PLUG IN - Labels catch flak for online invasion

The tone at Jupiter Media Metrix's Plug In forum in New York this week was clear: The major record labels are mucking up online music. Gone are the days of free, file sharing promiscuity, as concerns about security and rights have raised their fee-imposing heads.

"The start-ups and innovators have basically fallen apart and been eaten by labels," said Jupiter Senior Analyst Aram Sinnreich. "Last year we had the Napster conference and this year we have the MusicNet, Pressplay conference."

MusicNet is the online music subscription service formed by AOL Time Warner Inc., Bertelsmann AG, EMI Group PLC and RealNetworks Inc., which signed a deal with Napster Inc. last June. MusicNet also announced an agreement with leading independent label Zomba Recording Corp. Tuesday. Pressplay boasts heavyweight backers Vivendi Universal SA. and Sony Music Entertainment Inc.

Aside from the fact that consumers will now have to pay for music downloads, which has grudgingly been accepted by users who agree that artists need to be paid for their music, part of the resentment comes from the fact that the labels are tightening their grip on what was considered a more open and innovative music channel.

"We are now seeing the Internet as a bottleneck of creativity because the labels are moving in to find a new market," Canadian rocker Alanis Morissette told Plug In attendees.

Much of the concern about the labels' role in online music is over how licenses are being divvied up and how royalty fees are being distributed.

Because of how the licenses have been arranged -- with three of the major labels backing MusicNet and two backing Pressplay -- music content is being divided into two services, which creates a tension for users over which service they want to subscribe to, Jupiter analysts said.

The complaint of artists, like Morissette, is that the labels are reportedly negotiating the lowest possible royalty rate so that they can set competitive prices for their services.

"We (the artists) are being represented by people who may not have our best interests at heart," Morissette said.

But while the big five labels prepare to go to the mat with their dueling subscription services -- both MusicNet and Pressplay are due to launch later in the third quarter of this year -- there was at least some consolation for users as players from both companies indicated that in the long term they believe that both services will have licenses to all music.

"In the end it's all about what consumers want," said Rob Glaser, interim chief executive officer of MusicNet.

Edgar Bronfman, Jr., executive vice chairman of Vivendi Universal, said that although he didn't believe MusicNet and Pressplay would ever merge, he did believe that both companies would eventually have licenses to all music. Both services have nonexclusive contracts with the labels.

It won't be tomorrow, but it will be sooner two or three years, Bronfman said.

Meanwhile, everyone is waiting to see how the subscription services will be embraced once they are up and running.

"This industry is in only in its infancy," Bronfman added. "We have a long way to go."

Jupiter's Plug In forum ended Tuesday.

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