MH:Is this the mafia leaving?
Traditional Retailers Feeling Cold Shoulder from MusicNet, Pressplay
by Jay Breitling
Brick-and-mortar retailers are crying foul, saying the major label groups are cutting traditional merchants out of the digital music market and focusing on their own distribution services, Pressplay and MusicNet.
Pressplay and MusicNet are expected to launch early next month and have already signed up distributors and licensees including Yahoo, MSN Music and MP3.com, and AOL, RealNetworks and Napster, respectively. Traditional off-line retailers including Tower Records, Best Buy and Musicland Stores each host significant web presences, but neither major label-backed service has inked a deal with a traditional retailer.
Representatives for Tower Records and Best Buy declined to comment on the status of negotiations with MusicNet and Pressplay. However, a source familiar with numerous traditional retailers' discussions with MusicNet and Pressplay claims those discussions are occurring only so the two label-backed services appear to be engaging in wide licensing discussions.
That jibes with assertions made in a letter sent to Recording Industry Association of America (RIAA) President and CEO Hilary Rosen last week. In the letter National Association of Recording Merchandisers (NARM) President Pam Horovitz expressed disappointment with the lack of licensing to NARM member companies.
Such concerns are not new. In April Tower Records Senior Vice President of Digital Business Mike Farrace testified before the Senate Judiciary Committee that Tower is "starting to worry that maybe all the talk and activity about protecting the music is not just about controlling copyright infringement, but is really about...hiding plans for cutting retailers out of the marketplace."
The licensing stalemate has drawn the attention of U.S. lawmakers over the last nine months. Two weeks ago Reps. Chris Cannon and Rick Boucher introduced the Music Online Competition Act (MOCA). If passed, the bill will change copyright law and require record labels to offer the same licensing terms to all online music services [see 08.03.01 Digital Music Bill Faces Battle on the Hill].
In her letter, Horovitz said the legislation is necessary because "copyright owners refuse to engage in any meaningful discussion with [traditional retailers] regarding digital distribution."
The recording industry immediately pledged to fight the bill. In response to Horovitz's letter, Rosen said in a statement that "how music is distributed is changing. While I am sympathetic with NARM's desire to hold on to the status quo, I do not think that legislation is the answer."
The MOCA bill is designed to help remove a number of licensing roadblocks, but it does not create a compulsory license. That means, even if the legislation passes and labels must offer standardized license deals, they still are not required to license to any party that wants to use their music.
Spokespeople for Pressplay and MusicNet declined to comment on any negotiations with traditional retailers. Despite Horovitz's assertion, a source familiar with the negotiations said "there absolutely are" discussions ongoing between MusicNet and traditional retailers.
Since the public announcement of MusicNet and Pressplay this spring, the five major labels have virtually stopped licensing their catalogs for online music services. One major label source points to the fact that there are few start-ups left to which to license music. What may be the first major label-supported online subscription service, Streamwaves' HigherWaves Christian music offering, launched today [see 08.13.01 Streamwaves Launches Christian Music Subscription Service].
Some traditional retailers have had difficulty establishing Internet strategies. Last September, CD Warehouse became the first significant music retailer to shutter its web site. Last December Virgin Megastores slashed its ecommerce operation because the sales it generated did not justify the costs. Borders.com recently relaunched after outsourcing its ecommerce operations to online retail giant Amazon.com [see 08.02.01 Borders, Amazon Relaunch Borders.com].
