The world's largest music company had been hectoring rock singer Tom Petty since last summer. You've got a big and popular catalogue of albums, Universal Music Group said. We've got to put them up for sale on the Internet — they're being traded free every day on the Web and we're all losing money.
He should have been an easy sell. The Internet-savvy Petty let fans download one of his songs back in 1999. After some haggling, he and Universal agreed to make almost all of his songs available for purchase online.
But Petty's fan's did not get everything they wanted. Online buyers will not get their hands on Petty's outtake songs, studio tunes that rarely made it onto albums and are craved most by many hardcore fans. Petty controls the rights to those songs, unlike the bulk of his songs, which are owned by Universal, and he held them back for fear of diminishing the value of a 1995 CD boxed set that included them.
The Petty case underlines the complexity of buying and selling music online. A hornet's nest of performance and publishing copyright laws, marketing decisions, artists' egos and negotiating power plays can stop people from legally buying songs on the Internet, just as millions are trying to do so for the first time.
One of the hotter holiday gifts was the iPod, Apple Computer Inc.'s MP3 player, a device about the size of a cigarette pack that can hold as many as 10,000 digital songs. The iPod and other MP3 players are used to play music downloaded from Internet services such as Apple's iTunes, launched last April.
By the end of 2003, iTunes had sold more than 30 million songs at 99 cents each. Similar services, such as the revamped Napster, BuyMusic.com, Musicmatch, Rhapsody and even one on the Web site of Wal-Mart sprang up, some with lower prices, most with strong sales numbers.
But fans who venture onto any of the pay music sites will not find the most popular band ever, the Beatles. They will not find other top-selling acts, such as the Dave Mathews Band, Garth Brooks, the Grateful Dead, AC/DC and the Cars.
They will find that top-selling acts Madonna and Red Hot Chili Peppers sell their songs by the album, but not as singles.
They will find some musicians on one service, but not on others. They will find puzzling choices: Led Zeppelin fans can buy a 47-minute spoken-word biography of the band online, but no Zeppelin songs because the band has not licensed them for sale on the Internet.
Petty's fans, however, are mostly happy now. Fans will be able to buy and download beloved hits such as "Don't Do Me Like That" and "You Got Lucky." The songs went up for sale on Napster last Monday.
"Basically, it was Universal that was driving me crazy for the last six months" to put Petty's catalogue on the Internet, said Tony Dimitriades, Petty's manager for the past 28 years. "From our point of view, we wanted to make sure the business model had no unfair implications for the fans or for Tom."
But Napster had no say in the decision by Petty and his management to hold back the outtake songs.
"I got a call from Universal Music Group saying, 'You can't make these songs available,' " said Aileen Atkins, Napster's chief counsel and negotiator.
Atkins's job, and the job of Napster President Michael J. Bebel, was to persuade Petty to choose Napster over the other online services for his launch. They did so by promising the rocker prominent placement in an extensive print and Internet promotion campaign; in exchange, Napster got exclusive rights to sell songs in the catalogue for two weeks before it appears on other online services.
Petty's picking and choosing illustrates why trying to buy music over the Internet can be alternately satisfying and frustrating. It is fairly easy to buy a song, but it can be much harder to find a song worth buying. That is why unauthorized services, such as Kazaa and LimeWire, still have millions of users, despite the music industry's lawsuits designed to stop unauthorized sharing. Computer users who flout copyright laws by using such services have been able to download all of Petty's songs free for years. They also can often find their favorite musician's videos, live performances and television appearances.
New deals for digital rights
Contracts between musicians and labels signed before about 1998 do not include language spelling out how the parties should be paid for Internet music sales, or the digital rights, so contracts must be renegotiated, which often takes months. Best-selling musicians who have more control over their songs can hold out for more money from their labels before agreeing to sell their songs on the Internet. Many musicians have trepidations about the Internet because they think of it as the place where their songs get stolen.
"Every time a major artist signs on [to sell music online,] record companies use it as leverage to get other holdout artists to sign on," Dimitriades said. "You can be sure the Universal people are calling up whoever their holdouts are and telling them, 'Tom Petty just signed on.' " The artists are not the only subject of such negotiations. Each song has a performance-rights royalty, which is paid to the musician when a song is played, and a publishing-rights royalty, which is paid to the songwriter. A performer may want to sell a song on the Internet but the songwriter may not.
Songs that include samples of other songs, particularly rap songs, can involve a tangle of rights. The performer who sampled a song may want to sell his song online, but the sampled performer may not; likewise, the songwriter who wrote the sampled music may not.
No tunes by the Beatles
Music companies have more luck with some of their artists than with others. England's EMI Group, the world's third-largest music company, gave Courtney Love's latest single, "Mono," to Napster, iTunes and Musicmatch for sale in the second week of December at the same time it was given to radio stations for play.
But EMI's biggest act, the Beatles, remains intransigent. EMI distributes the Beatles' songs but the group's performance rights are owned by the band members and spouses. (Michael Jackson owns the publishing rights.) EMI has held numerous meetings with Paul McCartney, Ringo Starr, Yoko Ono and the rest of the tight group that controls perhaps the most-loved songs in the pop canon. So far the group remains unswayed. It is not surprising; the Beatles were among the last artists to license their songs for sale on CD, in the 1980s. "We hope they agree to make their works available very soon, " EMI spokeswoman Jeanne Meyer said.
EMI managers have met around the world with many of its artists' lawyers and managers over the past 18 months in an effort to convince them that they should allow their songs to be sold on the Internet. To demonstrate how much money artists may be losing to unauthorized song sharing, EMI executives will search Kazaa for songs by an EMI artist they are scheduled to meet. At the meeting, EMI shows the artist a snapshot of their pirated works, demonstrating that at any particular moment, hundreds of the artist's songs were swapped among millions of Kazaa users.
Record companies and online services must also secure a song's publishing rights, also known as "mechanical rights," a term that was spurred by the invention of the player piano, the first device to reproduce a musician's work.
There are two major music publishing companies, EMI and Warner/Chappell Music Inc., owned by Time Warner Inc., and at least 27,000 smaller ones. When attempting to release a CD for sale on the Internet, record companies must go song by song and contact each songwriter to negotiate for the online rights. Sixty-five to 70 percent of the publishers are represented by the Harry Fox Agency, established in 1927 to protect its members' rights and collect and disburse royalty payments to them.
But the rest of the publishers are not represented by Harry Fox, which means they cannot be easily located through a central database. And if found, some are unwilling to sell their rights. Some are unable to sell because they are dead.
"You can be sure the heirs are a son and daughter who aren't talking to each other and one of those two is getting divorced," joked a music company executive.
Maintaining artistic integrity
Some artists, such as cerebral Brit-rockers Radiohead, believe their albums should be listened to in their entirety and will not sell them online as singles.
Securing rights to the band's songs reflect the many cracks that exist in a system that encompasses sprawling music companies, far-flung publishers, temperamental artists and mega-retailers to be on the same page. Until last Monday, several songs from Radiohead's "Kid A" CD were for sale for 88 cents each on Wal-Mart's online music site. A day after Radiohead's label, EMI, was informed of that by a reporter, the singles were gone, replaced with a note reading, "song not sold individually." EMI said it noticed the Wal-Mart transgression the previous week.
Madonna may be the ultimate singles singer and is also among the most powerful. She can dictate that her albums be sold online as whole works or not at all.
"There is the philosophy that it cannibalizes album sales," said Caresse Henry, Madonna's manager for the past 14 years. Madonna probably will begin selling singles online in the coming months, Henry said, but maybe not through one of the existing services.
Another factor holding up Madonna's singles: royalty rates. Musicians should be paid a higher royalty for songs sold online than those sold in CD or album form, Henry said, because in the online world the record companies do not bear the costs associated with manufacturing CDs. When iTunes sells a song for 99 cents, 70 cents is paid to the artist's record company. The artist typically gets 10 to 15 cents; the songwriter, about 8 cents.
Though Henry said she is not happy that her client loses money to free online song sharing, "thank goodness Madonna has had a successful career and made money."
Wal-Mart and BuyMusic have agreed to Madonna's terms, her recent "American Life" album is sold online, but iTunes and Napster have not. Apple Computer Inc. founder Steve Jobs is so adamant about selling singles, as is Napster, that he would rather keep Madonna off iTunes until she agrees to sell her songs individually.
"It's not that we don't respect the concept of the album as art, but particularly in light of fact that all the tracks are available individually on every illegal free service, it doesn't seem to make sense that they're not available in other than on album format on the legitimate services where the artist actually makes money," said Napster's Atkins. "To compete with the illegal sites, we need to at least offer consumers what they can get there, so maybe the artists have to look at that and make different decisions."