Media Wonk

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Univeral Music services XM Radio - December 17, 2007

The transformation of Universal Music Group from a company that sells music as a product to a company that licenses a music service continued Monday when UMG became the first major music company to settle its lawsuit with XM Satellite Radio over its Pioneer Inno, a portable XM receiver with advanced recording functionality. As part of the settlement, UMG reached a multi-year deal covering all XM radios with recording capability, including current models and any that may be introduced in the future. Financial terms were not disclosed. The press release is here.
The significance of the deal, in Media Wonk's view, is that it deals with the Inno's recording capability through a broad licensing agreement, rather than treating it as a tool for copyright infringement to be squelched. Universal was one of 10 record companies to sue XM in May, 2006, for what it called "massive wholesale infringement" after the Inno was introduced. Although XM is able to broadcast music recordings under the same compulsory license covering terrestrial broadcasters, the suit claimed that the Inno's recording function made XM a distributor of copies of the sound recordings, which is beyond the scope of the compulsory license.

It's that obsession with copies, however, and how many get made, that is at the root of a lot of the difficulty the industry has had in coming with a more workable relationship with its customers. It's what makes digital rights management necessary, in the view of the labels, and leads to endless litigation with device makers over the scope of secondary liability for copyright infringement.

If there's a way out of that quagmire (no guarantee that there is) it almost assuredly lies in adopting a service-licensing model as the dominant business model for the music companies and not worrying so much about how many copies get made.

Of all of the majors, Universal seems farthest along that path. In addition to today's agreement with XM, Universal agreed earlier this month to let users of music-oriented social networking site Imeem.com listen to its entire library of music in exchange for a cut of the advertising fees Imeem generates. It also struck a deal with Nokia to bundle access to unlimited downloads of Universal music with Nokia cell phones.
The key in each case is that, rather than trying to monetize each copy or use of a track, UMG has licensed unlimited access to its catalog in exchange for a piece of the broadcaster's, or platform operator's, or device-maker's revenue, and let them worry about how to get consumers to pay for it.

"Today's announcement underscores the fact that XM competes in an audio entertainment market in which consumers have more options than ever," CEO Nate Davis said of the deal with Universal. "We commend UMG for being the first music company to take this step forward with us and look forward to continuing our discussions with our other partners in the music industry."

Those other "partners," of course, are still suing.
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