News Corporation and the major record labels are facing antitrust questions about the blockbuster MySpace Music venture – even before the site has launched.

MySpace Music is billed as the biggest music retail launch of the year. It’s a one-stop shop backed by the cross-media muscle of Rupert Murdoch’s media empire, with the three biggest record labels. The site promises to offer everything from downloads to ringtones to concert tickets, backed by the “street” cred of the MySpace brand, and a blockbuster launch is expected this week. Astronomical valuations – $2bn – have already been placed on the service, which MySpace insiders want to become the ‘internet’s MTV’.

The problem? Not everyone can play. Independents say they’re being frozen out of the new venture. No independent music company has inked a deal with the News Corp, and independent labels report that they’ve been blocked from uploading their music. And since MySpace Music is a joint equity venture between News Corp and the three biggest labels, which control 70 per cent of the US recorded music business, the trouble might only be starting.

Twice this decade, the independent labels have successfully challenged big music mergers. In 2006, the European Court of the First Instance kicked back the merger between Sony and BMG mooted two years before, as a result of a request by the independent music association Impala. Earlier, independent concerns had scuppered a proposed merger between Warner and EMI, and the indies won guarantees when the merger proposal was briefly revived last year.

There’s also an ominous precedent for News Corp. and the major labels in the shape of the digital TV company, Project Kangaroo. The Office of Fair Trading has already referred the joint venture between the BBC, ITV and Channel 4 for antitrust scrutiny – even though it hasn’t yet launched. Ironically, the noisiest petitioner against Kangaroo happens to be … News Corporation.
Indies: Where did our uploads go?

MySpace Music offers a service, using technology from Audible Magic, which allows indie labels to upload their own music. But scores of labels have reported they’ve been blocked from uploading their catalogs, even though they own the rights. A stumbling block appears to be the metadata database administered for MySpace by Audible Magic. If, as is commonplace, a major label owns territorial rights to a piece of indie music somewhere in the world, then the “ownership” is assumed to belong to the major label, not the independent. Which means that a US major pockets the royalty revenue for a British indie label.

“The MySpace brand is built on artists uploading their own music, particularly indies,” a source familiar with digital rights licensing told us.

So why wasn’t the system working? Audible Magic’s manager for EMEA Mike Edwards stressed that the Audible Magic’s database covers every global territory.

“We simply record what the rights holders register with us, and give it back to the people who use the database. We can register territorial rights in great detail.”

He couldn’t comment on this or any other specific instance, as the company is obliged to honour NDAs, but added:

“We have asked for more details about these issues and offered to help AIM [the Association for Independent Music] and [independent licensing body] Merlin resolve these quickly.”

One source familiar with the complexities of licensing pointed out that the blame should be placed with the meta data customer, not the intermediary:

“If MySpace doesn’t have the territorial rights data, it’s because MySpace hasn’t asked for it, or has asked for a specific set that doesn’t contain territorial rights,” he said. “Audible Magic do what the client asks.”

In some ways this is a hangover from the traditional way of dealing with rights:

“Most majors are not set up to do territorial rights. By default, they do ‘world’, and if they find you own it, they go ‘Oops…’”.

But the broader concern is that MySpace Music is a party to which the independents haven’t been invited – an arrangement which strengthens the major labels’ dwindling control over music distribution in a digital era.

In the shadow of the Commission

“We’ve asked the EC to look into the development of the online market,” Helen Smith, Impala’s secretary general, told us from Brussels.

“There appears to be a fair degree of parallelism in the deals – similar deals with similar timing – across a number of different services, which is normally a bit suspicious. This raises the question of whether there is some co-ordination or collective approach which may have the effect of excluding the rest of the competition.”

The Commission has been asked whether to consider whether the market is as diverse as it could be, she added.

Charles Caldas, head of Merlin – rights licensing body for independents – said negotiations with MySpace were ongoing, but expressed his disappointment.

“For all of the PR about how much they loved independent music, and how it was the lifeblood of MySpace, when they went to commercialise it only three major labels were invited to take equity,” he told us.

“We want MySpace to treat independent rights according to the value it brings their business,” said Caldas.

He said MySpace will find it hard to fulfil its promise of offering ‘all the music in the world’ without the independents on board.

Indeed, it’s hard to imagine the much-hyped launch of MySpace Music gathering such attention without the participation of the MySpace brand, and the eyeballs that the world’s biggest social networking site can bring. Would anyone care if the headline was merely, ‘Universal Sony and Warners do another download store’ – or compare it to MTV?

MySpace’s UK PR company declined to comment.

©Situation Publishing 2008.