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Thursday, May 28, 2009

MUSIC LABELS CUT FRIENDLIER DEALS WITH START-UPS


With CD sales dropping fast, it is not hard to imagine how the major music labels could benefit from the growth of Web start-ups like Imeem. The company’s service lets people listen to songs, discover new artists and share their favorites with friends. And in return, Imeem owes the labels licensing fees for use of the music.

But two months ago, Imeem’s founder, Dalton Caldwell, was ready to pull the plug. While 26 million people a month were using the service, Imeem owed millions of dollars to the music labels, and income from advertising was nowhere close to covering expenses. “It reached a point where it was not even clear it was worth doing any more,” Mr. Caldwell said.

Then the ground shifted. This month, Warner Music Group forgave Imeem’s debt, and both Warner and Universal Music agreed to relax the terms of their licensing deals with the site. That allowed Imeem to raise more money from investors and plan for a profitable future.

Imeem’s amnesty is one sign that a new accommodation is being forged between Web music start-ups and the companies on which they are almost wholly dependent, the major music labels. The recording industry is considering an all-digital future in which it needs popular Web services like Imeem, both as sources of revenue and as supplements to older channels of promotion like radio and MTV.

As a result, music labels are now striking more favorable terms with Web companies, and the start-ups have come to realize they cannot rely on Web ads to support themselves. For example, as part of its new plan, Imeem will try to push users into buying more T-shirts and concert tickets, and will soon add its own MP3 download store similar to iTunes, sharing revenue with the labels.

It is not yet clear whether any of this is enough to produce sustainable online businesses — or even to help mitigate the chronic pain of the music industry. But it is offering some hope.

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