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Microsoft Challenge Apple For Control Of The Online Music Market |
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Wednesday, 20 December 2006 |
  In the early days of the music industry money wasn't fundamentally made from the sales of music, but from the sales of vinyl record players. Vinyl was the dominant format but expensive to manufacture. However the profit margin in the sale of vinyl players such as the gramophone was far more lucrative.
Jump forward to 2006 and this business model has returned. Apple recently announced that profits from its portable music player the Ipod far outweighed the overall profits made from its online music store itunes. However itunes acts as a key driver in the sale of the Ipod, and record label execs have now become frustrated that they haven’t been cut into the extremely lucrative revenues from hardware sales.
Enter Microsoft stage left, who has been enviously watching Apple land grab the desirable online music market. Many hold the view that Microsoft stole the ideas created by Apple computers in the early nineties to create their now dominant Windows operating system. 15 years on and these two computer giants still share no-love. The question is now - is history repeating itself as Microsoft this month launched its answer to Apples Ipod, the Zune player. But what’s different ? Well the Zune portable player plays a variety of music formats the Ipod doesn’t, but thats not its unique selling point. In a precedent-setting deal Microsoft announced they will pay Universal a portion of the profit of each Zune music player sold. The exact cut for the hardware isn’t clear, but it’s rumoured to be roughly £1 per unit sold (A new Zune player costs roughly £200).
This deal marks the first time a record label has shared revenue from the sales of an electronic device so it’s an extremely significant landmark. Although the first months sales indicate a slow start, it’s clear Microsoft have now created a wedge between Apple and the label execs, who are now demanding that Apple adopt a similar business model.
The real question that comes out of this deal is how will this effect the music industry – if the focus for majors is moving away from selling music this can only be a bad thing from music overall, or maybe this is the start of the independent revolution….
Written by : Doug Cooper
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