Round 2 of Online Music Battle Begins

When MP3.com Inc. and Napster Inc. made songs available on the Internet without seeking the permission of artists, the world’s largest music corporations launched a blistering legal attack to shut them down.

Now those same corporations are starting to roll out their own online services to great fanfare. And once again, many artists say, no one is asking the musicians whether they want their songs to be included.

Last week, attorneys for dozens of angry artists began preparing cease-and-desist notices that would bar the use of their songs on MusicNet, which launched through RealNetworks Inc. on Tuesday, and Pressplay, which plans to start distributing songs within weeks.

Vivendi Universal and Sony Music, which own Pressplay, and AOL Time Warner Inc., EMI Group and Bertelsmann, which own a controlling stake in MusicNet, are engaging in strong-arm tactics pioneered by Internet upstart MP3.com, say managers for several top performers. The San Diego-based company terminated its MyMP3.com service last year after the Big Five sued it for failing to compensate artists, publishers and other rights holders.

“Artist managers are very alarmed about what’s going on here,” said Simon Renshaw, a manager at the Firm, which represents such acts as the Dixie Chicks, Korn and Limp Biskit. “Attorneys representing a number of our artists have already transmitted notices to the labels requesting that their copyrights not be included on Pressplay or MusicNet.”

Jim Guerinot, whose Rebel Waltz management firm represents the Offspring and No Doubt, also has put at least one label on notice.

“Nobody has ever contacted us about using any of our music,” Guerinot said. “We have never had a single discussion with a label about how they intend to compensate artists or in what manner the service will work. The contracts require labels to ask [our] permission before posting songs.”

Not necessarily, say the Big Five music companies. Representatives of the global music giants said they never sought permission from most of their artists because they didn’t have to. According to the companies, recording contracts typically grant labels exclusive distribution rights to an artist’s entire catalog. Companies contend that those rights cover all forms of distribution, including digital streaming and download transmissions.

Some contracts specifically forbid the label to distribute music over the Internet without the artist’s permission. That’s why EMI and AOL Time Warner, for example, haven’t tried to peddle songs by the Beatles or the Eagles online.

“It’s a shame that this is being turned into a controversy by certain artist representatives,” said Zach Horowitz, president of Vivendi’s Universal Music Group. “Of course we have rights. Where we know we don’t, we won’t authorize the use of the music.

“The big picture is that right now thousands of sites are illegally using millions of musical tracks without making any payments whatsoever to artists, songwriters or record companies,” Horowitz said. “Record companies are spending tens of millions of dollars to launch legal services that, we hope, will provide new revenue streams and compensate the creators of music. Everyone’s energies should be directed against illegal services, not legitimate ones.”

The companies say they cannot establish a payment structure for songs posted on the services until they determine how many consumers register for them and how many times each track gets streamed or downloaded. Companies say each artist will be paid according to his or her contract.

MusicNet and Pressplay deliver dozens of songs to consumers through the Net for a flat monthly fee. Subscribers can play the music only on their computers, and each song expires after one month unless it’s renewed.

Artist managers say they resent the way the companies are handling the roll-out of their subscription services, without even consulting their own artists. Meanwhile, the same companies, managers say, have worked aggressively to keep songs off the artists’ own Web sites.

Managers say the companies have portrayed themselves in court cases as protectors of artists, sending out cease-and-desist notices to MP3.com, Napster and other online ventures for trying to post songs without the permission of copyright holders. The Big Five won more than $100 million in settlements from MP3.com before the weakened company was gobbled up by Vivendi Universal.

Several managers interviewed last week say their artists have yet to see a nickel from those settlements and may never reap any money from MusicNet or Pressplay either. And managers contend that Pressplay and MusicNet, just like MP3.com, must consult artists before posting their songs as part of a subscription package.

Managers say that although most recording agreements grant labels delivery of seven albums, they also bar companies from releasing singles without obtaining permission. Many contracts also bar companies from repackaging single tracks without permission into compilation CDs, soundtracks and television commercials or from licensing them in any form to Web sites. Companies often are required to pay artists a higher fee to license their songs for such formats.

Licensing disputes have been the biggest stumbling block to legitimate online music services. Most of the major record companies have been slow to grant licenses for subscription services, and their own online ventures were held up for months by a licensing dispute with the publishers.

Universal, in fact, was sued by its sister publishing company and other members of the National Music Publishers Assn. when it started testing the Farmclub.com online jukebox service without the publishers’ permission. Universal claimed its existing licenses covered the new service, but a federal judge ruled against the record company in September.

Several online music insiders said Universal and Sony have been particularly aggressive in asserting their right to distribute music online, although they’re hardly alone. A common strategy at the labels, they said, is to ask forgiveness and remove the song or songs if an artist complains.

There’s little money at stake now, given how few subscribers the online services are expected to attract.

“My guess,” said entertainment attorney Ken Hertz, whose firm represents Alanis Morissette, “is that most artists won’t do anything unless and until it turns out to be a business.”