Now comes news of another exchange, this one in 2003, in which Allchin, Bill Gates and a handful of other Microsoft (MSFT) execs react to the the debut of Apple’s (AAPL) iTunes music store and wonder how the company managed to negotiate such a good licensing deal with the recording industry.

Interesting to consider in light of reports that Apple is in talks with the television networks about lowering the price of iTunes TV episodes ahead of the iPad’s official launch.

—– Original Message —–
From: Bill Gates
Sent: Wed 4/30/2003 10:46 PM
To: Amir Majidimehr; Dave Fester
Cc: Will Poole; Christopher Payne; Yusuf Mehdi; David Cole; Hank Vigil

Subject: Apple’s Jobs again.., and time to have a great Windows download service…

Steve Jobs ability to focus in on a few things that count, get people who get user interface right and market things as revolutionary are amazing things. This time somehow he has applied his talents in getting a better Licensing deal than anyone else has gotten for music.

This is very strange to me. The music companies own operations offer a service that is truly unfriendly to the user and has been reviewed that way consistently. Somehow they decide to give Apple the ability to do something pretty good.

I remember discussing EMusic and us saying that model was better than subscription because you would know what you are getting. With the subscription who can promise you that the cool new stuff you want (or old stuff) will be there?

I am not saying this strangeness means we messed up – at least if we did so did Real and Pressplay and Musicnet and basically everyone else.

Now that Jobs has done it we need to move fast to get something where the UI and Rights are as good. I am not sure whether we should do this through one of these JVs or not. I am not sure what the problems are. However I think we need some plan to prove that even though Jobs has us a bit flat footed again we move quick and both match and do stuff better. I’m sure people have a lot of thoughts on this. If the plan is clear no meeting is needed. I want to make sure we are coordinated between Windows DMD, MSN and other groups.

…. Original Message ….
From: Jim Allchin
Sent: Wednesday, April 30, 2003 4:58 PM
To: Amir Majidimehr; Chris Jones (WINDOWS); Will Poole; David Cole

Subject: Apple’s music store

1. How did they get the music companies to go along?
2. We were smoked.

jim

Yes, there could be some kind of deal between Microsoft (MSFT) and some publishers. And yes, that might involve some kind of payment. But the company is signaling, loud and clear, that it’s not going to pay the huge sums necessary to fund a real Google (GOOG) boycott.

That’s what All Things Digital reported last week. And that’s what the Associated Press echoed in a subsequent story this week. And that’s what Microsoft said today, more or less. Except this time it was on the record.

Here’s Satya Nadella, who heads up R&D for Microsoft’s Online Services Division–i.e., Bing–at a San Francisco press conference, per Kara Swisher’s account:

Then comes a question about premium, or “non-Google,” content. Nadella avoids the question, and instead focuses on “scaffolding” the data.

“We’re not as focused on getting exclusive content,” he says flatly. Uh-oh, publishers! As I reported, Microsoft is not forking over the dough.

…Nadella gets another question about paying to de-index Google.

“There is no real intent here that is focused on getting a whole bunch of content that is de-indexed from Google,” he said.

Nadella went on to say that Microsoft is happy to feature different kinds of content, as a way of differentiating itself from Google. Like the work it already does with the Mayo Clinic on health searches: Plug in “swine flu” and you’ll see information from the clinic prominently featured, via a licensing deal.

But that’s a far cry from handing over a sack of cash in exchange for abandoning Google altogether.

Obligatory “to be sure” graf: Say Microsoft was interested in handing over sacks of cash to publishers like News Corp. (NWS), which owns The Wall Street Journal (as well as this site). You wouldn’t hear Redmond bellowing that out loud, anyway.

That’s certainly what the News Corp. folks hope. Or alternately, they’re hoping that all this talk of a Microsoft-publisher alliance spooks Google. But, as the tough guys like to say, hope is not a plan.

Digital music start-ups seem to come in two flavors these days: Those being sued by the major music labels and those with expensive licensing deals they can’t afford.

But for some reason, plucky Grooveshark, which runs a very nice, free streaming music service, has stayed out of both of those buckets until now. I’ve confirmed that EMI Music Group is suing the site–whose motto is “Play any song in the world, for free!”–for copyright violation.

The label filed suit against Gainesville, Fla.-based Grooveshark in a New York court on May 8. I don’t have a copy of the complaint yet, but if you feel like sharing, hit me at peter@allthingsd.com or use the blind tip box here. No comment from EMI, but Grooveshark sent me a very long statement, which I’ve printed at the bottom of the post.

The takeaway: Grooveshark says it was working on a licensing deal with EMI and now finds itself in court instead. The company does refer to deals with “many artists, labels and publishers,” but as far as I can tell, it doesn’t have deals with any of the other three majors–Warner Music Group (WMG), Universal Music Group, or Sony (SNE)–either.

Grooveshark started out as a peer-to-peer file-sharing start-up in 2006, and has since morphed into a streaming model. When I talked to marketing VP Joshua Bonnain in May, he told me the company was primarily funded by friends and family–most of the company’s employees are either students at or graduates of the University of Florida, he said. But he also said the company had received a “substantial investment from a large party” that he wouldn’t identify.

Bonnain said the site, which generates at least some ad revenue, planned on splitting half of it with the copyright owners of the music it played. But I was never clear about how that was going to work since Grooveshark doesn’t have deals with the majors. Then again, Bonnain didn’t tell me that the company had been sued a few days before we talked, either.

In the music world, negotiations don’t preclude suits and vice versa; Warner was, at one point, suing iMeem, but then became an investor in the site. Same thing with Universal and News Corp.’s (NWS) MySpace. The only real question I’ve had is why the big guys haven’t gone after Grooveshark yet. I’ve been asking label folks about the start-up since November and I’ve only gotten shrugs for an answer.

Anyway, as I said, it’s very nice service, and it would be a shame if the labels can’t figure out a way to work with it or help it survive. But the odds of that happening, based on the unpleasant history of digital music start-ups to date, are very low. So enjoy this themed playlist I created with the site’s help, which features music from all four majors, while you can. Grooveshark’s statement is below.

For the past year, Grooveshark has been in talks with EMI Records and other copyright holders to negotiate licensing agreements for the use of their content. We are pleased to announce that over the past few months Grooveshark successfully concluded mutually bene?cial agreements with many artists, labels, and publishers that we hope to be a template for other such agreements with additional copyright holders.

Recently, EMI Records chose to abandon the template we’ve built with the help of other major copyright holders and opted for their traditional intimidation tactic of ?ling a lawsuit as a negotiating tool. We ?nd the use of this negotiating strategy counterproductive, as Grooveshark has been willing to conclude an agreement with EMI Records that is economically sustainable for both EMI Records and a start-up company the size of Grooveshark.

Grooveshark is run by a group of young and passionate musicians. We love music, we make music, and we believe that the use of all music should be paid for. We adopted this core philosophy at our inception and to date have concluded agreements with hundreds of record labels, major US performance rights organizations, and thousands of independent artists who support Grooveshark’s business model. (See: Grooveshark Artists)

As musicians, we support the rights of copyright holders and strive to sign sustainable agreements with all content owners, ensuring that all artists get paid– or we agree to remove content from our system in accordance with our DMCA Takedown Policy. We hope that EMI Records eventually follows the lead of the many forward-thinking labels we are already working with, who would rather get their artists exposure and a fair share of our revenue than block content access and force customers to illegal networks.

We understand that the economy of the digital music business is in a state of ?ux, and we hope to help ease this transition by providing the required new tools and services that lead to the next generation of the music industry. We respect the ownership rights of the major labels and publishers, and our core mission has always been to compete with piracy by offering a service that is genuinely better than what illegal networks offer, while also ensuring fair payment to copyright holders. Our next important step on our road to success is to conclude a mutually bene?cial agreement with EMI Records that is sustainable for both EMI and Grooveshark.