Microsoft has agreed to pay Universal Music Group a royalty on every Zune media player sold as compensation for pirated music used on the devices, a decision which will have wide ramifications throughout the digital music industry. This royalty would be in addition to a percentage on every track by Universal artists sold through the online Zune Marketplace. Microsoft is apparently ready to extend similar royalty arrangements on Zune sales to other music distributors in a move that could push up the price of players.
Microsoft's Zune media player will be introduced in the US next week at a price o $250; from each sale, approximately $1 will go to Universal.
According to the New York Times (subscription required) and Reuters, Universal will pay half of what it receives on Zune device royalties to Universal artists; the rest, presumably, will go into Universal's coffers.
The agreement may establish a new precedent for the online music industry, currently dominated by Apple's iPod/iTunes combination. Apple pays music labels for songs purchased through its iTunes Music Store, but does not pay music distributors a royalty on each iPod media player sold. However, music labels have been unenthused about revenues generated by Apple's iPod/iTunes business: earlier this year, they fought to break Apple's universal $0.99-per-track pricing model on the iTunes store, and labels have frowned at industry studies which claim iPods, on average, contain about 20 songs purchased through the iTunes Music Store. Record labels seem believe that the rest of an iPod's capacity is taken up by pirated music, and feel they are owed a share of portable music player hardware sales as compensation for the device makers encouraging music piracy.
Music labels do receive a royalty on sales of blank CD media, digital audio tape systems, and other technologies which the industry felt contributed to music piracy.