Resnikoff's Parting Shot: The Universal Tollbooth

Universal Music Group is quickly losing cash, but Doug Morris is now converting downstream device manufacturers into paying partners. The latest is XM Satellite Radio, which has now entered into a "multi-year deal covering all XM radios with advanced recording functionality," including future devices. The vague description sounds like a per-device levy on time-shifting devices, or at least a stepped-up revenue payment tied to advanced players.
XM Satellite already pays for the use of recorded music content. Now, the royalties are spreading into devices, and overall payments are larger as a result. Although deal specifics are foggy, the top-level description resembles a recent arrangement with Microsoft, which is now delivering a per-unit fee to Universal Music on every Zune sold.
In the current landscape, time-shifting satellite receivers and Zunes are marginal sellers. Perhaps that will change over time, but if not, Doug Morris is putting other partners in place - across devices and beyond.
But what about the iPod, the most important portable music and media device? The question is whether Morris has the muscle to force a similar toll on Apple. And the answer is probably not.
Earlier this year, Universal started beating its chest by shifting towards a shorter-term iTunes Store licensing arrangement. Instead of an extended, more friendly agreement, Universal opted for a narrower month-to-month deal. The shift was designed to dangle the possibility of a catalog pullout, and highlight the dissatisfaction Universal felt over its lack of control over digital pricing and packaging.
Morris has the balls to do it, but an iTunes pullout would not be the shrewdest of moves. And the reason is obvious - iPod+iTunes is mostly about elegant devices and seamless music management, not ecommerce. Sure, the iTunes Store is part of the play, but not a critical component.
Others are more willing to jump into a partnership. Just recently, Nokia announced its inclusion of Universal Music artists into its "Comes With Music" initiative, a plan that packages catalog access into newer handhelds - and pays Universal a piece of each purchased phone.
The Nokia deal started in a less acrimonious place than the XM Satellite and Microsoft agreements, and is part of a broader Total Music strategy for Universal. The details on that strategy are still emerging, though earlier information pointed to potential alliances with a number of downstream heavyweights, including ISPs.
Total Music or not, all of these deals are collectively designed to shift the emphasis away from discrete recording purchases - and more towards licensing and usage agreements. The Morris strategy is destined to tap other manufacturers and providers - either through acrimony or amicable agreement. But whether that will compensate for a downward spiral in physical sales remains highly questionable.
The reason is that Universal - and other majors - have a fairly narrow window to develop diversification strategies. Concepts like Total Music - and hard-fought per-device deals - not only take time and money to develop, they take even longer to produce meaningful revenues. And time is not something that major labels have, especially with bread-and-butter albums sinking at such an alarming rate.