Spanish Site Brings Pay Into Play

After years of trying to persuade music fans to pay for the songs they download, the recording industry faces a new challenge: making sure they send their money to the right place.

A new online music store called Puretunes, which debuts today, demonstrates the record labels’ problem. Based in Madrid, Puretunes claims to comply with Spanish copyright law. But it’s not sanctioned by the labels. And although the site offers to pay the labels something for their music, it takes an all-you-can-eat approach that will put a lot less money per track in the labels’ pockets than authorized music sites do.

Prices on Puretunes start at $3.99 -- for downloading an unlimited number of songs over eight hours. By contrast, the label-backed services, such as Apple Computer Inc.’s iTunes Music Store, typically charge 99 cents for a downloadable song that can be saved permanently on a CD. For the price of four songs at the iTunes Music Store, someone with a fast Internet connection could download more than 400 from Puretunes.

Javier Siguenza, an attorney for Chantik, the privately held Dutch firm that owns Puretunes, said it took advantage of a wrinkle in Spanish law to run the operation legally. He said the site plans to pay the labels the same, undisclosed percentage of its revenue that it pays the Spanish musicians’ association under that nation’s copyright law.

Puretunes’ approach is similar to the one used by Weblisten.com of Madrid, which has been selling music online over the labels’ objections for five years. The labels haven’t accepted any payments from Weblisten and have tried to shut down the site through lawsuits.

Alan Dixon, general counsel for the International Federation of the Phonographic Industry, said Weblisten remained in business only because it takes years to get a final ruling from the Spanish courts.

Dixon said Weblisten’s attitude amounted to, “If you won’t sell it to me, I’m going to steal it.” He added, “People that have copyrights are not forced to do business with any person or organization.”

Dixon said the labels expected to win legal judgments that ultimately would compensate them for copyright infringements. In the meantime, the emergence of services such as Puretunes could make it harder for the labels and their online partners to maintain their current prices and business models.

For starters, Puretunes’ fees are far below the wholesale prices that other online services have agreed to pay the labels. And unlike the tracks sold by label-sanctioned services, which are wrapped in electronic locks to deter piracy, its songs have no restrictions on copying.

Puretunes set up shop as Sakfield Holding Co. in Madrid, negotiating licensing deals with the Spanish associations representing music publishers and artists. It didn’t seek deals with the record labels, Siguenza said, because that would have been impossible: There are too many.

Instead, he said, Puretunes is following a provision of Spanish copyright law that requires artists and record companies to be paid equal royalties when there is no agreement on how to divide the payments from the sale of their work. Once the Web site is up and running, he said, the company plans to contact the labels and ask where to send their shares.

Weblisten, on the other hand, tried repeatedly to obtain licenses from the record companies but couldn’t make any headway, said Gonzalo Mora, manager for video and multimedia at the Spanish association representing music publishers, SGAE.

“All the times which Weblisten was sending letters, was phoning these people, they saw the door being closed, without any single possibility of talking to these people,” Mora said.

Weblisten has paid up to 20% of its revenue from downloads to SGAE, plus 1% to the artists. It also has paid 1.7% of its revenue to the artists’ association to hold for the labels, Jaime Bernabe of Weblisten said.

Four major record companies and two independents have won five separate court rulings against Weblisten in Spain, but the cases remain under appeal, lawyers for both sides said. A criminal case against Weblisten remains pending, as does a lawsuit Weblisten brought to prove that it obtained the necessary rights to the labels’ songs from the artists’ association.

Dixon declined to comment about Puretunes, but he said Weblisten was in clear violation of the law. “They obviously think they’ve got a good business, and they’re going to milk it as long as they can,” he said.

Puretunes is poised to attract a much larger audience than Weblisten, making it a more significant threat to the record labels. While Weblisten is relatively unknown in the U.S., Puretunes has lined up a promotional deal with Grokster, an online file-sharing network that attracts roughly 10 million users a month.

“Instead of spending millions of dollars trying to attract customers to it, Puretunes is taking the approach that they should go to the customer,” Grokster President Wayne Rosso said. “And Grokster and networks such as ours have all the customers.”

Although Puretunes has an office in Madrid, a trace of online traffic suggests that it’s delivering music from somewhere on the North American network owned by Cogent Communications Inc. of Washington, D.C. Locating in the United States or Canada would give Puretunes access to faster Internet connections at much lower cost, but it also could expose the company to a different -- and tougher -- set of copyright laws.

In the United States copyright holders can force Internet providers to take down sites accused of piracy. Record labels can ask Internet providers in other countries to do the same, but only on a voluntary basis.