Despite being competitors in the music industry, the big music labels had “most favored nation” terms inserted into contracts with digital music distributors.
Under those terms, the LA Times reported, there was no true competition between the music labels. If one got a better price for music, they all got the same price.
It’s a business practice that attracted the attention of New York Attorney General Eliot Spitzer, who sent subpoenas in lieu of greeting cards to the labels last year. His office has not yet commented about the Times report, but sources close to the investigation said it was the money guarantees that his office is examining.
The Times featured one quote from an unnamed industry executive, who said the labels only have the best interests of the artists at heart:
“The music industry wanted to establish the online marketplace as quickly as possible, but we didn’t want to get bogged down in debates over prices,” one executive said. “These clauses let us create a viable marketplace quickly, and then make sure all musical artists are equally compensated.”
Other unnamed executives said the most-favored nation clauses were “common in contracts” for distributing digital music online. Further, some contracts compelled the online services to spend the same amount of marketing money on promoting songs regardless of their owning label.
An interesting portion of the Times report cited the growing power of online distributors, namely Yahoo, which has apparently taken a stand against one label in a money dispute:
Last week, for instance, Yahoo Music pulled from its website some of Warner Music Group’s videos, in a bid to force the company to renegotiate the prices Yahoo pays when users stream the clips. Executives from both companies have begun discussions to resolve the issue.
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David Utter is a staff writer for Murdok covering technology and business.
