Microsoft and Universal Music Group say they have struck a licensing deal for the software company's new Zune portable music player and digital music store that calls for the recording company to get paid a cut of the sales of the device.
Executives at both companies declined to disclose the financial terms of the deal, which was expected to be announced early Thursday.
Redmond-based Microsoft Corp. is pursuing similar agreements with other major record labels, Chris Stephenson, general manager of global marketing for Microsoft Entertainment, said late Wednesday.
Zune, which is scheduled to be released Nov. 14, is Microsoft's attempt to compete with Apple Computer Inc.'s market-leading iPod player and iTunes music service. The device, which will sell for $249.99 US, lets people share songs, playlists or pictures over a wireless connection with nearby Zune users.
By paying record labels a portion of Zune player sales, Microsoft hopes to have more freedom to allow song-sharing or other promotions, Stephenson said.
"There's certain marketing elements that we're looking at going forward, all based around the sharing and wireless scenarios," he said. He declined to provide specifics.
But in an interview late Wednesday, Universal Music Group Chairman and CEO Doug Morris told the Associated Press that the wireless song-sharing feature of the Zune was not a major factor behind the company seeking a revenue sharing deal on the player.
"The only factor was that we feel that there's a great deal of music that's [stored] on these devices that was never legitimately obtained, and we wanted to get some sort of compensation for what we thought we're losing," Morris said. "I want our artists to be paid for the music that makes these devices popular."
While sales of digital tracks have increased in recent years amid lagging sales of CDs, record labels lament that much of the music that winds up on iPods and other digital players comes from either CDs fans already own or tracks culled from online file-sharing services.
Earlier this year, Universal and other major recording companies settled a dispute with Sirius Satellite Radio Inc. over its Sirius S50 portable music player by reaching a deal that called for Sirius to pay the record companies a fee for every S50 it sells.
Universal sought a similar approach when Microsoft came calling Universal to hash out a licensing deal for its Zune online music store.
Absent a deal with Universal, Microsoft faced the prospect of unveiling Zune without content from the world's biggest recording company, home to artists such as U2, Eminem and Shania Twain.
Morris said the agreement with Microsoft marks a turning point in how the company will approach similar deals in the future.
"I don't want any business built on our music without getting paid a part of the business," he said.
Morris declined to say what percentage of each Zune sold will be paid to Universal Music, but said "it's good."
Under the terms of the deal, Universal will split the money it gets from Zune player sales with its artists. Morris declined to say how much artists will be paid.