eMusic’s Rift With Indie Labels

Updated with comments from Merge Records, Matador Records, and eMusic CEO Adam Klein.

As eMusic prepares to add 250,000 songs from Universal Music Group’s catalogue to its sizeable online music store-and make a major overhaul to its subscription pricing scheme-it appears to be having a falling-out with a large group of independent record labels. Those failed negotiations suggest that the digital-music service may not be able to strike licensing deals that satisfy both large and small music labels.

eMusic subscribers were notified by e-mail Tuesday that they have two days remaining to purchase music from several independent record labels that are about to stop doing business with eMusic. Those labels include Domino, Merge, and the Beggars Group of labels, which includes 4AD and Matador Records.

Losing those labels means that eMusic will lose access to tracks from some of the most well-known “indie rock” bands, including Arcade Fire, Spoon, Belle & Sebastian, Cat Power, and Yo La Tengo. “This is as heartbreaking to us as it is to you,” the company’s email stated. “Please know we have done everything we could to keep them from leaving.” The email includes a large button encouraging recipients to “Add Your Voice” by signing a sort of online petition advising the labels that their music is wanted back on the service.

Gerard Cosloy, head of Matador Records, explained the departure in a post on the Matador blog: “[A]s eMusic has brought more major labels into the fold, they have changed the terms on which they deal with labels, some of which we have found impossible to accept, in our own interests, those of our artists, and ultimately those of their fans.” Merge Records wrote: “Unfortunately, eMusic’s unilateral changes in an effort to bring on the major labels has created a situation where it would be harmful to the interests of Merge and our artists to continue our partnership at this time.”

“We are treating all labels equally and therefore we believe fairly,” CEO Adam Klein wrote on eMusic’s blog, 17 dots. “We will greatly miss their artists and their music and trust that they will find their way back to our members soon.”

A recent report suggested that eMusic’s user base hasn’t grown much lately, staying steady at around 400,000 subscribers since 2007. Even after adding major label content, eMusic’s user base is likely still heavy on fans of lesser-known bands that have signed with independent labels.

eMusic grew its music service by focusing on fans of independent-label bands, and charging for MP3 downloads through a subscription scheme. In 2009, it started signing major labels-and raised its prices accordingly. eMusic signed a deal with Sony (NYSE: SNE) Music in 2009, and with Warner Music earlier this year.

In October, eMusic announced it would add 250,000 tracks from Universal Music Group, and change its pricing plan to vary the price for individual tracks. In an email to users, eMusic noted that “members would still enjoy savings of 20% to 50% compared with iTunes a la carte prices.”