New and poten­tially dis­rup­tive music stream­ing ser­vices are hav­ing a hard time break­ing into the mar­ket, with many ana­lysts blam­ing their busi­ness mod­els and oth­ers blam­ing the con­trac­tual demands from labels for the trou­bles encoun­tered. There are also com­plaints about the roy­al­ties paid to artists and poor rev­enues of exist­ing ser­vices.

Michael Robert­son–founder of MP3Tunes and MP3.com–attempts to lift the veil on the indus­try by look­ing at some of the (you could safely say “unrea­son­able”) con­trac­tual demands placed on music stream­ing ser­vices by record labels:

Gen­eral deal struc­ture: Pay the largest of A) Pro-rata share of min­i­mum of $X per sub­scriber, B) Per-play costs at $Y per play, C) Z per­cent of total com­pany rev­enue, regard­less of other busi­ness areas.

Labels receive equity stake: Not only do labels get to set the price on the ser­vice, they also get par­tial own­er­ship of the company.

Up front (and/or min­i­mum) pay­ments: Means large amounts of cash are nec­es­sary to even get into the game. […] This fur­ther sti­fles inno­va­tion in ser­vices and busi­ness models.

Detailed report­ing, includ­ing monthly play counts: Pro­vid­ing addi­tional reports unre­lated to pay­ment, includ­ing over­all mar­ket share of sales in var­i­ous cat­e­gories. […] The labels effec­tively offload their busi­ness analy­sis (and the cost of such analy­sis) onto the music services.

Data nor­mal­iza­tion: With­out stan­dard nam­ing con­ven­tions and canon­i­cal meth­ods for ref­er­enc­ing artist, tracks and albums, the ser­vices are left to try and match artist, track, album names pro­vided by one label with those of another. It’s incred­i­bly inef­fi­cient, as each ser­vice must undergo this process separately.

Pub­lish­ing deals: Once you’ve signed deals with the labels, you then need to cut deals with the pub­lish­ers. […] Although you may have the rights to stream from labels, you some­time can’t get the rights to stream from the pub­lisher, or worse, even find the publisher.

Most favored nation: This is a deal term demanded by every major label that ensures the best terms pro­vided to another label are avail­able to it as well. This greatly con­stricts the abil­ity to work out unique con­trac­tual terms and fur­ther lim­its busi­ness models.

Non-disclosure: This is the main rea­son music ser­vices, not the labels, have been get­ting heat from the artist com­mu­nity. Music ser­vices can’t defend against accu­sa­tions about low artist pay­ments because they pay the labels who don’t dis­close what they’re pay­ing to the artists.

It’s worth not­ing that while Michael Robert­son is a trust­wor­thy writer and likely to have access to peo­ple who know this infor­ma­tion (if this isn’t first-hand infor­ma­tion any­way), he’s also likely to har­bour some resent­ment toward record labels from his busi­ness ven­tures. Still, even with­out a solid ref­er­ence I felt that this was too inter­est­ing to just pass up.