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 @ 6:41pm

    Lack of cashflow

    Even without fees to the labels, many of the music startups were and are going to fail. Most of them are hoping for ad money, subscriptions, or both. And neither revenue streams are going to generate a lot of money.

    There really isn't a good music business model out there right now. Sites that get money from the musicians are probably going to do better than any site that attempts to collect money from listeners.

    Do I like the "pay a monthly fee and have access to every recording in the history of music" idea? Yes. But even if that all of those tracks are available for free, there might still be some hurdles to overcome:

    1. Will consumers pay?
    2. Who would collect the money and what would be the delivery system?
    3. If all music is available to every startup for free, then competitive pressure will likely drive out most startups anyway. Each would compete with each other to offer the same services for lower and lower prices until we'd be back to a scenario where consumers can have the music for free and there's no money going to the startups.

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