TAIPEI TIMES MONDAY, JUNE 1 , 2 0 0 9 PAGE 1 3 Recording industry changes its tune New flexibility at music labels is brightening the outlook for Internet start-ups BY BRAD STONE NY TIMES NEWS SERVICE, SAN FRANCISCO ith CD sales dropping fast, it is not hard to develop a healthier ecosystem where entrepreneurs Silicon Valley start-up, introduced a distinctive service imagine how the major music labels could can continue to innovate,” said Michael Nash, that lets people listen to a song once at no charge. W benefit from the growth of Web start-ups like executive vice president for digital strategy at Warner Then it costs US$0.10 to stream that song repeatedly Locals gather at Blackburn’s community center to cheer on Susan Boyle Imeem. The company’s service lets people listen to Music. “Entrepreneurs are also realizing they need on the Web and up to US$0.99 to download it. Lala during the final of Britain’s Got Talent on Saturday. PHOTO: AP songs, discover new artists and share their favorites to spend as much energy on their business model as executives credit the labels’ cooperation on the with friends. And in return, Imeem owes the labels they do on technological innovation.” unusual licensing arrangement and say they are selling licensing fees for use of the music. The changes stem from an unavoidable and hundreds of thousands of songs a month. But two months ago, Imeem’s founder, Dalton unpleasant reality facing the music business: The In April, the mobile phone operator Vodafone Caldwell, was ready to pull the plug. While 26 million economics of offering music free on the Web do not introduced a music service in Spain that gives Dream over: people a month were using the service, Imeem owed work. Companies like Imeem, striving to create an subscribers unlimited access to a broad catalog of millions of US dollars to the music labels, and income alternative to Apple’s dominant iTunes store, signed songs on their phones for 16 euros (US$22) a month. from advertising was nowhere close to covering complex deals with the labels that required them The songs can be played on the phone or transferred Susan Boyle expenses. “It reached a point where it was not even to pay large up-front fees and then small royalties to a computer. The service was only possible because clear it was worth doing any more,” Caldwell said. — typically a penny or less — each time a song is the major music labels altered the underlying Then the ground shifted. Last month, Warner Music played online. Advertising recouped only a fraction of economics of their licensing deals, said Rob Glaser, Group forgave Imeem’s debt, and both Warner and that considerable expense. chief executive of RealNetworks, which is supplying loses in final Universal Music agreed to relax the terms of their As a result, the online music landscape is littered the music service. “That flexibility wasn’t there in 2008 BY JENNIFER QUINN licensing deals with the site. That allowed Imeem with the wreckage of failed or troubled music anywhere in the US and Europe,” he said. AP, LONDON to raise more money from investors and plan for a start-ups. Napster, a pioneer in peer-to-peer music sharing profitable future. SpiralFrog, a free music download service supported that became a paid music service owned by the he gave a final curtsey, a shimmy of her hips, and walked off Imeem’s amnesty is one sign that a new by advertising, went out of business in March, citing retailer Best Buy, reduced its subscription rate to US$5 stage, leaving the winners to perform an encore. accommodation is being forged between Web music financial difficulties. And music executives have roundly from US$12.95 a month two weeks ago as a result of But it’s unlikely that finishing second on Britain’s Got start-ups and the companies on which they are almost expressed disappointment with the money trickling in new deals with the labels, according to Chris Gorog, S Talent Saturday night to a dance troupe called Diversity will be the wholly dependent, the major music labels. from MySpace Music, their high-profile joint venture Napster’s chief executive. end of Susan Boyle’s showbiz dream. The recording industry is considering an all-digital with the News Corporation, which started last year and The same week, Pandora, the rapidly growing The 48-year-old church volunteer became an Internet future in which it needs popular Web services like was talked about as a savior for the music business. Web radio service, said it would increase the number phenomenon after she auditioned for the television talent show, Imeem, both as sources of revenue and as supplements For many digital music entrepreneurs, there is of audio commercials on its free service and offer her show-stopping voice combining with her frumpy appearance to to older channels of promotion like radio and MTV. new hope that music labels will now give them room an ad-free version, Pandora One, for US$36 a year. make her a must-see on YouTube. As a result, music labels are now striking more to experiment and perhaps succeed. Last fall, Lala, a The founder, Tim Westergren, said he expected the For the finals, she returned to the song that made her famous, favorable terms with Web companies, and the start- company to reach profitability next year. I Dreamed a Dream from the musical Les Miserables. She wore a ups have come to realize they can’t rely on Web ads to “There was a generation of Web companies that glamorous but modest sparkly floor-length dress, and her once-gray support themselves. signed up for deals that didn’t make sense, and frizzy hair was a soft brown halo. For example, as part of its new plan, Imeem will try unfortunately they set a precedent,” Westergren said. She appeared more polished and animated than in previous perfor- to push users into buying more T-shirts and concert “Now that those deals turned out to be unsustainable, mances, but seemed uncomfortable during banter with the judges after tickets, and will soon add its own MP3 download store it made the labels realize that there was actually not her song. Judge Simon Cowell said Boyle had a rough brush with fame, similar to iTunes, sharing revenue with the labels. hidden money they were missing out on. I think labels but that she was “a nice, shy person who wants a break.” The week It is not yet clear whether any of have a much better understanding of the leading up to Saturday’s performance had been a tumultuous one for this is enough to produce sustainable economics of the business.” Boyle. She lost her cool during a confrontation with two reporters, and online businesses — or even to help Dalton Caldwell, founder and CEO of Imeem, was ready the police intervened. Another contest judge said Boyle had contem- mitigate the chronic pain of the music plated pulling out of the program to soothe her frazzled nerves. industry. But it is offering some hope. to pull the plug on his popular by unprofitable digital music start-up when Warner and Universal agreed to “A lot of people said you shouldn’t even be in this competition, “We are trying to figure out how that you weren’t equipped to deal with it,” Cowell said. “I totally to restructure partnerships and relax the terms of their licensing deals with his site. PHOTO: NY TIMES NEWS SERVICE disagree with that. Daniel Ek, left, and Martin Lorentzon, founders “You had the guts to come back here and face your critics and of Spotify, a European music service that is free you beat them.” Asked about her career plans after the show, Boyle told broadcaster ITV that she hoped to get an album out, and will and plastered with ads. PHOTO: NY TIMES NEWS SERVICE “just play it by ear.” Millions tuned in to the live program and voted by telephone afterward. Boyle’s hometown of Blackburn, Scotland — a working-class village about 16km west of Edinburgh — rallied round her, stringing up signs declaring their support. Her defeat was greeted with shouts of “no” and gasps of disbelief at the Happy Valley Hotel, where neighbors and friends had gathered to watch the program. “She lost because people didn’t bother voting for her because they thought she was going to win it,” lamented 21-year-old Gordon Mackenzie. “I didn’t vote for her because I thought everyone else would.” Winning group Diversity are a 10-person dance troupe who range in age from 12 to 25 years old. Their act won praise throughout the competition, but they weren’t seen as front-runners. Their victory earned them £100,000 (US$159,000), and the right to perform for Queen Elizabeth II at the Royal Variety Show in December. It was Boyle who had always been expected to win, and British bookmaker William Hill offered 10-11 odds on her victory Saturday. The betting service had briefly lowered its odds when the reports of erratic behavior seemed to show “there might be a chink in her armor,” according to spokesman Rupert Adams. But he said William Hill “got absolutely hammered” with bets and quickly went back to predicting a Boyle victory. Boyle’s entree into the limelight has been viewed millions of times, the fifth-most watched clip in history on YouTube. And it was a moment that has become reality-show history.