Secret Record Label Demands: Will Subscription Music Ever Be Profitable?
By Rob Scott
December 14, 2011
December 14, 2011
- Digital music veteran Michael Robertson, founder and former CEO of MP3.com and current CEO of MP3tunes and DAR.fm, offers a compelling take on digital music services in GigaOM.
- Robertson suggests that the economics of the current digital music subscription model is one-sided, based on copyright law that grants record labels and publishers a government-backed monopoly, forcing services such as Spotify, Rhapsody, MOG and Rdio to comply with their demands.
- The article contends that the current model may make it impossible for digital vendors to turn a profit.
- Until recently, strict non-disclosure agreements prevented a full understanding of this part of the industry. “For the first time, people are talking, and these previously secret demands are being made public,” writes Roberston, before he details eight ways the labels and publishers are constraining music services.
- Areas of concern include: 1) General deal structure; 2) Labels receive equity stake; 3) Up front (and/or minimum) payments; 4) Detailed reporting, including monthly play counts; 5) Data normalization; 6) Publishing deals; 7) Most favored nation (deal term demanded by every major label); and 8) Non-disclosure (strict language prohibiting the digital music company from revealing what they pay to the labels).
- Robertson’s final note: “Online radio services such as Pandora take advantage of a government-supervised license available only to radio broadcasters thus sidestepping dealing with record labels. While the per-song fees are daunting, they bypass virtually all of the terms listed above.”
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