All this recent talk of Apple, Inc. and the iPhone reminded me of an interesting article I read about music licensing agreements with the iPod and other portable media players.
But back to the iPhone for a minute, I would like to see a post about all the intriguing issues surrounding it, though: single-carrier model (Cingular); no 3rd-party apps?; use of wi-fi, etc... I’ve never used a comparable device and don’t know enough about technology to offer up anything intelligent, so maybe someone else can volunteer. I’m wondering if this is the next big thing or just Apple leveraging its name in attempt to control my lifestyle.
Okay, so music licensing agreements. This isn’t breaking news, but Microsoft agreed to pay Universal Music Group $1 or so for every Zune player it sells, with about ½ of that going to the artists. This is in addition to the cut Universal will get from downloads at the Zune music store. Microsoft didn’t agree to the $1 per device out of the goodness of its heart; Universal demanded the $1 from Microsoft in exchange for access to its music catalogue. Microsoft’s hand was forced as it needs to do everything possible to give Zuna fighting chance. But does this set a precedent for other media players and their content licensing agreements? I know Apple’s agreement with Universal, a cut of the sales from itunes, is set to expire shortly, but will Apple shell out a $1 per iPod as well? Universal may as well try because it can always go back to the current deal should Apple fail to agree with the new terms. There’s no way Universal would sever its relationship with Apple and leave money on the table, right? You could then argue that makers of all other portable media devices, that also operate music storefronts, would have similar leverage with the record labels if forced to enter a fee-per-device agreements - so unless Microsoft views the fee-per-device model as a strategy to potentially bankrupt its not as well-endowed competitors, isn’t this just locking Microsoft into a money-losing deal and dooming any potential financial success for Zune? And if Microsoft were pursuing the bankrupt strategy, it’s assuming the record labels could force its competitors into a similar deal, but surely Apple would succumb to this? Hasn’t Apple been pretty rigid on keeping downloads on itunes at $1?
I can’t really blame Universal for trying to get a bigger piece of the pie – they’re probably kicking themselves for not thinking of the fee-per-device arrangement when first negotiating with Apple. I think this is just a case of Microsoft being late to the party and paying for it.
But does it even make sense for the record labels to receive a share of revenues on a device? The article suggests the labels view this “tax” as reparation for revenue lost to illegal-downloads. It’s kind of presumptuous and scum-baggish for Microsoft and Universal to charge us a $1 for our alleged illegal-downloading; it would be a bit more palatable if they didn’t come right out and say it like that. But this brings up another issue, does paying the $1 mean I have free reign on Universal’s catalogue? So okay, sorry guys for stealing music from you all these years, here’s a $1, excuse me while I go download music that I’ve now paid for. Maybe this isn’t such a bad deal.
Posted by sam at January 17, 2007 11:51 AMYou've made alot of assumptions here, Sam. I can't see Universal simply "not thinking" of charging Apple a dollar for every ipod sold. I have to wonder how much of a hit Mircosoft is actually taking on this. Amazon has zune retailing at about $230.00. Like you said, if they were just playing catch up here, $1/unit doesn't seem unreasonable in the interest of giving Zune a chance.
I also kind of think that since Apple has the mp3 player market cornered (I don't know their exact market share, but everybody on the train in the morning has an ipod, so...) and they have instituted the .aiff file type which I'm also assuming Universal and other labels had to adapt to. And all too willing they are, I'll bet, because if there's money to be made in doing so, they want they're music in my ipod. Zune however, will not support aiff for obvious Apple vs. Microsoft reasons so they are forcing labels and consumers to use their .wma and .aac formats. This will require some conversion and headaches and work for Universal. It might also create alot of work for the consumer; if i have an ipod full of .aiff files and I am financially inclined to try out the Zune, what do i do? Universal might just be saying to Microsoft, "This is in a pain in our asses. We want to wet our beak."
As for Apple, since the market is so saturated with the ipod, it might be the case that Universal and other labels feel a need to format to them. Which is to say, they need the business generated by the ipod more than the ipod needs one label in particular. This might also be especially true given the relative ease of pirating music.
The fact is, I have no facts. Everything I've said is simply speculation. With that said, Go Bears.
Posted by: Mike at January 17, 2007 01:08 PMGood stuff, Mike. Yeah, I have no idea what the margins on mp3 players are. Maybe the $1 isn't such a big deal to Microsoft, especially in the interest of breaking into the field.
But I wonder if anyone thought the iPod would be such a runaway hit? Especially the record industry, which isn't particularly known for its forward thinking.
Posted by: Sam at January 17, 2007 03:02 PMI think the iPhone is targeting a pretty small demographic, which is, the non-business class smart phone user. That said, this is a really sexy little piece of hardware, and the price tag is a steep but considering you get Internet (the first handheld with a full featured browser including Javascript and possibly flash support) and an iPod (ok, only 8 gigs but you back your ipod up on your hard drive already, don't you? just pick your tracks out once and month and you'll be fine), I'd say you're getting your money's worth. I have yet to play with one myself but the interface looks very cool - I've heard the soft keypad works well enough, considering you won't be writing your thesis on the thing. A lot of the guys in my office are already talking about getting one of these so I think they will do quite well.
So yeah, Apple *is* leveraging its name to control your lifestyle but uh, they have your best interest at heart. Open up and let it in Sam.