Kickbacks to the Music Industry

There is an article in the New York Times that details the deal that Microsoft has cut for the music industry, which is that they'll get a cut of the Zune sales.  That's a share in the revenue from the sale of the device in addition to the sale of music.  This is not how it works on an iPod.  So here are a few thoughts around this arrangement, which I think is terrible. 

Firstly, it shows how desperate Microsoft is to try and knock Apple down from its mighty iPod throne. Even it Microsoft's Zune fails...which it will, the music industry will begin to demand this of Apple.  That can only hurt us the listeners.

More importantly, I hate the tone in the article, where they say:

“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.”

What the heck?  First - all the music on my iPod....and I mean ALL!!!...is either purchased from iTunes or ripped from my own collection of over 500 CDs.  So stop calling me a thief by forcing me to pay you, the music industry, a fee for owning an mp3 player.  More importantly is this, though....if you are going to take a fee from owners of mp3 player so you can cover the cost of music that hasn't been paid for....that means then that there should be no problem in the future for people taking music from sources for free.  You're getting paid already right Mr. Music Industry from the likes of Microsoft.  That fee is meant to cover the cost of music that isn't paid for right?  So that means you'll stop suing people who download music for free?  I mean in court, would I be able to say, "There isn't anything wrong with what I did.  I didn't steal this music.  I paid an extra fee when I bought my iPod (or Zune) and that fee compensates the recording industry for music downloaded for fee, so there aren't any damages."  Isn't that right?  I'd bet though that the music industry wants to have it's cake and eat it too.  They'll take a slice from Microsoft's Zune and pressure all the other mp3 player makers as well (hey let's get it legislated shall we...a nice big mp3 player tax to punish all those thieving people we call customers) but then they'll still take steps to make sure you pay for the music.  Laughable.  Downright disgusting.  Sad.

Microsoft, you've opened a terrible can of worms with this one.  Shame on you.

Comments

[Hugh]

This idea of a tax had already been tried in Canada and the courts rejected it. Remember when people who'd purchased iPods when this tax was in place, the were refunded that money when the court ruled it wasn't legal. I don't think that this will be something we'll see re-introduced as mandatory for the iPod. If Microsoft wants to do it, then it will be their loss.

[Stephen]

I think this is an interesting marketing plan from Microsoft. They have clearly motivated the music industry to suggest and promote the use of the Zune as that promotion is money in their pocket.

I think this has no plausable connection to the increase decrease of illegal downloads. Your points are correct MIP except, the fact that Microsoft has decided to give money to the music industry does not mean you are subsidizing the issue of the illegal stuff, only that the music industry has someone sucking up to them. This means two thigs to me:

1. Microsft has done wonders to Sony in the playstation by losing money on each unit to make it up later in games. This may be the same model and now the music industry is motivated to provide their music to and the execs win.
2. The musicians lose, they don't get a piece of this revenue as this is not a royalty for a song purchase.

[mip]

Good post Stephen. I agree, Microsoft has hurt Sony by adopting a lose-money-on-the-hardware strategy. The thing is, they make a lot of money on the sale of games. If they decide to go for a loss on the Zune, there isn't a lot of money in selling the tunes for Microsoft. For the Xbox 360, Microsoft makes additional revenue on games it produces, like Halo which was a run-away success and fees paid to Xbox live. They don't have that for the Zune. Content is solely owned by the music industry and the artists. Now, I do think, however, that Microsoft can and will adopt a lose-money strategy on the Zune just to hurt Apple's bottom line. Microsoft can afford to do this. Apple can't. In the end though, that only hurts the end consumer. What I don't get is this. Aren't there laws against predatory pricing?

Strategies aside, from what I've read (obviously I haven't used a Zune...yet...but come Tuesday, I plan on testing one out when they are released) the Zune generation 1 is no iPod. I only hope that the overall music player market isn't hurt by Microsoft's tactics the way the browser and OS market have been over the past years.