Zune Deals with Labels, Implications for Artists

By now you may have heard the news that Microsoft has struck a deal with the Universal Music Group (UMG) whereby Universal stands to gain $1+ on the sale of every Zune device. UMG will also receive royalties for music downloads purchased through the Zune Marketplace. Deals with the other three major labels will undoubtedly follow a similar path. This is an interesting if not an entirely unique scenario; earlier this year, Sirius agreed to pay the four major labels a fee for every S50 sold after the labels complained that a device allowing users to store music wasn't covered under the fee they are paid for music played on satellite radio. It's clear that the labels have experienced a certain amount of frustration in not being able to participate in sales of the devices their music is being played on -- especially in the case of the iPod -- so this is clearly a step forward for them.

What's less clear is how artists will get their slice of the pie and get paid on sales of these devices as well. UMG claims they will be paying their artists half of the fees they receive from Zune sales (though I wonder about how that will work out in practice given the accounting challenges artists have historically experienced with the labels around royalties). This is a very murky area. We're not sure yet how successful the Zune will be vis-a-vis the iPod, it's not clear how much of a cash cow this will be for the labels (let along for the artists) -- that's based in no small part on the global success of the Zune. But rest assured if the labels are making a sizeable chunk of change from Zune sales, the artists will be expecting to receive their fair share - and they're likely to start getting much more vocal about it.

Beyond all of this of course, the next thing to watch is whether the labels are able to successfully negotiate somethiing similar with Apple on sales of the iPod when their contracts are up for renewal.