Microsoft’s Zune Devices To Offer EMI Music Videos

The most unusual aspect of the deal was that it came before any major record label, including EMI, had announced a deal to provide songs for Zune. EMI -- the 3rd-largest label -- said the music videos it will provide Zune will include titles from the artists 30 Seconds To Mars and English electro-pop band Hot Chip. An EMI spokesman declined to say whether videos of any of his company’s other artists -- such as David Bowie, Coldplay, Norah Jones, Paul McCartney and KT Tunstall -- are included in the deal. EMI said it expected its artists’ videos will be preloaded alongside those from other record companies.

Sony BMG Music, Universal Music and Warner Music didn’t comment by our deadline, but Reuters reported that Universal confirmed it was in talks with Microsoft over Zune. There had been speculation Microsoft might have decided to postpone the launch of its first Zune device because of the lack of deals with the labels. But the EMI and Universal news suggested Microsoft was making progress. Microsoft declined to comment on its discussions with music labels.

EMI said Apple had been a key partner in developing the digital music market. But Jeff Kempler, exec. vp of EMI division Virgin Records America, told Reuters his company considers “any well-funded serious entrant… to be good news for the artists” and the rest of the industry.

Microsoft confirmed late last month that it’s planning a line of Zune-branded portable entertainment devices, the first expected to ship in time for the holiday season (CED July 24 p7). The first device is expected to be a portable music player that will go head-to-head with Apple’s iPod. Microsoft also plans a digital music service that will compete with Apple’s iTunes. Microsoft has provided only sketchy details about future Zune devices but gaming is expected to be added to the mix.

Concerns about Microsoft’s effort were expressed by digital music companies and copyright lawyers at a recent N.Y. investor conference (CED Aug 11 p1). After Microsoft’s announcement, it was revealed the Zune line won’t support Microsoft’s PlaysForSure Digital Rights Management (DRM) platform, which Apple rivals have been using to make digital music files to compatible across a wide range of non-iPod digital audio players. Napster CTO William Pence told the BMO Capital Markets eMerging Music Summit he was “very sensitive” to the issue of PlaysForSure because his company is a licensee. He said it remained unclear whether Microsoft planned to abandon PlaysForSure completely or just not use it in Zune devices. A Microsoft spokeswoman, however, later clarified the company’s plan, saying, PlaysForSure “helps consumers choose from a variety of devices and services to find the model that works best for them; with Zune, however, our goal is to build a rich community around the brand and the experience, and to do that effectively we feel it is important to provide an experience that is integrated end-to- end.” That makes the company’s plan akin to Apple’s iPod strategy. But the Microsoft spokeswoman said the firm wasn’t dropping its support for PlaysForSure entirely. She said: “Our goal is to give consumers choices for how they consume music -- both through the PlaysForSure model and through this new integrated solution.” The question remains, however, how many CE device makers will want to continue to pay a licensing fee to what is now a competitor =in the digital audio hardware.

Also raised at the investor conference were reports that Zune device users will be able to convert iTunes music files into files that can be played on Zunes, which could create a new copyright question. Microsoft, however, hasn’t confirmed it will let Zune users convert iTunes files into files that can be played on Zune. -- Jeff Berman

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Microsoft changed the timing of its plan to buy back $40 billion shares, the company said Fri. It said it expects to buy $3.8 billion worth of its shares in a tender offer that expired overnight Thurs.-Fri. and shifted the rest to its long-term program. The company said, based on the preliminary results of its modified Dutch auction tender offer, it expects to acquire about 155 million shares of its common stock at $24.75 a share, at a total cost of about $3.8 billion. The shares are only about 1.5% of those outstanding. Microsoft also announced that the authorization for its ongoing share repurchase program, previously announced July 20, was increased by about $16.2 billion. As a result, the company said it was authorized to buy back up to $36.2 billion of additional shares through June 30, 2011. It said Goldman Sachs and Deutsche Bank were co-dealer managers for the tender offer, Georgeson was information agent and Mellon Investor Services was depositary.