Analysis of IT news

Sunday, November 12, 2006

News Item: Microsoft to pay music majors for every Zune player sold

News Item: Microsoft plans to pay music majors a few dollars for every Zune player sold. The music majors argue that MP3 players are responsible for a the declining sales in CDs.

Analysis: several people have contested the fact that MP3 players are hurting CD sales . But this is beyond the point. Music majors asked for some money because they COULD.

New technologies have been changing the music industry forever. More and more consumers do not want to buy a whole album just for 1 or 2 songs, fans can get their favorite songs for free (albeit illegally) if they wish. And sales have been slumping (I will let everybody judge on the reasons). As the majors do not see how to get back to the good old days, they blame the new technologies for all their problems, and try to have them pay for the alleged loss. For instance, in France they were able to pressure the government into creating a tax for every MP3 player and computer hard disk to "compensate" for the revenue loss. So it's only natural that they're trying to do the same with Microsoft.

Now, why is Microsoft eager to give them some money? Redmond's strategy has always been to aim for the long term. Propose a partnership attractive in the short term for the other party, but make sure it gets most of the profits in the long term. The list of companies who made the mistake to be a Microsoft partner is long. The last ones would be all the companies who embraced Microsoft musical platform, only to see Redmond coming up with its own solution with the Zune and becoming their competitor. When it comes to partnership, NEVER trust Microsoft.

But in the meantime, Microsoft is ready to do everything to topple Apple and its iPod. So giving some money to the music majors allows it to get an edge over Apple. Steve Jobs has indeed too much power over the online music industry right now, and the majors don't like that. Jobs was the one who "convinced" them to keep the $1 per song price and not charge more for the hot titles as they wanted. So Microsoft is trying here to put the music majors in its pocket by proposing them a sweeter deal.

Now, who will win in this power struggle? It really depends on the MP3 player market. Apple is in a position of strength because the iPod has the bulk of the market right now, so the majors HAVE to deal with Steve Jobs, whether they like it or not.

If Microsoft succeeds in overthrowing the iPod and capturing the MP3 player market, no doubt it will behave like Apple is behaving now and will impose its conditions. On the other hand, if Microsoft and Apple both share the market, this could turn to the advantage to the music majors, who can then play the two tech companies against each other as a bargaining method.


Post a Comment

<< Home