Microsoft (NASDAQ:MSFT) wants to get into the online music subscription business -- but not at music companies' lofty prices.
To that end, Microsoft is no longer interested in further discussions with the various labels. After negotiating with the likes of EMI Group, BMG (the joint venture between Sony (NYSE:SNE) and Bertlesmann AG), VivendiUniversal (NYSE:V), and Warner Music Group (NYSE:WMG), Mr. Softy has concluded that the demanded licensing fees would be too exorbitant. According to The Wall Street Journal, the music companies wanted between $6 and $8 per subscriber on a monthly basis.
The online music business is a good fit for Microsoft. Look at what it did for Apple (NASDAQ:AAPL) and its iPod brand. Although Apple doesn't currently engage a subscription paradigm, it sells a heck of a lot of iTunes. In fact, Alyce Lomax recently reported on the boom in online music sales. Among the statistics she highlighted: While overall global music sales dropped 1.9% to $13.2 billion in the first half of the year, music download revenues tripled to $790 million. That's impressive, and it indicates that the digital distribution of songs is a great value-added proposition for shareholders, but certainly not at any price.
When you think about it, Microsoft doesn't have to rush into anything. It has many successful business units that throw off a lot of cash, so Bill Gates can wait to strike a better deal. Companies like Yahoo! (NASDAQ:YHOO) and Napster may have decided that there is value in playing ball with the music industry and its license fees since they already offer subscription services. But I see the merit in Microsoft playing hard to get. After all, Microsoft currently sells songs at its MSN site, so it already has exposure to digital downloads. When the time is right, the company can open talks with the labels again and strike the right deal.
Apple CEO Steve Jobs tweaked the music industry a little when he characterized it as being driven by greed for wanting him to increase the pricing scheme on his iTunes service. I'm not necessarily sure I agree with Jobs. I don't want to get all Gordon Gekko here, but hey, I can understand the music companies' position. They want to get the most for their shareholders. I also see the viewpoints of both Jobs and Gates -- they want to see a logical price for a marketplace that, sad as it is to say this, has preferred pirating music to buying it. If the licensing fee is too high, the model might not work.
Let's hope the music companies and the online companies can work this out. Even if it doesn't propel the stock into the stratosphere, Microsoft and music subscription services would be a good fit.
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Fool contributor Steven Mallas holds no financial position in any of the companies mentioned. The Fool has a disclosure policy.
