In a past post, I discussed the fact that record labels are increasingly demanding an "arm and a leg" for the rights to their music catalogs.

Last.fm, the popular UK-based internet radio service that was acquired by CBS Interactive little more than a year ago for $280m, has apparently become the latest company to experience first hand such demands.

It will no longer be allowing its users to select individual songs from the Warner Music Group (WMG) music catalog. Users will still be able to access WMG's music through Last.fm's internet radio service.

According to Silicon Valley Insider, Last.fm had previously licensed WMG's catalog on a month-to-month basis.

Silicon Valley Insider's Peter Kafka states:

"We don't have the details, but we assume this is a straightforward debate about money: As in, Warner wants more of it."

He notes that WMG has licensed its music catalog to iMeem and MySpace Music, and has reportedly received equity stakes in both ventures.

Kafka's assumption that WMG's termination of its agreement with Last.fm has to do with money certainly seems reasonable given the knowledge that other startups have found it difficult to come to terms with record labels.

Increasingly pressured by declining CD sales that are nowhere near offset by digital sales, the record labels see licensing as a source of much-needed revenue.

I certainly wouldn't be surprised if Last.fm's troubles with WMG were based on the perception that Last.fm's backing by deep-pocketed CBS could and would enable it to be willing to pay more for a licensing agreement.

Regardless of whether or not one agrees with the position record labels have taken on digital distribution, the reality is that they have been put in an uncomfortable situation and are reacting as they see fit.

Unfortunately, I suspect that consumers can only expect similar events to occur in the future as part of the unintended consequences of rampant digital piracy.

That said, record labels should act logically and not emotionally.

While I do believe that they have every right to ensure that they are compensated appropriately for the use of their music, I also think they need to be reasonable.

If WMG isn't reasonable in dealing with entities like Last.fm, it will be, in my opinion, a huge mistake.

Certainly, record labels should not lower licensing fees to meet the budgets of all wannabe online music startups, but they shouldn't necessarily raise them simply because they think that a certain entity can pay significantly more.

Record labels cannot simply ask: "How much can this licensee afford to pay?" They need to ask: "How much is our music worth and what should licensees pay for it?"

For the record labels, CBS is about as strong a partner as one could wish for and post-acquisition, Last.fm established this by refusing to participate in the "Day of Silence" protest, stating:

"We do not want to punish our listeners for our problems, period."

"If a commercial challenge comes up, we have to deal with it."

CBS has a significant interest in turning its $280m acquisition of Last.fm into profits but most importantly, it understands and has vast experience selling brand advertising.

As such, record labels may be able to get more desperate startups to give up the whole kit and caboodle in exchange for licensing deals, but those startups may not be able to generate revenues, in which case the kit and caboodle is worthless.

As they say, 100% of nothing is still nothing.

On the other hand, a media company like CBS is about as well-equipped as anybody to monetize online music.

According to a statement, Last.fm is "currently negotiating a new agreement with Warner Music Group" and it’s my hope that one will be reached sooner than later.

If the conflict between WMG and Last.fm has anything to do with money, a resolution of this issue may, in my opinion, be just as important to the record labels as it is to consumers, services like Last.fm and media companies like CBS.

Drama 2.0

Published 9 June, 2008 by Drama 2.0

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