Microsoft to pay Zune spiffs to Universal

This seemingly innocuous agreement, under which Microsoft pays a fe dollars to Universal Music Group (one of the Big Four record companies) every time it sells one of its ZUne portable media devices, could actually grow into something really groundbreaking and important.

The music industry’s current approach is a dead end. DRM is fundamentally flawed technically (there’s no third-party attacker–you must eventually present the content to the person you’re trying to protect it against) and from a business perspective (users pay more to get less). File-sharing is gradually gaining more legal protection everywhere but the United States (which is irrelevant given the global scope of the Internet). CD retailers are going out of business. Consumers are learning to hate the record companies, who sue them and try to take over their computers with malicious software.

Many observers, myself included, believe that the better way forward for the music industry is a pooled-payment system for digital distribution. Add a few bucks added to the sale price of every digital media app or device, and perhaps even to monthly ISP bills. Then, some sort of tracking system could track how many times particular files are uploaded, duplicated, played, etc., and payments disbursed accordingly. Shawn Fanning (Napster founder) is trying to build a business based around this idea but hasn’t had many takers yet.

Microsoft is going ahead and doing it anyway with Zune. Short run, this gives UMG a stake in Zune’s success, and could get them to agree to steps such as eliminating the “3 days, 3 plays restriction” for Zune-to-Zune transfer, allowing Zune-PC-Xbox transfers, enabling the rumored “DJ mode” (broadcast to Zunes within range), subscription-based anytime-anywhere wireless access to millions of songs (the music lover’s dream), and so on.

Long run, if everybody follows suit, this could create a much friendlier world for digital music–consumers aren’t burdened by arbitrary and annoying restrictions, content owners get some compensation instead of nothing (as is the case with piracy).

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