Microsoft agrees to pay percentage of music download sales to content owner

November 17, 2006

Microsoft introduced Zune media player last week. The software giant has agreed to pay a percentage of the sales to a content holder, the Universal Music Group.

Universal Music will receive a royalty on the Zune player in exchange for licensing its recordings for Microsoft’s new digital music service, the companies confirmed. The deal includes a percentage of both download revenue and digital player sales.

Universal said it would pay half of what it receives on the Zune player to its artists. Estimates are the company will receive more than $1 for each $250 device, the New York Times reported.

Apple, on the other hand, pays music companies a fee for their songs but not a percentage of the sales of its iTunes music store.

The Times reported that the accord could represent a change in the dynamics between technology developers and the media companies that provide the content that plays on their devices. It also reflects, said the newspaper, Universal’s recognition that, for all the runaway success of devices like the iPod, consumers are still not buying enough digital music to make up for declining sales of music on compact disk.

A recent study estimates that Apple has sold an average of 20 songs per iPod, only a small fraction of its capacity. Ninety-five percent or more of most iPod owner’s files come from ripped CDs and other sources.

The deal, if successful, could also provide leverage for Universal to insist on a cut of future iPod sales when its existing contract with Apple expires next year.

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