February 18, 2002
Record Labels' Answer to Napster Still Has Artists Feeling Bypassed
By NEIL STRAUSS
In their bitter battles against Napster and other free music
downloading services, record company executives have wielded one
moral argument that has placed their position beyond self-interest:
the fans take the music without proper permission and don't pay the
artists a dime.
Last December, the major record labels responded with two Internet
services of their own where fans pay monthly fees to download songs.
Under this arrangement, however, the performers still don't get a
dime: for each song downloaded, they stand to get only a fraction of
a cent, according to the calculations of disgruntled managers and
And, artists and their managers say, the labels, like Napster, aren't
putting the music online with proper permission either.
"I'm not an opponent of artists' music being included in these
services," said Gary Stiffelman, who represents Eminem, Aerosmith and
TLC. "I'm just an opponent of their revenue not being shared."
Because the sites are new, no payments have been made yet, but the
payment plan has so infuriated scores of best-selling pop acts,
including No Doubt, the Dixie Chicks and Dr. Dre, that their lawyers
have demanded their clients' music be removed from the sites, with
some even sending cease-and-desist orders. Only in some cases have
the major record companies complied.
Since Napster was born on college campuses in the late 1990's,
peer-to- peer file sharing services have become the bane of the
established music business, with, at their peak, some 60 million
Napster users sharing nearly 40 million songs illicitly. Even after a
federal district court shut Napster down, other free services
proliferated, with Kazaa and Morpheus attracting an ever-growing base
of users sharing not just music but movies and software as well.
In December, the music business responded with Pressplay and
MusicNet, both pay-to-use subscription services where users can
listen to or download a specified number of songs each month.
Pressplay is a joint venture between Universal and Sony Music, and
MusicNet teams BMG, EMI and AOL Time Warner (news/quote) with Real
"All of my clients had their attorneys advise the labels that if they
did use my clients' music on Pressplay or MusicNet, they would be in
breach of contract," said Simon Renshaw, who manages the Dixie
Chicks, Mary J. Blige and others. "Some artists they took off, but
some they didn't. It's becoming very obvious to me and my peers that
we're becoming victims of what is a huge conspiracy."
Representatives of the five major record labels would not talk on the
record about the payment system or their rights to use the music. But
in comments not for attribution, several executives at labels and
their subscription services did not dispute the accusations regarding
the payment plan. They said their first priority was to make the
services attractive to consumers and that the details of compensation
could be worked out afterward.
In a letter responding to a lawyer who is trying to remove an artist
from Pressplay, the head of business affairs for several Universal
labels, Rand Hoffman, set out a company position. It is a view shared
by other record executives, who say they are investing heavily to
fight piracy and develop a fair compensation system for artists who
"We are now spending tens of millions of dollars to help launch
Pressplay in the hope that a legitimate response to the illegitimate
services will provide an attractive alternative to consumers," Mr.
Hoffman wrote in the letter. "Pressplay is committed to making music
available on the Internet in a manner that is legal and that ensures
that artists and publishers will be paid. This is truly a time for
artists and record companies to be working together."
He added that it was "beyond logic" that artists would choose to
leave their music off Pressplay and "effectively encourage the use of
Though the two new services don't appear to be widely used, what
worries artists and managers is that a precedent is being set, so
that if the labels finally come up with a viable online music
subscription service, they won't have to share a significant portion
of the proceeds with artists and can claim that this is the way
business has always been done.
The crux of the debate over artists' compensation involves whether
they should get a licensing fee or a royalty payment.
When their music is used in movies, in commercials and on Internet
sites, artists are paid a licensing fee, which, after payments to the
producer and the publisher, is split 50-50 between artist and label.
Although Pressplay and MusicNet license the music, the bands are not
paid a licensing fee. Instead, the labels pay their artists a
standard royalty for each song accessed by a fan, as they would for a
This means that the artist gets on average less than 15 percent
instead of 50 percent. But, out of that, 35 to 45 percent is deducted
for standard CD expenses like packaging and promotional copies ó
expenses that obviously don't exist in the online world.
As one rock manager computes it, if a consumer buys the standard Gold
Plan on Pressplay, paying $19.95 for 75 songs downloaded to a hard
drive and 750 streamed so that they can be heard only once, an
artist, after these deductions, gets $.0023 per song downloaded. To
earn a penny, more than four songs must be downloaded.
"I did the math with several other managers and lawyers, and the
labels and Pressplay get just under 91 percent after they've paid all
the artists for all the downloads," said Jim Guerinot, who manages No
Doubt, Offspring, Beck and Chris Cornell. Other managers come up with
other figures that they say are even worse for the artists.
The artists' managers and lawyers say the record companies have not
committed their payment system to writing.
Representatives for Pressplay and MusicNet said that the payment
schedule was a decision made by the labels. "Pressplay licenses its
content from record labels and in turn packages the music on our
service," said Seth Oster, a spokesman for the company. "The
compensation of artists takes place at the label level."
"Pressplay was developed as a legitimate service to make sure
artists' rights were respected and artists were compensated," he
A spokeswoman for MusicNet said, "We are deeply committed to artists'
rights and to ensuring that copyright holders are compensated."
Another irritant for the artists, several lawyers and managers say,
is the distribution of the $170 million settlement from MP3.com, an
Internet company that offered a music storage service in violation of
The labels were to share that money with artists whose music was put
online without authorization, but several artists' representatives
said nothing had been distributed.
Spokesmen for Sony (news/quote) and BMG said those companies were
arranging to distribute the money. According to Warner Brothers and
Universal Music, the money has been distributed, although it may not
have been spelled out exactly in the accounting statements artists
received. EMI did not call with a comment.
For many acts, suddenly there appears to be little difference between
the illicit file-sharing system and record-label services.
The arguments the labels are using, said Jill Berliner, a leading
music lawyer, are exactly the ones Napster made. "And, from our
perspective, if the technology is going to be out there and the
artist isn't really going to make money, we'd prefer that our fans
just get it for free," she said.
Another complaint is that the labels are licensing music to the
subscription services without seeking permission from the musicians.
"All of a sudden this thing launches," Mr. Guerinot said, "and myself
and a lot of other managers and lawyers had never even been asked
about it. We have coupling rights in our contract, which means they
can't just take our music and put it wherever they please. When I try
to talk to them, they say that they don't have to discuss this."
Mr. Guerinot said he sent cease- and-desist letters on behalf of
Offspring, Beck and No Doubt. As a result, he said, music from No
Doubt and Offspring was removed from Pressplay, but not the music of
One manager of million-selling acts, speaking on condition of
anonymity, said: "We've written them letters and put them on notice
up front, as did most managers and lawyers, saying, `Don't put our
artists' music up.' But they'll do it anyway. They're so arrogant.
They're taking the position of: `We don't care. Let's just do it
without asking.' They're ignoring their contracts. It's ridiculous.
Obviously it will be litigated."
Some managers, however, said that they felt bullied into including
their music on the services and were powerless to do anything about
it. "Of course we're upset about it," said the manager of one male
artist. "But he hasn't even turned in his record yet, so what leg do
we really have to stand on?"
To try to avoid future protests, most major labels have added a
clause to their standard recording contracts allowing the label to
sell an act's songs on the Internet, including all subscription and
pay-per-use services. It is very difficult, said Mr. Stiffelman, for
a new band to have enough leverage to remove this clause from its
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