New and potentially disruptive music streaming services are having a hard time breaking into the market, with many analysts blaming their business models and others blaming the contractual demands from labels for the troubles encountered. There are also complaints about the royalties paid to artists and poor revenues of existing services.
Michael Robertson–founder of MP3Tunes and MP3.com–attempts to lift the veil on the industry by looking at some of the (you could safely say “unreasonable”) contractual demands placed on music streaming services by record labels:
General deal structure: Pay the largest of A) Pro-rata share of minimum of $X per subscriber, B) Per-play costs at $Y per play, C) Z percent of total company revenue, regardless of other business areas.
Labels receive equity stake: Not only do labels get to set the price on the service, they also get partial ownership of the company.
Up front (and/or minimum) payments: Means large amounts of cash are necessary to even get into the game. […] This further stifles innovation in services and business models.
Detailed reporting, including monthly play counts: Providing additional reports unrelated to payment, including overall market share of sales in various categories. […] The labels effectively offload their business analysis (and the cost of such analysis) onto the music services.
Data normalization: Without standard naming conventions and canonical methods for referencing artist, tracks and albums, the services are left to try and match artist, track, album names provided by one label with those of another. It’s incredibly inefficient, as each service must undergo this process separately.
Publishing deals: Once you’ve signed deals with the labels, you then need to cut deals with the publishers. […] Although you may have the rights to stream from labels, you sometime can’t get the rights to stream from the publisher, or worse, even find the publisher.
Most favored nation: This is a deal term demanded by every major label that ensures the best terms provided to another label are available to it as well. This greatly constricts the ability to work out unique contractual terms and further limits business models.
Non-disclosure: This is the main reason music services, not the labels, have been getting heat from the artist community. Music services can’t defend against accusations about low artist payments because they pay the labels who don’t disclose what they’re paying to the artists.
It’s worth noting that while Michael Robertson is a trustworthy writer and likely to have access to people who know this information (if this isn’t first-hand information anyway), he’s also likely to harbour some resentment toward record labels from his business ventures. Still, even without a solid reference I felt that this was too interesting to just pass up.