How The Record Labels Kill Off Innovative Startups With Ridiculous Licensing Demands

from the an-inside-view dept

We recently showed a graphic description of the ridiculous licensing spiderweb any new music startup needs to go through these days. That was a UK depiction, but it's quite similar in the US and other parts of the world as well. What's not seen in the graphic, however, is just what some of the demands are from those copyright holders in order to secure the necessary licenses. We've heard time and time again from innovative music startup after innovative music startup, that when the major record labels come calling, they do so with outrageous demands for upfront payments, excessively high ongoing royalties and a demand for equity. Quite frequently, the record labels try negotiating through lawsuit, by suing the startup as a part of the "negotiation." While many of these lead to "settlements," the results are ridiculously burdensome, leading many of these startups to go out of business.

Playlist.com is a startup that has gone through much of this cycle, including lawsuits from the majors and "settlements." Except, the settlements were so burdensome that Playlist declared Chapter 11 bankruptcy to try to get out from under some of its liabilities. What that's also done is given us a glimpse behind the scenes of just how much the labels end up getting from such startups. For example, Playlist apparently owes the four major labels a combined $24.4 million for helping people find and listen to music.
These fees were the result of the settlement licenses worked out by the labels, but the company can't even come close to paying them off. And, because of this, people will just get the same music elsewhere -- from offerings that probably don't pay the labels a dime. It's really quite impressive when you look at the long list of innovative music services startups killed by ridiculous major label demands.

Filed Under: licensing, music
Companies: playlist


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  1. icon
    Suzanne Lainson (profile), 27 Aug 2010 @ 5:36pm

    Re: Re: Re: Re: Re: Re: Re: Just work with independent artists

    My proposed solutions:

    1. Be an interactive music site (then you don't have to deal with SoundExchange).
    2. Only use music from artists/labels which don't ask for a royalty. If the major labels want to drive a hard bargain, don't use their music.

    I figure that if the startups already know they have certain operating expenses in the form of payments to major labels and still proceed with that business plan and can't make a go of it, then that's too bad for them. And hooray for startups who base their plans on unsigned artists eager for the exposure. Help out the little guys. If the major labels go under because they don't play ball with the startups, is that really a big loss in the greater scheme of things? And if the startups can't make a go of it without the major labels, maybe they are still too tied to the music of the past.

    A Short Explanation of SoundExchange and Why It is Important -- Music Business Heretic: "Why is SoundExchange so Powerful and where does it get its authority? SoundExchange is designated by the Libraian of Congress as the sole organization authorized to collect royalties paid by services who make non-interactive digital transmissions of Sound Recordings. The statutory authority for SoundExchange comes from the following two Federal Acts (The Digital Performance In Sound Recording Act of 1995 and the Digital Millennium Copyright Act of 1998) (essentially these two acts combined to grant a performance right for Sound Recordings)."

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