AfterDawn: News

Music services pay high price to labels

In the growing market for digital music downloads and related services, the companies who can provide the tech have to pay huge sums of cash to get label support. In the last year we have seen the music industry more forward by providing music downloads without Digital Rights Management (DRM) and to back services that allow users to consume music for free with advertisement support.

However, such services pay a hefty price for label support, so bad that it essentially may kill a service before it has a chance to flourish. For example, SpiralFrog, which is an advertisement supported service, paid more than $3 million in advances to Universal Music Group (UMG) before it went live. Ever since, it has paid even millions more in licensing fees.



Imeem is rumored to have paid $20 million in advances and also gave labels equity in the company. It disputes the $20 million figure, but the equity is a matter of public record. Sometimes the demand from the record companies is so much that it makes deals impossible. A mobile messaging company halted negotiations after a label demanded 85% of the company's gross revenue -- music licensing not involved.

"If you were opening up a retail store on Madison Avenue, I think you have to get a lease for the space," one unnamed major-label executive says, according to Reuters. "If you want to build a legitimate business, there are costs associated with doing it, and that's no different in the virtual world than the physical world."

With CD sales continuing to decline and digital music not making up the gap, record companies are willing to stretch any new source of revenue as thin as it possibly can, just to make quarterly revenue objectives. "What was once considered a major advance -- $500,000 or $1 million -- is becoming a $2 million or $5 million advance and really over-the-top requests for equity," EMI digital executive Ted Cohen said.

Cohen continued: "The deals are still unrealistic. If you raise $15 million to start a business, and have to spend $12 million just to pay off the content companies, that leaves you with $3 million to run a company. I don't know anybody able to do that." Despite being controversial, giving an equity stake to a label might be a smart long-term move.

If they have a stake in the company's performance, they have greater incentive to nurture it. Imeem's relationship with record labels has reportedly been very fruitful.

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Written by: James Delahunty @ 5 Apr 2008 21:14

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• 7 comments

• nobrainer

  ah well, the big record companies stealing as per usual. nothing to see here please move along!
  
  Read and boycott all the RIAA Soundexchange/BPI/IFPI leading members...
  
  SONY SETTLES PAYOLA INVESTIGATION
  
  Originally posted by above hyperlink: SONY BMG MUSIC ENTERTAINMENT, one of the world's leading record companies and owner of a number of major record labels, has agreed to stop making payments and providing expensive gifts to radio stations and their employees in return for "airplay" for the company's songs.
  Radiohead: Artists often screwed by digital downloads
  
  Originally posted by above hyperlink: "the big infrastructure of the music business has not addressed the way artists communicate directly with their fans. In fact, they seem to basically get in the way. Not only do they get in the way, but they take all the cash."
  RIAA Claims Ownership of All Artist Royalties For Internet Radio
  
  Originally posted by above hyperlink: Look at the information on SoundExchange.com (RIAA created SoundExchange) and see how it works. The RIAA has secured legal authority to administer a compulsory license that covers all recorded music.
  
  SoundExchange (the RIAA) considers any digital performance of a song as falling under their compulsory license. If any artist records a song, SoundExchange has the right to collect royalties for its performance on Internet radio. Artists can offer to download their music for free, but they cannot offer their songs to Internet radio for free.
  
  So how it works is that SoundExchange collects money through compulsory royalties from Webcasters and holds onto the money. If a label or artist wants their share of the money, they must become a member of SoundExchange and pay a fee to collect their royalties. But, and this is a big "but," you only get royalties if you own the sound recording copyright. If you are signed to a major label, chances are you don’t. Even if you do own the copyright to your own recording of your own song, SoundExchange will collect Internet radio royalties for your song even if you don’t want them to do so.
  Digital licenses screwing Artists
  
  Originally posted by above hyperlink: The musician T-Bone Burnett once explained to me that the standard record deal gives artists seven percent royalties on sales and fifty percent royalties on licenses. However, when artists get paid by their labels for iTunes downloads, they're only paid the seven percent sales royalty, despite the fact that the record companies keep telling courts, Congress and customers that a download is not a sale, it's only a license, and don't you dare try to resell your music, loan it, or give it away -- all stuff you're allowed to do with purchased goods.boycott their anti consumer, talentless, auto-tuned, manufactured crap! Please ppl i implore you to stop these four big companies making all the rules and blocking talented works from getting air play, don't let them establish their greasy hands on the internet and become the total gatekeepers once more by blocking indie music from air play.
  

  The BPI Are: SONY, UNIVERSAL, WARNER GROUP, EMI.
  
  The RIAA Soundexchange Are: SONY, UNIVERSAL, WARNER GROUP, EMI.
  
  The IFPI Are: The same anti consumer lot as listed above!
  
  The MPAA Are: SONY, UNIVERSAL, WARNER GROUP, DISNEY, PARAMOUNT, FOX.
  
  How do you stop anti consumer = its easy purchase only second hand media and avoid their propertarian hobbled by DRM hardware! http://www.boycott-riaa.com/

  6.4.2008 04:40 #1

• iluvendo

  Wow !!!! ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
  

  If it wasn't for bad luck, I'd have no luck!
  "The flimsier the product,the higher the price"
  Ferengi 82nd rule of aquisition

  6.4.2008 14:54 #2

• sgriesch

  Millions paid to carry the music. Millions more to sell it. No wonder P2P still lives. No new company can get started AND stay in business with these rates. And on top of it, the artists don't even get much of it like nobrainer says. It's all wrong.

  6.4.2008 22:19 #3

• snowlock

  preach, nobrainer!
  
  these racketeers have to be stopped.
  this is more of the same attempts to stomp out the new format they don't like.
  
  i personally boycott their music.
  every now and then i hear something i like and pissed
  when i find out they're on an riaa member label so i can't buy.
  really, i'd like to pay money to a couple of such artists.
  
  i seek out good music that is independently produced/distributed.
  i'm not very good at it, but that's the point; it shouldn't be that difficult.
  
  everyone by now should know that there are far more talented artists than the top 40.
  they may not know is that now independently produced music is often very well-mastered.
  in other words, in my experience, independent productions are of comparable quality,
  if not better quality, as riaa-member-produced recordings.

  7.4.2008 02:50 #4

• A_Klingon

  Originally posted by sgriesch: Millions paid to carry the music. Millions more to sell it. No wonder P2P still lives....Damn straight.
  
  (What do you think I'm doing in the background as I read these posts?)

  7.4.2008 14:47 #5

• r0b0t3ch

  The only remorse I feel is towards those that started the business under "false pretenses" which inevitably would wind up in a legal battle that the labels would lose, and therefore, probably not happening that often. You start a business knowing the details and having done market and industry research. If you didn't, well then lesson learned! Don't try to be a "big business" just because everyone else is "doing it" and get into something you weren't really looking to get into just to be a part of the "music downloading group". Spiral Frog is a prime example of a follower and not a leader.
  
  Personally (and I think many would agree) just let the already-established big boys continue on doing what they're doing and the remaining consumers that DON'T partake in "pay for what you download" will most certainly continue to to take advantage of the Torrent networks, Bearshare, etc. Those are really the only two industries now.................pay for it or use your GOD-given knowledge to circumvent.

  7.4.2008 18:35 #6

• sgriesch

  Quote:Originally posted by sgriesch: Millions paid to carry the music. Millions more to sell it. No wonder P2P still lives....Damn straight.
  
  (What do you think I'm doing in the background as I read these posts?)I'm sure they are 100% legal tunes that starving artists just want people to hear. (They're starving because the RIAA won't pay them anything).

  8.4.2008 23:14 #7