The New Business Models [4:35 pm]
The last 18 months have seen the major music labels accept new technological and business models — such as dropping digital rights management and allowing ad-supported free music — that have given rise to a new generation of digital music services. But the flip side of this willingness to experiment is a demand for higher upfront advances for licensing music and in some cases a substantial equity stake in the company.
Ad-supported download service SpiralFrog, for instance, paid more than $3 million in upfront advances to Universal Music Group alone before it even went live, and has paid additional millions in licensing fees since the original term expired. Imeem is said to have paid advances as high as $20 million and gave labels equity in the company. Imeem disputes that figure but the equity stake is now a matter of public record.
Sometimes the price is so high it sabotages the deal. A mobile messaging company recently walked away from negotiations in which a label demanded 85% of the company’s gross revenue, even though the deal didn’t involve any music licensing.
Labels say its just the cost of doing business in today’s music industry. Critics say it’s stunting the establishment of a viable digital entertainment marketplace.