Digital Music Startups Claim That Majors Are Forcing Them Into A Life Of Breakin’ The Law

noah | February 27, 2008 3:50 am

Is working outside the bounds of copyright, then settling the inevitable infringement lawsuits from major labels that follow the discovery of said flagrancy, the only way that digital-music startups can get a foothold in the business these days? That’s the contention of some executives who are at the Digital Music Forum this week, and who are pointing to sites like the streaming-music service imeem–which, they claim, built up its userbase thanks to giving users access to a bunch of music it hadn’t licensed, only to strike deals with Warner Music and Universal Music Group after the big guys threatened legal action–to bear out their theory. (For its part, imeem says it started slowly, making deals with smaller labels while it built its userbase and eventually attracted Warner’s attention; however, one can’t ignore the fact that they were trafficking in content that they didn’t exactly have the rights to before WMG’s hammer came crashing down.)

And once the majors do come calling, the payouts that they demand may be too much of a strain on the companies’ resources–once again, let’s point to imeem, which entered into an agreement with Universal that cost them a lot of money up front, and even more with each stream. Digital Music News talked to a few executives who say that the labels’ demands for payouts are strangling their business.

Majors frequently demand massive upfront costs for the rights to their catalogs, as well as lopsided percentage payouts. “There’s too much squeeze up front, and companies can’t survive five, seven years,” explained David Del Beccaro, president and founder of Music Choice. “This is a ten-year transition.”

Indeed, promising startups are frequently forced into economic turmoil, thanks in part to immense licensing overhead. Ted Cohen, founder of digital consultancy TAG Strategic, jokingly noted that labels are squeezing “the money parents donated to a startup,” though downtrodden entrepreneurs can sadly relate.

Then again, no one is forcing startups to sign the dotted line, or enter the treacherous digital music business in the first place. “It’s not unreasonable for us to want to get paid for our content,” said a less sympathetic Ted Mico, head of digital at Interscope Geffen A&M.

One might say that there’s a difference between “getting paid for content” and “imposing terms that make the relationship between labels and their licensees seem like one between a payday loaner and the guy down the block who will never, ever get current on his 99%-APR loan,” but I didn’t study business so I might just be showing my naivete slip. (And given that this post is illustrated with a decidedly unauthorized version of that Judas Priest clip that’s been up for months now, is the game of whack-a-mole/loansharking that the majors are tirelessly engaging in really worth all the trouble, not to mention the lawyers’ billable hours?)

Is Breaking The Law the Secret to Success in Digital Music? [Post I.T.] Entrepreneurs Lash Out Against Lopsided Major Label Deals [Digital Music News]