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A risky move for Microsoft?

Scott Jagow Nov 9, 2006


SCOTT JAGOW: Next week, Microsoft rolls out its alternative to the iPod: the Zune music player. It’ll go for $250 bucks, a tiny profit margin for Microsoft. Still, the company wants record labels to take a cut of those sales. Today, Universal said it struck such a deal. Michael Gartenberg of Jupiter Research believes Microsoft could be making a mistake.

MICHAEL GARTENBERG: This is a pretty disruptive deal. The notion that you’ve got a hardware vendor who’s going to pay fees to record companies because there’s music on their devices is almost unheard of.

JAGOW: So Apple doesn’t have this kind of deal with the record companies?

GARTENBERG: Apple certainly doesn’t pay them any money or fee on every iPod sold. There’s no doubt Microsoft is hoping to court the record companies, to win their hearts and minds, which frankly is a good thing because Apple has already won the hearts and minds of consumers. You gotta start winning someone’s love somewhere.

JAGOW: So I guess the big question is, does this give Microsoft an advantage or a disadvantage going up against the iPod?

GARTENBERG: If Microsoft is really seen as cozying up with the record labels, that could backlash because the people they’re targeting are the 18 to 28 year olds, people who like indie music and the people who really have no love for the record companies at all. And if Microsoft is going to be perceived as a shill for the record companies or this is the Recording Industry Association’s preferred music device, that isn’t going to help them win the hearts and minds of consumers.

JAGOW: Alright Michael, thanks a lot.

GARTENBERG: You got it. Have a good day now.

JAGOW: Michael Gartenberg’s with Jupiter Research in New York.

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