The labels are getting their first piece of the digital-music-player biz.
In a first-of-its-kind deal sure to cause headaches for Steve Jobs in the future, Microsoft has agreed to give Universal Music a cut of the revenue from sales of its Zune digital music player, which goes on sale next week.
Tech giant said it would offer identical terms to other labels, both indie and major, along with music publishers.
Coin from Zune hardware sales will come on top of royalties labels make from individual song downloads in the Zune musicstore, which is launching along with the player.
While other labels had already agreed to provide their music to Zune’s store, UMG was a last minute holdout. CEO Doug Morris, who has also played hardball to get revenue from musicvideos on Web sites like Yahoo! and YouTube, is said to have insisted on additional compensation from Microsoft.
The cut of Zune hardware revenue is believed to be relatively small, but it establishes an important principle for the labels: that they deserve money from each iPod and similar device, not just the music legally downloaded to play on it.
Diskeries are justifying that stand based on studies such as one recently conducted by research firm Jupiter in Europe, which found that only 5% of the music on iPods was bought from iTunes and other digital musicstores.
It’s unclear, of course, how much of the rest was legally transferred from CDs as opposed to being pirated. But numerous studios have shown that music piracy remains pervasive online and the ability to play such songs on an iPod or Zune makes illegal downloading more attractive.
Microsoft has made clear that it plans to invest hundreds of millions of dollars in the next few years to make Zune a success. Tech giant was clearly willing to spend a little more to ensure smooth relations with the music biz.
“The most important thing for us is the level of relationship this deal enables,” said Zune’s general manager of marketing Chris Stevenson. “From that point of view, it’s a great place to put some of our resources.”
Labels, who have been very unhappy with Apple’s unwillingness to bend on its uniform pricing of 99¢ per song but were unable to get company topper Steve Jobs to bend in last spring’s renegotiation, will surely use the Microsoft agreement to try and drive the iPod maker, and other competitors, to agree to its terms.
Whether they succeed will likely depend on Zune’s popularity.