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Getting Back On Track: Some Tips For The Music Business

Last week, in the wake of Sony (NYSE: SNE) and YouTube reupping their licensing agreement, we wrote about how rare it is to see deals between the labels and digital music companies, and we explained why that is. In short, it’s a function of the way such deals are structured, and of the damaged psyches that each side brings to the negotiations. The record labels have filed a slew of lawsuits against digital music companies in the last few years, and that bad blood was underscored this week with the news that EMI was suing digital music startup Seeqpod, including its investors and partners.

After the jump, some specific steps that both sides can take to make the negotiations more fruitful

So what can be done to break this logjam? Broadly, digital-music companies need to do a better job of extracting value from their audiences to use as a bargaining chip with the labels. They also need to develop business models that aren’t so dependent on the music itself. The labels, for their part, need to seriously consider developing their own wholly-owned, independent digital businesses, and then striking only a few deals with the largest digital companies as a complement to those home-grown ventures.

First, the digital guys. They need to …

Stop distributing record-label content without approval. The digital companies need to get the proper licensing before releasing the music online, not after. Sure, it is frustrating that it takes so long to license content from record labels (years in some cases), and it’s even more frustrating to have to meet their demands, which tend to include large upfront payments and unprofitable revenue splits. But using their content without the owners’ consent (as many digital companies do) and then expecting negotiations to go smoothly isn’t the answer. If digital companies come to the table openly acknowledging the value of the labels

8 Responses to “Getting Back On Track: Some Tips For The Music Business”

  1. Point 1 – a point well made, if a digital company starts out on the wrong foot with a rights owner, it will end badly most of the time.

    Point 2 – data isn't everything, there are instances where it can be useful in marketing better, however said company should be jumping on that also because they should be making money every download/stream – it's in their interests to help sell an artist/act as much as they can.

    Point 3 – Never going to happen and neither should it. At no point should anyone monetise while not paying or compensating for copyright used. If it was a low budget or non profit thing, may have a case there, but if they're open to product placement / advertorial, why don't they just selling advertising to be able to make money and pay the copyright owners?

    Point 4 – Interesting, music companies/digital companies are high risk though, not enough money to go round, even some companies who do deserve the money don't get it unfortunately.

    Point 5 – WRONG WRONG WRONG, no way should anyone abandon iTunes/Amazon neither will it happen on any level. How annoying would it be for an iTunes customer to have to go to a bands website or labels website everytime they wanted to go and download a track. Everything in one place is the ONLY way a digital service will work. I see why you've said it, but iTunes have pretty much adhered to all major demands with the recent changes.

    @Malcolm sosa – artists can't "negotiate" with iTunes, only select labels are tapped on the shoulder and offered a direct deal, which by the way will never contain "negotiation" it's a take it or leave it situation.

    @Jose – take a look at the Major record label income, it has value. The rule of thumb is that major record labels release 20% of the releases every month… YET get 80% of the revenue.

    @Gerard – your arguments are flawed on many levels there mate, last year some of the majors still turned over profit…

    @wallow – Good luck with the army! Stop by in Afghanistan on your way though ;)

  2. wallow-T

    This is howlingly funny.

    "The digital companies need to get the proper licensing before releasing the music online, not after." Lots of startups tried this. With the exception of iTunes, they are pretty much all on life-support, or dead, or they don't rely on major-label digital music.

    "Stop selling digital music through distributors and instead create their own platform to sell MP3s." This sounds like when the movie studios used to own the movie theaters, and that degree of vertical integration was ruled unlawful back in the 1940s. Antitrust enforcement is going to come back now; this idea isn't going to fly. Plus, the majors have already crashed and burned a couple of times trying to be retailers — PressPlay? MusicNet?

    iTunes thrives because of its tight integration with the iPod — the majors can't touch that. Amazon thrives because it is a big broad-based retailer with excellent consumer relationships — the majors can't touch that. eMusic thrives by catering to adventurous listeners who avoid the majors — er um.

    What the labels don't seem to understand is that if they don't start making a lot of very generous deals to legitimize services which appeal to the public, there's a guerrilla ant-army of millions of filesharing enthusiasts and thousands of technologists who are going to finish the job of gnawing the majors to death. This army isn't motivated by money, which is why the majors have been unable to understand it. Shawn Fanning didn't create Napster to get rich: he did it because it was cool.

  3. It's a bit of a balancing act between protecting the rights and efforts of artists and content providers and allowing them to be compensated appropriately, and creating an innovative environment in which new and more progressive models can emerge and be refined.

  4. "—Stop distributing record-label content without approval. The digital companies need to get the proper licensing before releasing the music online, not after"

    Too many people believe that it's "better to ask for forgiveness than to beg for permission." I know someone who has made a career (and personal fortune) by adhering to this unethical approach… but nobody ever calls him on it. The smell of money always overpowers their sense of right and wrong and they simply negotiate a piece of the pie. I've watched this guy "borrow" ideas and launch companies without obtaining the necessary rights. The only consequence… he has amassed a personal fortune and can raise investor capital at the drop of a hat. He has a new project where he rewrote the lyrics of very famous rock songs, giving them a novel twist. He did NOT obtain the rights to do this and has said privately that he fully expects to "cut the composers in" at some point… but only if they catch him. I just read a glowing piece on the guy in a major newspaper where they talk about what a visionary he is. As long as that is the fate which awaits those who play fast and loose with the rules… nobody is going to start asking for permission.

  5. Your advice is fine for those looking to avoid legal hassles from the majors but it misses one important point — the major label model is over. And it's a shame the record labels haven't realized this yet.

    Further, there is absolutely no future in selling major label funded recorded music due to three major factors:
    1) It's impossible to compete with free;
    2) Consumer and Corporate needs and expectations are wildly divergent; and
    3) The egos, greed, and divergent agendas of the labels, artists, & publishers do not allow for any real cooperation, consensus and innovation.

    The only real solution is for one of the digital or hardware companies (MSN, Apple, Google, etc.) to buy one of the majors and let it all go free as an added value to some larger service or offering. This will force the remaining others to readjust their companies (either sell too or become stand-alone catalog clearing houses) or begin to sell their music for pennies on the dollar.

    Chronic pain? Acute pain? Forget pain. The record business is on it's last legs. It. Is. Over.

  6. audiences have voted, and major label music is valueless. the web removes the smoke and mirrors. miriah carry, get in the soup line.

    bands like fleet foxes and spoon are not on major labels and were on SNL. not sure there needs to be an industry around music getting made or heard. anymore. music will just get made. and heard.

  7. Not to throw a wrench into the argument, but there is nothing to stop new artists from developing these own tools themselves or bypassing labels directly to negotiate with itunes or emusic. The winner in the game is going to be whoever racks up the largest audience first. Whether it is digital guys / label / artist.
    Though the digital guys seem to be the ones pounding the pavement hardest at the moment. That's who I would bet on in the short term.