Canadian Indies Hesitate On Digital Music-subscription Deals

Digital music-subscription services are yet to launch in Canada, but there are already rumblings within the independent music sector over fears that it will become marginalized.

What has set those tremors off is that the Canadian Recording Industry Assn., on behalf of its members (the Canadian affiliates of the five major labels, plus the majority of Canadian independent labels), is presently brokering an On-line Licensing Agreement here for competing U.S.-based digital-music services Pressplay and Musicnet, alongside the songwriters and publishers represented by the Canadian Music Reproduction Rights Agency (CMRRA).

A deal would allow for the launching of the two digital subscription services in Canada, possibly by spring 2003. Ann Garrett, spokeswoman for Musicnet in Los Angeles, says, "Canada is the next logical step for us expanding the service."

Pressplay's Los Angeles-based VP of corporate communications Seth Oster says, "We have been working with partners in Canada to pave the way for a launch there. We continue to face publishing issues, which we are working to resolve."

Among the issues to be hammered out are a compatible royalty structure, under which labels will pay publishers for use of their works in these digital services. "We're reasonably far along [in negotiations]," CMRRA president David Basskin says. "We're down to discussing the deal points."

Following a year of negotiations to expand their major-label repertoire offerings, Pressplay and Musicnet are now fully cross-licensed to feature songs from all five multinationals in the U.S. (Billboard, Nov. 23). Those deals enable U.S. consumers to purchase permanent downloads from all five majors and numerous U.S. independents that can be burned to CDs and transferred to portable devices.

Toronto music lawyer Jordan Jacobs warns that Canadian independent labels should make their presence felt in digital music in short order or risk being left behind. "Many independents are taking a wait-and-see attitude," he says. "They want to see what the majors do and then figure out what to do. However, if they don't get involved, they will have to follow the model set for them."

Canadian Independent Record Production Assn. president Brian Chater says, "To be blunt, the issue hasn't been discussed much here. I keep telling members, 'Guys, you have to discuss this, because it's going to happen.' "

Montreal-based Jim West, president of Distribution Fusion III and of Justin Time Records, says, "Everybody feels, 'What the hell can we do right now, anyway?' Going to the table with the majors, you are not going to win being an independent. They have always set the agenda."

Indeed, potential monopolistic practices by the major-label services is an oft-echoed concern. Geoff Kulawick, president/CEO of Linus Entertainment in Toronto, says, "Obviously, there's a benefit of these two distribution points being able to get everything to compete with online piracy, but the fact is they are owned by our competitors. A traditional retailer doesn't care who owns the product; they sell the hits. Shareholders of Pressplay and Musicnet are going to care who owns the product. They will want to make sure that the music they own gets the most attention."

EMI Music Publishing Canada president Michael McCarty admits, "It could be difficult for indies to get 'real estate' on [the services'] promotional pieces."

BMG Music Publishing Canada GM Robert Ott says ongoing competition between the digital-music services benefits indies, because the services need indies to build subscriber bases large enough to reach profitability. "The services need content," he says. "The struggle for the independent artists will be what it has always been to have quality music and to be known."

Sony Music Canada VP of legal and business affairs Ian MacKay says, "These Internet services provide a great opportunity for independents and lesser-known artists who may have albums deleted or not distributed in other countries. These services would work very well for more obscure stuff and catalog [that] people may not be able to find at [traditional music] retail."

One potential roadblock in Canadian clearances for digital distribution within the indie sector here is skepticism on the part of labels as to just how much financial benefit there is in having content included in digital subscription services.

"[Digital distribution] is on our radar screen, but it isn't a priority yet," says Earl Rosen, president of the Toronto-based Marquis label. "We are investing in our database, marketing, and building up our Web site. Online sales [of physical product] give us a faster return and a higher margin."

Ric Arboit, president of Vancouver-based Nettwerk Productions, says, "We're getting approached, and I've been saying no. I don't feel comfortable that the business model is done yet."