NYT: Labels Offering Better Licensing Terms for Start-ups

Authored by Mark Hefflinger on May 28, 2009 - 10:10am.

New York - The four major record labels are beginning to cut "friendlier" deals with digital music start-ups, in the face of declining CD sales and a new generation of listeners who primarily look to the Internet to discover new music, The New York Times reported.

Recently, Warner Music Group (NYSE: WMG) forgave the debt of streaming music service Imeem, and, along with Universal Music, relaxed the terms of its licensing deal with the company.

The move came as Warner also announced that it would at least temporarily cease investments in the digital music space.

"We are trying to figure out how to restructure partnerships and develop a healthier ecosystem where entrepreneurs can continue to innovate," Michael Nash, executive vice president for digital strategy at Warner Music, told The Times.

"Entrepreneurs are also realizing they need to spend as much energy on their business model as they do on technological innovation."

Another beneficiary of new licensing terms from the labels is Napster, whose CEO Chris Gorog told The Times that they enabled the company to slash the price of its subscription from $12.95 to $5 per month.

"There was a generation of Web companies that signed up for deals that didn't make sense, and unfortunately they set a precedent," Tim Westergren, founder of Pandora, told The Times.

"Now that those deals turned out to be unsustainable, it made the labels realize that there was actually not hidden money they were missing out on. I think labels have a much better understanding of the economics of the business."