Customer Data Raises Sour Note
By Mindy Charski and Sara Robinson, Interactive Week
April 9, 2001 6:08 AM ET
While the big record labels and leading online companies strike nearly a deal per day for e-music delivery services, traditional CD retailers suspect they're getting purposely cut out of the action.
The central sticking point is customer data and who will own it. The resulting conflict is yet another sign of the growing tug-of-war between offline and online retailers.
Pamela Horovitz, president of the National Association of Recording Merchandisers, the trade group for music retailers, said her members have generally been unhappy with the deals the major labels have offered them because they require retailers to turn over their valuable customer purchasing data to the labels. Also, the labels often set the price at which the retailer must sell the downloads. Only EMI, she said, does not want data.
The terms the labels are offering are "the reason you aren't seeing the companies you'd logically expect to see at the forefront," Horovitz said. "Wal-Mart [Stores], Tower [Records], Best Buy - why aren't they there? Because they aren't getting deals they can sign."
Indeed some of the labels, such as Sony, even require retailers to use the label's own shopping cart technology when customers shop for downloads in their online stores, Horovitz said.
Tower is experimenting with downloads, but Mike Farrace, Tower's senior vice president of digital business, said it's "worrisome" that some companies require personal data from customers and only a few will promise not to market directly to those people. "We feel it's our responsibility to manage those relationships," Farrace said.
He said Tower would be interested in the new services if the terms are fair, but added retailers - not portals - should have been the first partners in the deals. "You'd think [the labels] would want to let us have a piece and make deals with us that were fair instead of the ones we think are not," Farrace said.
The new business-to-business music services from RioPort and MusicNet will not require e-tailers to share data with the labels, spokespeople at both companies said.
Yahoo! could not disclose which companies would have access to customer data through its new music service, announced last week, but said users will be informed about where their information is going.
Sony declined to comment on its customer data practices, citing an ongoing lawsuit filed by NARM. The lawsuit, filed in the U.S. District Court for the District of Columbia, claims Sony is illegally forcing retailers to carry CDs that contain not only music but also hyperlinks and promotional inserts directing consumers to competing retail locations owned or operated by Sony.
Choose Your Partner
It took a scheduled hearing on Capitol Hill to get things moving, but last week the record labels finally coughed up the kind of broad licensing and distribution deals for which independent online music companies have been clamoring.
The deals came as lawmakers were calling the major labels' restrictive licensing practices anticompetitive, and threatening legislative remedies. E-tailers and music technology companies applauded the agreements but many also expressed misgivings, saying the deals seemed long on hype and short on detail.
"This is all good news, but it does raise some questions," said David Pakman, senior vice president of business development at Myplay, an online music company seeking licenses for a platform for subscription music services. "Are they only licensing B2B companies they own, and are they providing better economic terms to companies they own?"
The first deal, announced the day before the congressional hearing, was the launch of MusicNet, a company providing a subscription music platform that can be licensed by third-party companies. RealNetworks has a 40 percent stake in the venture, and the three major record labels that are licensing songs to the MusicNet each got 20 percent: AOL Time Warner's Warner Music Group, Bertelsmann's BMG Entertainment and EMI Group.
The terms for licensing the service will be decided on case-by-case, a spokeswoman at RealNetworks said.
Last Thursday, the two largest of the major labels, Vivendi Universal's Universal Music Group and Sony Music Entertainment, announced their jointly owned music subscription service, dubbed Duet, will distribute streamed music and downloads through Yahoo! The two music companies - which own 47 percent of the market - will pay Yahoo! for marketing and distribution.
Meanwhile, RioPort, an application service provider for music e-tailers, announced midweek that it had licenses from all five major labels to provide their full downloadable music catalogs through its network of retail sites, starting with two MTVi radio stations.
The labels will each determine the security technology - Windows Media or InterTrust - and prices will range from 99 cents to $2.49 for single tracks and $9.99 to $17.99 for full albums.
Tower's Farrace remains skeptical: "We're 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 controlling lawful use and hiding plans for cutting retailers out of the marketplace."
