Net Services Want Better License Deals From Labels

Pressplay, a joint venture by Universal Music Group and Sony Music Entertainment, recently overhauled its service to give consumers more of what they want from online music. Now, Pressplay’s competitors are pressing Universal and Sony to let them do the same.

In particular, they want better access to the two record labels’ music catalogs, arguing that it would violate federal antitrust law for the Sony Corp. and Vivendi Universal units to favor their joint venture over independent online music companies.

Antitrust investigators in the Justice Department already are examining the major labels’ licensing practices, as well as scrutinizing Pressplay and MusicNet, a joint venture controlled by AOL Time Warner Inc., parent of Warner Music Group; Bertelsmann, which owns BMG; and EMI Group, which controls EMI Music Publishing. For their part, the record companies say their efforts have been completely lawful.

The five major record companies hold the copyrights to about 85% of the music sold in the U.S., with Universal and Sony claiming about 40%. Companies that want to sell downloadable songs or offer subscription music services have to obtain licenses from the copyright holders, setting up the major labels as gatekeepers to the online market.

That market is in its infancy, and neither the label-owned services nor the independents have more than a few thousand subscribers. The most popular players are the ones without licenses--the file-sharing networks that let consumers make copies of songs free.

Last Thursday, Pressplay launched a version that lets subscribers download an unlimited number of songs through the Internet for a flat monthly fee. Those tracks expire when the subscriber’s membership ends, but for about $1 more per song, subscribers can download permanent copies that can be recorded onto CDs or moved to portable devices.

No other subscription music service offers unlimited downloads from Universal, Sony or any other major record company. And Pressplay makes available permanent copies of more Universal and Sony downloads than any other online outlet.

Sources at several independent online companies said they weren’t getting the same deals as Pressplay, although labels’ offers have been improving dramatically. They say they’ve had trouble getting wholesale prices for permanent downloads and obtaining the same songs that Pressplay does--especially from Sony.

These executives, who spoke on condition of anonymity, also complained that Sony and Universal have been willing to try out new features and business models with Pressplay before making them available to its competitors.

To some label executives, the complaints from the online music companies are just sour grapes. The online companies’ requests have shifted over time, they say, and that’s why they’re not all in the same posture in terms of licenses.

Jonathan Potter of the Digital Media Assn., a trade group for online media companies, said the new offerings are significant improvements that make Pressplay’s service more appealing to consumers. “But when are Sony and Universal going to offer independent online music services the same bundle of rights they have licensed to Pressplay?” Potter asked. “I hope that will be soon.”

Lawrence Kenswil, president of Universal Music Group’s ELabs, said, “We would be happy to make a deal, similar to the one we made with Pressplay, with anyone who comes to us with a similar business proposition.”

Sony officials were less direct. After noting a variety of deals it has with a number of digital music services, the company said, “SME will continue to aggressively pursue relationships with additional online music companies to have our artists’ music commercially available to consumers in as many ways as possible. Each service is offering a different consumer proposition, and we must evaluate each one on a case-by-case basis to ensure that we and our artists are compensated appropriately for the use of the music.”

In addition to the Justice Department’s investigation, the labels also are under pressure from some members of Congress. Reps. Rick Boucher (D-Va.) and Chris Cannon (R-Utah) have introduced a bill that would require the labels to offer the same or better licensing terms to independent companies that they do to Pressplay and MusicNet.

With all the activity in Washington as well as the progress made at the negotiating table, some online companies are confident they’ll be able to match Pressplay’s deals soon. Besides, the record companies have an economic interest in having as many online distribution partners as possible, said Jim Long, chief executive of RioPort Inc., an online music distributor that has music-downloading licenses from all five labels.

“It is clearly in the best interest of their shareholders for them to do that, and this has been proven for 100 years by companies like 3M, General Electric and Johnson & Johnson,” Long said.

“They understand that the way you build great companies is to have the appropriate arm’s-length relationships and an even playing field.”

Mike Bebel, chief executive of Pressplay, said that any advantage his company has in terms of licenses and features is only temporary.

“We understand that everybody is headed in the same direction,” Bebel said. “We think that the landscape will be pretty even not too long from now.”