Royalties become sticking point with MS, record labels

After weeks of negotiations, Microsoft Corp has suspended talks with the four major record companies over the licensing terms for a new online music subscription service, according to music industry people familiar with the talks.

Microsoft the discussions on Friday, citing an impasse with the record companies over royalty rates, these people said Tuesday.

Another who works closely with Redmond, Washington-based Microsoft and has been involved in company discussions on the possible venture with the labels, confirmed the negotiations had ended, but said Microsoft remains committed to the idea of a subscription service.

Microsoft sells song downloads on its MSN Music Internet site but had been seeking to develop a subscription service. Such services typically offer users unlimited number of tracks for download, and in some cases, for use on compatible portable music players, for a monthly fee.

Several retailers already offer online music subscription, including Yahoo Inc, Napster Inc, RealNetworks Inc's Rhapsody and MusicNet. Their fees vary, but range between roughly US$5 to US$15 a month, with some charging users extra to move songs to portable players.

The collapse of the talks between Microsoft and the major record labels, reported by the Wall Street Journal on Tuesday, represents the latest skirmish between retailers and record labels over pricing in the developing digital music market.

Last month, Apple Computer Inc CEO Steve Jobs publicly criticized the recording industry, saying some major labels were "greedy" for pushing Apple to hike prices on the iTunes Music Store.

Jobs, speaking before the opening of the Apple Expo in Paris, argues that record companies already earn more profit from songs sold through iTunes -- cutting out costs of manufacturing, marketing and returns -- than from those sold on CD.

Record executives have scoffed at the suggestion they're being greedy. Last month, Warner Music Group CEO Edgar Bronfman said at an investors' conference that Apple's US$0.99 price for single tracks -- the service charges variable prices for some of album downloads -- ignores the issue that not all songs are the same commercially and, like any other commodity, shouldn't be priced the same.

EMI Group PLC Chairman Eric Nicoli on Tuesday dismissed suggestions by Apple that a single price for songs sold over the Internet would help prevent piracy in the music industry.

"I'm not persuaded by the argument that a single price deters piracy," Nicoli said at a news conference in London to promote a new coalition of business leaders fighting piracy and counterfeiting.

"I'm not persuaded of the fact that a lower price deters piracy," he added. "What I am persuaded of is that making music more convenient and better value is a deterrent to piracy."