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Two steps forward, one step back for online music services

January 12, 2010 |  5:45 pm

Grooveshark logo File this one under "the more things change, the more they stay the same." This week, Universal Music Group announced a deal with FreeAllMusic, an advertiser-supported free music site. The news came one day after Digital Music News reported that Universal had filed suit against Grooveshark, another advertiser-supported free music site.

The two sites follow different business models -- FreeAllMusic enables people to download a limited number of tracks for free in exchange for them watching commercials, while Grooveshark lets users play songs on demand from an online jukebox. Assuming the typical licensing deals are in place, FreeAllMusic would pay a significantly higher royalty per track than Grooveshark. Nevertheless, Grooveshark could conceivably generate larger sums for labels by streaming far more tracks than FreeAllMusic's users download.

In an interview last year, a Grooveshark spokesman insisted, "We pay all the proper copyright holders." Unfortunately for entrepreneurial online music companies, however, the labels don't simply put up a price list and invite any interested party to become a retailer. Instead, they insist that on-demand music services go through the lengthy process of negotiating license terms.

Grooveshark has always tried to generate revenue for rights holders, but it also has a history of offering services to the public before it had deals in place. It drew a lawsuit from EMI last year, only to settle with the label three months later. Now it's UMG's turn to take Grooveshark to court, choosing to air its complaints in a New York state court (state copyright law covers songs recorded prior to 1972).

It's possible that UMG was underwhelmed by Grooveshark's business model and didn't want its free service to undermine alternatives (such as FreeAllMusic and, one would hope, Spotify) that have a better chance of generating significant royalties. Still, with the number of free and legitimate sources of on-demand music shrinking (witness MySpace's purchase of iLike and imeem at bargain-basement prices), the majors are running out of ways to draw online music users back from the dark side.

FreeAllMusic, which is still in invitation-only trials, lets users download up to five free MP3s per week. The catch: They have to watch an ad from the sponsor of their choice before starting each download. (The company also compensates sponsors by running ads for them on a network of other websites after each download.) CEO Richard Nailling said the company hopes to open the service more broadly next month, but the number of users it can support will depend on the amount of advertising it attracts. The companies now sponsoring downloads include Coca-Cola, LG, Zappos.com and Lionsgate.

EMusic logo Meanwhile, eMusic landed another major label for its subscription downloading service: Warner Music Group, whose library includes titles from such alt-music stalwarts as Talking Heads, R.E.M. and Wilco. As with eMusic's deal with Sony, Warner won't be making all its new releases available to subscribers immediately. Older titles are up now, but new LPs and singles may be held back weeks or months, depending on how well suited they are to eMusic's indie-loving customer base.

Longtime eMusic devotees might worry what the influx of hits will do to the lesser-known bands that once made up the service's entire catalog. It seems inevitable that the more the service fills out with famous names, the harder it will be for the indie acts to break through. Making matters worse for obscure artists, eMusic reduced the value of its subscriptions (by raising the effective price per track) to win deals with the majors. As a result, users may be less inclined to take a chance on an unknown band, choosing instead to stick with the artists they already know. The arrival of chart-topping acts will be good thing for eMusic, however, if it attracts mainstream music fans to what has been a niche service.

-- Jon Healey

Healey writes editorials for The Times' Opinion Manufacturing Division. Follow him on Twitter: @jcahealey

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