May 5, 2007 / 2:27 AM / 11 years ago

Indie labels plan to pull out of digital service

DENVER/LOS ANGELES (Billboard) - A handful of independent record labels are poised to launch what they are calling a “revolt” against digital subscription service eMusic, citing unhappiness with the company’s pricing model as their core concern.

Billboard has learned of at least six eMusic partners -- three of whom were listed among eMusic’s top 60 labels this week -- that plan either to pull their catalog from the service entirely or to limit content to back-catalog tracks when their current licensing deals expire.

Several representatives of these labels, attending the recent NARM (National Association of Recording Merchandisers) annual convention in Chicago, told Billboard they feel eMusic is trying to pad its subscriber base to make itself a more attractive acquisition target. Unless the service raises prices and, in turn, the compensation provided to labels, they intend to withdraw their music in protest.

“We’ve been partners with eMusic since the very beginning, and it is a great way for our customers to discover music,” says the head of one of the larger such labels who asked not to be identified. “I hope they can make it a better value proposition for the labels. But if they don‘t, we are planning on pulling out.”

VICTORY LOST

Victory Records’ Tony Brummel first raised the issue in early April when he pulled his catalog from the service after eMusic introduced the Connoisseur Plan, which offers existing customers 300 downloads a month for $75 -- or about 25 cents apiece. The most eMusic subscribers pay per track is 33 cents under its plan that charges $10 per month for 30 downloads.

After factoring in distribution costs and other expenses, some labels receive as little as 12 cents per song in profit, sources say -- far less than the 60 cents to 65 cents per track received from iTunes.

The service counts more than 13,000 indie labels as partners, and, at the moment, complaints about the revenue share seem constrained to a disgruntled few. But even independent labels that support eMusic say they understand the growing concern.

“I‘m a subscriber of eMusic, and I love it,” says Rian Murphy, head of digital sales for Chicago-based Drag City, who says he has no plans to leave the service. “But from the point of view of the label, the profit margin is greatly constricted, and it’s a concern to anyone selling records. They would be better off being more equitable, or they will probably lose some labels. Everyone has to live.”

eMusic CEO David Pakman last month denied that the company was seeking a buyer. He defends the company’s pricing and compensation structure, pointing out that the average eMusic customer acquires 20 songs a month from the service, and he pays labels an average of $6 a month per subscriber. Compared with the average of 10 songs a year bought on iTunes, Pakman says the lower price ultimately results in more revenue through greater volume.

“There’s no question that eMusic pays less on a per-track basis than other a la carte digital services,” Pakman says. But “it’s not clear that 99 cents a song is the right price ... Music is an elastic good. If you lower the price, you’ll sell more, and if you raise the price, you’ll sell less.”

eMusic surpassed 300,000 subscribers in April.

Reuters/Billboard

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