September 17, 2001 1:00 PM PDT

Label deal to unclog music logjam

One of the last major legal roadblocks to mainstream music-subscription services on the Web appears ready to fall, with a tentative deal between music publishers and the big record labels on the table.

According to sources close to the discussions, the Big Five labels and music publishers agreed Friday on a set of terms that would allow the labels to offer most of their catalogs through an Internet subscription service. Although labels typically own the rights to recordings, music publishers control separate rights to many of the underlying songs.

Two services partly owned by major labels, Pressplay and MusicNet, are slated to launch sometime in the early fall, but they risk prompting a spate of lawsuits without this kind of deal. Other rights held by performers are not covered by the tentative deal, raising the specter of further rounds of negotiations.

Several other subscription services, including the one long-promised by file-swapping company Napster, are also theoretically on their way by the end of this year. Those services will have to cut their own deals with music publishers and performers, however.

The publishers' deal isn't as detailed as a traditional licensing pact; labels would pay $1 million as an advance on two years of future licensing fees, but the actual per-song price has not been set, sources said. They also cautioned that terms of the deal might change. But at this point, it appears that the most important part of the accord is the fact of the agreement itself.

"The real meaning of (this kind of) deal is a mutual non-aggression pact," said Jupiter Research analyst Aram Sinnreich. The dollar figures being discussed are almost token amounts, and it appears that many of the hardest licensing discussions, such as actual pricing decisions, are being put off, he noted. "This is not about licensing; it's about formally agreeing not to disagree for a set period of time."

The tentative deal, skeletal as it seems, is a good indication of how tangled the legal rights surrounding and restraining the online music world have become. Music publishers, songwriters, performers, musicians and record labels each can own rights in songs, and it's not yet wholly clear how these privileges--created for a world in which albums were manufactured and shipped to record stores, not sent over fiber-optic lines--translate into the digital world.

Most of the industry headlines have focused on the disputes between the labels and Net companies such as Napster or MP3.com, which originally hoped to sidestep old music distributions models with new technologies. Critics of the record labels have charged them with dragging their feet, refusing to license their music to digital companies trying to create online businesses.

But now that the labels themselves are entering the distribution business with the Pressplay and MusicNet subscription services, the focus has shifted to the publishers. The National Music Publishers' Association (NMPA) has made it clear that its members' rights must be respected, suing Universal Music Group after that label launched a trial subscription service without paying publishing rights and lobbying Congress to keep legislators from eliminating their rights.

NMPA Chief Executive Edward Murphy declined to comment on the specifics of the negotiations with the labels, which have been represented by the Recording Industry Association of America.

"We have been in negotiations with them, but we have not concluded any agreement with them yet," Murphy said.

MusicNet and Pressplay have targeted the early fall for their launch periods, a time frame both services have confidently maintained. Last week, an executive at MusicNet told Reuters that he expects the company to open its service within weeks.

One source close to MusicNet said the service is close to launch. But the biggest stumbling block remains in technology and not the legal rights with publishers. MusicNet needs to figure out a way to support different billing systems for each of the providers, the source said. MusicNet has already inked deals with America Online and RealNetworks, both financial partners, and with Napster to offer the service to their customers.

"It's extremely close," the source said, speaking under condition of anonymity. "Some users would have it this month."

MusicNet is a joint venture between RealNetworks, AOL Time Warner, BMG Entertainment and EMI Recorded Music. Pressplay is jointly owned by Vivendi Universal, parent of Universal Music, and Sony Music Entertainment. Each service will be carried on partners' Web sites. Thus, MusicNet will be available on AOL, RealNetworks' site and eventually through Napster, while Pressplay will show up on MSN and Yahoo.

Despite the industry's continued confidence that lawful online music subscriptions will launch soon, other legal implications could arise once the services emerge. One uncertainty is whether organizations such as the American Society of Composers, Authors and Publishers (ASCAP) and Broadcast Music Inc. (BMI), both of which deal with radio, television and public performance, will also want a slice of the pie. Since MusicNet and Pressplay plan to offer Web streams as part of their services, there's a possibility that ASCAP and BMI could interpret streaming as another form of broadcasting.

The NMPA "roadblock is not as important as the potential of the ASCAP/BMI roadblock because performance rights for interactive Webcasts need to be negotiated as well," said Eric Scheirer, an analyst at Forrester Research.

Indeed, there are signs that organizations such as ASCAP and BMI will be watching closely when MusicNet and Pressplay launch. Although performance rights holders have not been involved in negotiations with music publishers, their voices could be heard upon launch of MusicNet and Pressplay.

"I would imagine that's the case," said ASCAP spokesman Jim Steinblatt when asked whether the organizations has rights to receive revenue from MusicNet and Pressplay.

Even with the legal rights they need, it's far from clear that these planned services will attract much initial consumer enthusiasm.

The music available will carry more restrictions than computer music fans have seen through services such as Napster, or even through smaller subscription offers such as EMusic's. People will be able to listen to streamed versions of songs or download versions that have restrictions on how long they can be listened to and on how many times they can be copied. Initially, both services have said they will be limited to the PC, and songs will not be transferable to CD or to MP3 players.

The tentative publisher's deal was first reported by The Wall Street Journal.

 

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