360 Contracts and MySpace

I have been holding back on blogging about the recently announced MySpace Music initiative because the few articles initially circulating have been a little light on in definitive detail. However, as more information begins to emerge there appear to be some worrying issues.

At present there are reportedly around 5 million artists with MySpace pages.

Three of the major labels (not EMI as yet) are to form a separate company, owned and run by them as a joint venture, to work with MySpace to enable artists to sell music as well as a whole range of other products. This raises questions of the potential for anti-competitive practices and the impact that the domination of the labels might have on both signed and unsigned artists.

Signed Artists
In recent times and quite apart from the MySpace initiative, there have been reports suggesting that the very survival of the major record labels depends on their ability to alter the traditional contractual arrangements with artists. Recording contracts were already notorious for being unfavourable to the artist given the small royalties, the need to recoup advances, marketing, production and other costs prior to seeing any real money as well as their length and what many see as a loss of artistic control. In the past labels have recovered their costs and profits long before the artists signed to them break even. But as the trend continues whereby labels are increasingly unable to rely on the sale of CDs to sustain their business model, a new, much broader record contract has been developed.

The newer flavour of record contract tends to allow the label to recover costs from other aspects of the artists business such as merchandising, concerts and sponsorship deals. Most signed artists realise fairly quickly that they are unlikely to make money from music sales and in the past relied primarily on these sources to support themselves. Naturally, as record companies are demanding more of this money, artists are left further financially disadvantaged.

Reports regarding this new initiative with MySpace indicate that it will not simply be music that will be sold through this avenue. Indeed it will be all of these aforementioned sources of income that will now be bundled together. This gives an enormous amount of power to the record labels to control all aspects of a signed artist’s career. One argument is that it benefits the artist because by limiting the infrastructure and coordination costs there can be a cost saving. The other side of this though is the possibility that individual artists will be worse off as they have no choice but to accept any deal offered by the labels. Without the ability to negotiate these aspects of the business independently and with the labels essentially controlling the distribution of music in this forum, signed artists may well face a much greater form of contractual slavery than they currently do.

Unsigned Artists
Around 40% of the music market (a proportion that continues to grow) are currently independent artists. One report suggests that the music service, whilst initially being developed by the major labels, will eventually allow independent artists to sell their music and associated items. Remembering however that this initiative will be owned and run by the major labels there are two points of contention. The first is that it is highly unlikely that independent artists will be treated equally. One can easily imagine a situation where the artists signed to the major labels are promoted ahead of independents, where bandwidth is prioritised in favour of signed artists or the possibility that independents may end up paying more for the privilege of having this avenue to sell their work. This later point raises a second area of contention. As the industry itself moves away from music as the primary product, it seems that paying the major labels to distribute the work of independent artists, allows them to access royalties by default. Without having to support the artist, coordinate their careers, cover the costs of their recording or marketing; major labels nonetheless will still be able to make money out of them.

The Public
Of course there are also flow-on effects to the public from this proposal. As I often note, an environment that is not supportive of the best artists inevitably results in the promotion of music that is commercially viable rather than socially advantageous. While, fortunately, not all people use MySpace and there will continue to be some competition from other music initiatives, this business model will further impede the movement to a collective licensing model. There are already suggestions that most of the music will be protected with DRM (with a possibility of some unprotected tracks). More importantly however, such a model continues to depend on the stifling of innovation through the continued persecution of file sharing technology and users.

One commentator concludes discussion of this issue by stating ‘Welcome to Feudalism 2.0’. Unfortunately this captures much of my sentiments regarding this proposal. In many ways this is much worse than the current market dominance of iTunes. It smacks of the potential for anticompetitive behaviour and does nothing to overcome the current difficulties of artists and the public in the digital music environment.

Articles
TechDirt, Major Record Labels Form Joint Venture With MySpace (3 April 2008)
<http://www.techdirt.com/articles/20080403/111142739.shtml> at 7 April 2008

The Register, MySpace Music leaves creators cold (4 April 2008) <http://www.theregister.co.uk/2008/04/04/myspace_music_coup/> at 7 April 2008

The Register, MySpace trumpets music service (3 April 2008) <http://www.theregister.co.uk/2008/04/03/myspace_music/> at 7 April 2008

SiliconValley/Associated Press, MySpace starts music service with 3 major record companies
(3 April 2008) <http://www.siliconvalley.com/personaltech/ci_8796093> at 7 April 2008

Digital Music News, It's Coming: More Dealmaking Details Leak on MySpace Music (25 March 2008) <http://www.digitalmusicnews.com/stories/032408myspace> at 26 March 2008

Digital Music News, Fog Starts Lifting on MySpace, Major Label Discussions (21 February 2008) <http://www.digitalmusicnews.com/stories/022008myspace> at 25 February 2008

Digital Music News, Upstreaming Disrupted:Why Major Label Survival Depends on Transformed Deals (18 March 2008) <http://www.digitalmusicnews.com/stories/031708upstream> at 19 March 2008

Digital Music News, 360 + Change: Labels Pushing Harder on Broader Deals (10 February 2008) <http://www.digitalmusicnews.com/stories/021008change> at 19 February 2008