Digital Home Thoughts: C|NET: Microsoft Strikes Deal for Music

In a rare move, Microsoft said Wednesday that it had agreed to pay a percentage of the sales of its new portable media player to the Universal Music Group. Universal Music, a unit of Vivendi, will receive a royalty on the Zune player in exchange for licensing its recordings for Microsoft's new digital music service, the companies said. Universal, which releases recordings from acts like U2 and Jay-Z, said it would pay half of what it receives on the device to its artists. The company is expected to receive more than $1 for each $250 device, according to executives who were briefed on the pact.

This is huge - no hardware maker has ever agreed to cut a piece of their profit pie off and hand it to a music company. This is a sign of bad things to come, but it's also a sacrifice that Microsoft was evidently willing to make in order to secure music from Universal for the Zune Marketplace. The question is, will we start to see a bump in the cost of audio players as every studio will now take this as a sign they can withhold their music in exchange for a cut of the hardware costs? No matter how you slice it, this is extortion - Universal should make money when people buy the music their artists produce, not when someone buys a music player and loads it up with whatever music they wish. There's nothing but bad here...