Microsoft pulls out of online music service talks

Software giant Microsoft has suspended talks with four major record companies over the licensing terms for a new online music subscription service, sources said today.

Microsoft broke off discussions on Friday, citing an impasse with the record companies over royalty rates, they said.

One of the sources, who works closely with 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 spokesman Adam Sohn declined to comment.

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

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

Last month, Apple CEO Steve Jobs publicly criticised the recording industry, saying some major labels were “greedy” for pushing Apple to raise prices on the iTunes Music Store.

But last month, Warner Music Group CEO Edgar Bronfman Jr said at an investors’ conference that Apple’s 99 US cent 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, should not be priced the same.

“The labels have complained basically that they’re not making enough money on downloads, that they prefer subscripion services,” said Phil Leigh, a digital music analyst in Tampa, Florida.

“Microsoft is saying on behalf of themselves and, indirectly, on behalf of the rest of the subscription (services), ‘If you want a subscription offering, if you want the better recurring revenue from subscription pricing, then give us a better price’.”