Indie labels rebel against MySpace
MySpace owes its success in part to independent music labels. So why are some key acts not found on its new music service?
NEW YORK (Fortune) -- MySpace founders Chris DeWolfe and Tom Anderson have always portrayed themselves as champions of independent music. The company is fond of pointing out that it has been a springboard for such once-obscure bands as the Arctic Monkeys, which records for independent label Domino.
But on Thursday, when MySpace launched its long-awaited new music service, a consortium of independent record companies castigated the social network for offering more favorable terms to major labels with stars like Britney Spears and Coldplay than those with acts like Saddle Creek's Bright Eyes, Merge's Arcade Fire, and XL's Vampire Weekend, which aren't as famous but have a lot of online fans.
"There just seems to be a massive disconnect within that organization between the reality of what they are building and what they think they have built," said Charles Caldas, CEO of Merlin, an international licensing group representing over 12,000 independent labels, among them Domino, Koch Records and Beggers Group.
Caldas said he tried to work out a deal to have music from his members included on MySpace Music, which offers free ad-supported songs from the four major labels - SonyBMG (SNE), Warner Music (WMG), Universal and EMI - to its 120 million members. But he said Merlin has been unable to reach an agreement because MySpace insisted on treating the consortium's members differently than their bigger peers.
Here's the sticking point: MySpace Music is a joint venture between the News Corp.-owned social network and the Big Four labels. MySpace has given its partners an equity stake in the new service, but not to Merlin and other independent labels.
Clearly, MySpace doesn't think it has to give away more equity to have a successful service. For its part, Merlin wants the best deal possible for its members. This being the music business, where negotiations tend to be nasty, Merlin is trying publicly to pressure MySpace and its partners into giving its members better terms.
"The disappointing thing was to see that MySpace was going to launch without the labels we represent," said Caldas. "We're talking about some of the most significant independent labels and artists in the world. It just seems odd. Here's a service that is built on the backs of those kinds of labels and artists. They are the ones its core audience is interested in."
MySpace, which owned by News Corp. (NWS, Fortune 500), counters that it has done nothing wrong. "We have offered a relationship with Merlin that provides equal opportunities to Merlin's Labels and Merlin's artists that we have provided to all labels and artists whether they are indie artists, major artists or unsigned artists," the company said in a statement. MySpace declined comment on the contradiction between this statement and its refusal to give indie labels a stake in the venture.
MySpace Music isn't devoid of independent music. The Orchard (ORCD), a New York-based company that controls and distributes more than 1 million songs by independent band and artists, has signed up. "We believe this in an important launch," said Orchard CEO Greg Scholl. "This is a chance to create a new kind of value for [music copyright] holders."
But many others feel they are getting short shrift. Bob Frank, CEO of Koch Records, the biggest independent label in the United States, was livid that MySpace would treat his company differently than its major label partners.
"Koch Records isn't just going to drop our pants and sign here without being treated like everyone else," said Frank, who is also chairman of Merlin.
Some independent label representatives also wonder what lies ahead if they do business with a digital music company that's partly controlled by their larger rivals. "How do our four competitors in a practical sense control that service?" asked Caldas. "That is some pretty sticky ground, I would think."
Rich Bengloff, president of the American Association of Independent Music, a trade association representing 182 independent labels, noted that Warner Music has also gotten equity in Imeem and Lala, two other digital music sites.