Report: MS Ends Record Label Talks

Microsoft's possible future plans for a subscription based music service may now be in jeopardy after talks broke down late last week, according to a report in the Wall Street Journal Tuesday. At issue was what the company saw as unjustifiably high royalty fees being demanded by the record labels.

Microsoft had been in talks with EMI, Warner Music, Universal, Sony BMG, and Bertelsmann. However, according to the reports, Microsoft could not get a favorable rate that would allow it to compete with Yahoo, which is the cheapest subscription service currently offered.

Record companies charge the subscription services about $6 to $8 per month per user. While companies like Napster and Real are making a healthy profit on each customer, Yahoo is selling each subscription at a considerable loss.

Microsoft was likely aiming to either break even and offer its service around the price of Yahoo's, sources say.

However, subscription music services have yet to catch on in the digital music business. The market is still dominated by Apple's iTunes, which accounts for almost 80 percent of monthly sales.

Apple has appeared to remain open on an eventual subscription based service, but has said repeatedly it believes that consumers would rather own their music than rent it.

David Card, senior analyst and vice president of Jupiter Research, says that the news is suspect at best. "The Journal is spreading rumors that Microsoft's music subscription service -- itself a rumor -- is on hold due to heavy royalty demands from labels," he said.

"JupiterResearch still likes the opportunity for subscription music services, a $150 million US business in 2004 that should surpass $250 million this year and hit $1.2 billion in 2010," Card continued.

Microsoft was not commenting on the matter to the press.