Universal Gets A Cut Of Zune

The New York Times is reporting that Microsoft has made a deal with Universal, which will more than $1 (of the $250 device) to Universal Music. Of that $1 roughly half would go to artists. Universal will also get a portion of the fee charged for purchasing music online via Microsoft. And here is the choice quote:

Universal said it was only fair to receive payment on devices that may be repositories for stolen music.

Remember when music companies want a piece of every blank CD that was sold, using the argument that it could be used to record music illegally? Let me spell it out very clearly, just because a device can be used to break the law doesn’t mean that it should automatically be assumed to do so. We can go on to create many absurd examples using this argument:

• Car manufactures should pay a portion of the sale price of new cars to local police on the basis that a car can be used as an escape vehicle after committing a crime.
• Companies that produce tape decks that can be used to record on to tapes should pay a portion of their sale price to music companies.
• Dell should pay a portion of their computer sales to music companies because they could be used to store music illegally.
• Hard drive manufactures, Internet Service Providers, software companies that write web servers and anyone that had anything to do with spec for TCP/IP will have to pay money to music companies for being involved in technology that could be used to download or store music illegally.

Others have already pointed out why this is a bad precedent for Universal to pursue. If I’ve already paid upfront in the cost of the device money required to recover from illegally downloaded music, then maybe it isn’t illegal anymore because I’ve already paid for it. I’d love to see that one go to court.

“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.”

I don’t think anyone likes to be assumed guilty. Are digital music players (DMPs) used to store illegal music? Sure, but that is a far cry from indicating that everyone who has a DMP is storing illegal music on it.

Steve Gordon, an entertainment lawyer, said that Universal was saying, in effect: “Look, we know new technologies are here to stay. We know CDs are like typewriters, and are being replaced. ”

The part that Mr. Gordon left is that they are still clinging to their typewriters with both hands, kicking and screaming.

None of these arguments get to the core of things though:

In addition, the deal may provide leverage for Universal to insist on a cut of future iPod sales when its existing contract with Apple expires next year.

See, I think both Microsoft and Universal are thrilled with this deal. Yes, Microsoft is positively giddy over their new deal with Universal (and others). Why? Because they are trying to change the nature of the game, and they can afford to do so because they’ve got tons of money. This agreement is going to create angst between Apple and Universal, which will either cause Apple to cave in (and make less money) or Universal to be ticked and pull their license all together. At least these are the two results that Microsoft is hoping for. Another option is that nothing will change between Apple and Universal, as result that is more likely if Zune is flop.

Different parameters, but this is not unlike what Microsoft did with Internet Explorer to crush Netscape. By leveraging their existing wealth they are able to make things harder for the competition.

And of course Universal is thrilled because they believe that this is the dawning of a new day, where they will be able to milk money from other companies products. Even if those products never hold a single song from Universal.

UPDATE : Om brings up a good point, the $1 per device is roughly just one more $0.99 song. If charging the equivalent of one more song takes care of the pirating loss then they really should focus on developing more compelling content.

The Times is also running a review of Zune: Trying Out the Zune: IPod It’s Not. Not exactly a glowing review.

TechCrunch has a different take on this.