to Universal, Microsoft wants to create pressure from the records companies in Apple, also demanding a share from the iPods. Other MP3s player companies will have to shut, not only because the iPod is #1, but also because the little money they made is now going to the record companies, thanks to Microsoft.
Microsoft is not going to lose more money, because the Zune is going to be a failure.
Terrible precedent to set. People who say "the price doesn't go up on the Zune" are thinking too narrow. MS as a company will not lose money. The money that they lose here is made up elsewhere: MS pays Universal with your Windows money. This will inevitably lead to other labels wanting their cut. And then what about movies and games? Will studios demand a cut each too? On Xbox hardware sales, since they have a marketplace now for movies? Our DVD players? Heck, what about our computers too? Computers steal everything: illegal music downloads, movies, software, games, books, porn. The companies will NOT stand for losing money, that's simply not how a business works. The extra costs paid to labels and studios will in one way or another come from us.
"I'm not sure why everyone is blaming Microsoft on this one when it's Universal that's pulling all the strings."
Just because someone pulls your string does not mean you have to dance. You can cut the strings.
"Here are the facts as I see them:
1. iTunes dominates the market to such an extent it's almost a monopoly (you know, one of the reasons Microsoft got sued?)."
Many (correctly) disagree with you, but even you are qualifying your statement with "such an extent" and "almost". Sounds like you don't even believe your own FACTS!
"2. Microsoft has realized that most *consumers* want a closed-system like iPod + iTunes, at least that's what they say based on their spending patterns."
Yeah, Jobs told them a year ago, and for five years, MS claimed they were right and Apple would fail. So?
"3. Microsoft needs content and fast and since the Zune is a closed system you can't hope other players will come along and pick up the slack like you can in the PlaysForSure model."
When you poorly execute and are just signing contracts a week before you release a product... yeah, you have to do it fast. Or... you could slowly negotiate over a year and a half by showing a successful product, quality research that predicts success, and a commitment to music like Apple did. Rather than just slapping together a different strategy every 8 months.
"4. Universal has long wanted this "Pirate Tax" on hardware and the only reason Jobs could avoid it before was because he had a market lock. It was basically a stalemate, monopoly vs. monopoly."
No, he said, this is the deal I want, this is the only deal that the consumers want, this is the only way you succeed. And he was right.
"5. Microsoft goes to Universal, says we need media and they get bent over while Universal says, "Your system is unproven, we are already making a ton of money via iTunes, we don't really need you to sell our music via your Marketplace. Make it worth our while, dance little monkey, dance!""
Yup. So? How does that absolve Microsoft? If they had a better product and a better strategy and had enough content from other sources, they could have said: "We don't need you that badly. We'll just go to the press and say you tried to extort from us and the consumer in an unprecedented fashion while we successfully build our product over the next few years. Thanks, but no thanks."
"I highly doubt Microsoft wanted to give up it's slim to none profit margin to Universal, they just had no choice."
Microsoft is ALWAYS willing to give up profit for marketshare because they have two of the most absurdly profitable monopolies in the world.
"Well, they could launch without Universal's catalog but that's not really an option if you want to succeed."
Or they could have had a better product and a better strategy and could have been working at this for a much longer time rather than slapping together a rebranded Gigabeat and throwing it on the market for Christmas.
"For once Microsoft didn't have the biggest stick in the world, the only thing they had was the cash lube."
Isn't this why we are begrudging Microsoft?
"Until Universal opens it's books and shows us how much money they are really losing I'm not going to lose any sleep over how much of their material is pirated."
But you are willing to defend Microsoft who is validating their bullsh!t argument?
An outrage!
At $1 per Zune sold, Universal is going to rake in something like $300 or $400, easy.
For doing exactly nothing. That's unconscionable.
This contract between Microsoft and Universal is much worse for Apple then it is for Microsoft, as I point out here: http://www.mathoda.com/archives/86
is this a red herring? could the cut Universal is getting on each unit really just tied to the bundle of Universal pre-loaded music on each zune? This would make more sense. Microsoft cant possibly be that desperate or stupid.