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Zune challenges iPod with royalty deal

Janet Babin Nov 9, 2006

KAI RYSSDAL: There’s word of a corporate deal today that even a musician could love. Microsoft has announced it’ll write a check to the Universal Music Group for every one of its new MP3 players it sells. In exchange Microsoft gets better access to Universal’s artists. Microsoft’s banking on the deal to help launch its MP3 player Zune next week. But Janet Babin reports from the Marketplace Innovations Desk at North Carolina Public Radio it’s facing a tough fight against Apple and the iPod.

JANET BABIN: Microsoft is entering what could be called a one-note enterprise: Apple enjoys a 75-percent share of the music player market, and the lion’s share of online music sales. Microsoft’s deal with Universal may be an attempt to rankle the competition.

Universal has a high-profile partnership with Apple — one of its best known bands, U2, advertised the iPod.

Peter Gaston with Spin Magazine says Universal has some other key acts that Microsoft would like consumers to now associate with Zune:

PETER GASTON: I mean, the Killers are a Universal band. A ton of big bands in the iTunes marketplace are definitely under the Universal umbrella, and Zune obviously sees that as something that could really benefit them in their battle against Apple and against the iPod.

While this agreement may sweeten the pot for the record labels to do business with Zune, it would be nearly impossible for them to offer Microsoft exclusive content when most people get their music from Apple.

David Berlind with ZDNet calls this a publicity deal:

DAVID BERLIND: Microsoft is pretty desperate here. They’ll do anything to stimulate sales of Zune and try to attract buyers that normally would buy an iPod away from the iPods and the iTunes music store.

The companies didn’t disclose how much money Universal artists would get from Zune sales. Microsoft plans to offer similar arrangements to other music labels and their artists.

In Durham, North Carolina, I’m Janet Babin for Marketplace.

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