Zune Deal: Poison Pill, Skunk, Or Just Bill Gates?

Microsoft just cut a deal with Universal Music for the upcoming Zune music player and Zune Marketplace music store.

Universal will license their music for the Zune’s music service. Microsoft will pay money to Universal for each Zune sold.

That’s like the music labels getting paid a commission from the CD music player manufacturers to allow their music to play on their (your) player.

It’s also like the music labels getting paid a commission from the electric company to allow their music to be played on anything using electricity.

The deal is a poison pill for Apple, courtesy of Bill Gates and Microsoft. Why? Sour grapes (please excuse the mixed metaphors).

Over the next year Microsoft may have to pay $1-million or $2-million to Universal for the rights to play Universal’s music on Zune players.

Next year is contract renewal time for Universal and Apple and a dangerous and expensive precedent has been set.

Guess what? Apple will sell perhaps 60-million iPods next year. Guess what? Universal will want a cut of every iPod that Apple sells.

Is the Zune deal with Universal a poison pill for Apple? Yes. It’s business as usual for Bill Gates’ Microsoft.

They can’t beat Apple in a fair competiton for products that customers want and love.

Historically, Gates and company have had to resort to illegal tactics to win markets, partly because they can’t build a successful product or market the old fashioned way.

Expect Sony, Warner, and dozens of other music labels to want a cut of Apple’s iPod pie—a commission, a fee, for each iPod Apple sells.

In the end, Microsoft’s tactics won’t win the market for them. The Zune is destined to be a big flop; one of many in a long line of unprofitable ventures for Microsoft.

In the end, you and I will pay more money. More money for iPods. More money for music.

The crux of Microsoft’s poison pill for Apple is simple. Music companies would charge you for the music, and charge you for the rights to play the music on an iPod.

It could be argued that Microsoft was forced to license Universal’s music and pay the Per-Zune-Fee. That’s not the case.

The music industry needs Apple, they need iPod sales, they need the iTunes Store to succeed. Microsoft simply needs to be a skunk. It’s in the genes.