As previously noted by Yancey Strickler, eMusic did a fair amount of due diligence with both ABKCO (the company holding rights to the Stones’ older releases in the US, the only region in which the eMusic Stones releases were made available) and Universal (the major label through which ABKCO distributed those releases) in order to make sure there were no impediments to the proposed deal. However something happened between the time of the contract signing and the time the releases were pulled, something that caused either ABKCO or Universal to get cold feet and kill the deal.

I’m guessing that sometime during that period Universal senior managers started discussions with the Stones about switching from EMI to Universal. The discussions may have started right after the eMusic announcement, or they may have started after eMusic and ABKCO/Universal signed a contract and before the actual release.

It’s possible that the Universal and/or ABKCO managers negotiating with eMusic may not have known about the Universal/Stones talks, having been kept in the dark by more senior managers. A more cynical reading is that the Universal managers working with eMusic were in fact aware of the discussions (and perhaps even involved in them) and let the eMusic deal go forward anyway, for whatever reason. For example, they may not have wanted to tip their hand about possible complicating issues, or they may even have let the deal go forward just to test the waters and see how well the eMusic model worked in terms of stimulating demand through lower prices.

Now, since relatively few people want to buy new Rolling Stones releases, the Stones/Universal deal is primarily about the money to be had from milking the Stones back catalog. (As Bob Lefsetz put it, “This is a banking deal, pure and simple. Universal calculated how many they could sell and made an offer. End of story.”) Universal already distributed the early Stones catalog, as a distributor for ABKCO in the US and through its own label Decca in the UK (and perhaps elsewhere, though I can’t find confirmation of this on the net). A deal with the Stones for the post-ABKCO material would allow Universal to offer the entire Stones catalog in the US, UK, and perhaps worldwide.

However the deal with eMusic was a complicating factor in the proposed Stones/Universal deal. The presence of an alternate channel offering lower-priced Stones tracks would at a minimum introduce unwanted uncertainty into the financial model for determining the likely revenue and profits from overall back catalog sales, and it’s possible that Universal senior management wanted to eliminate that uncertainty. It’s also possible that the Stones themselves made ending the eMusic arrangement a condition of their signing the overall Universal deal. As noted in the Variety article on the Stones move to Universal, part of the motivation for the deal was “launching a long-term campaign to reposition the band’s catalog in the digital marketplace”; from the Stones’ point of view the vision for that campaign probably didn’t include selling their releases in what they might have perceived as the Internet equivalent of the record store bargain bin.

I find it an interesting coincidence that the availability of Stones releases on eMusic was ended exactly 30 days after it began (May 3 vs. April 3). This suggests that eMusic was allowed to sell the Stone releases only long enough to satisfy some minimum contractual commitment, and that ABKCO and/or Universal exercised their termination rights as soon as they could. Given the typical contractual requirement for some sort of advance notice of termination, I suspect eMusic itself found out about the problem very soon after the catalog went live on the site.

So, in the end, what did everybody get of it of this? Universal probably came out the best; it eliminated a potential impediment to the Stones deal, but not before getting the benefit of a real-world experiment in the effects on demand of lower pricing. The Stones got to preserve the illusion that all their back catalog releases are actually worth $9.99. eMusic subscribers got a few weeks in which to appreciate the work of one of the world’s once-great bands at a reasonable price point. And the folks at eMusic got to bust their butts to make the Stones launch on eMusic a success, only to have the rug pulled out from under them through no fault of their own. Just another day in the life of today’s music industry.

As every eMusic subscriber knows, not too long ago eMusic did a deal with ABKCO to sell the early Rolling Stones back catalog under standard eMusic terms (DRM-free MP3s sold at 33 cents per track or even less depending on your subscription plan). eMusic pulled out all the stops to promote the releases, eMusic subscribers were ecstatic, and by eMusic’s account the folks at ABKCO and Universal Music Group (ABKCO’s distributor) were “incredibly impressed” by the amount of business generated—business that was likely almost pure profit from the point of view of ABKCO, UMG, and everyone else involved, and that almost certainly wouldn’t have been generated under the standard iTunes 99 cents per track model. (As I and others have noted many times, eMusic caters to dedicated music listeners who spend a lot of money on music and prefer paid downloads over P2P, but are very price-sensitive.) I’m by no means a Stones fan, but even I took advantage of the opportunity and purchased Let It Bleed and Beggars Banquet (the full albums, not just the singles).

Of course, this being the music industry someone had to spoil the party, and now the Rolling Stones have been pulled from eMusic, along with other ABKCO releases. It’s not clear exactly why this happened. Perhaps there was a unresolved rights issue left over from past legal battles between the Stones and Allen Klein, a senior executive at ABKCO or UMG who got cold feet, or just the old excuse about low-priced downloads “devaluing the art.” In any case somebody somewhere had both the power and the inclination to torpedo the deal, and did. Presumably Rolling Stones fans (or potential fans) who don’t want to pay iTunes prices will now either stop buying the Stone’s music or will download it via P2P.

Bob Lefsetz and many others have proposed licensing P2P on a flat-fee “all you can eat” basis; sometimes Lefsetz has instead talked about a eMusic-like model combining a monthly subscription plan and drastically lower per-track prices. I’m not confident that either of those things will ever come to pass. The music industry appears to suffer from a classic prisoners dilemma problem: It’s more rational for everyone to try to maximize their own piece of the pie and screw everyone else, with the result that the industry as a whole ends up worse off than it would be if everyone cooperated. Thus the labels and artists want radio stations to pay performance royalties, the radio stations want to get paid in turn by the labels for promoting music, and the songwriters and publishers don’t want to change their traditional royalty arrangements to move to a percentage-based model.

Sometimes I think the only thing that would save the music industry from itself would be the government voiding every music contract ever signed and every statutory royalty and compulsory licensing arrangement ever established, and forcing the industry to start from a clean slate. Of course the government would never do this; it’s bought into the industry’s line that maximum control of music and other copyrighted material equals maximum benefit to society, even to the point of considering appointment of an “intellectual property czar” to lead the “war on piracy.” (I’m sure such an IP czar would be just as successful as our “drug czars” have been waging the “war on drugs.”) However where the government does not act the people will act for themselves, and if P2P use continues to grow then for all practical purposes it won’t matter at all what the contracts say and what the royalty arrangements are supposed to be.

MiDoJo - 2008-05-06 00:49

Frank, Once Again it seems that the Record Industry (don’t get it confused with the Music Industry :) ) does not understand the full power of eMusic. Yes it’s true the Stones probably don’t need much help when it comes to product/entertainment (movies and TV) placement. But the release of their music to eMusic was a call to all other “main stream” musicians that perhaps DRM was not all that it is cut out to be. I know for a fact that the amount of downloading done by eMusic patrons of the Stones’ catalog introduced many people (yourself and me as examples) to getting their music when they wouldn’t already have. “I’m by no means a Stones fan, but even I took advantage of the opportunity. . .” I could not have stated it better and it gave me a chance to get the only stones song I always liked “Mother’s little Helper” as well as two things I never knew existed (A great Yer Blues, and a Who song.) ABKCO and UMG have (once again) been stupid not to keep going with this unprecedented main-stream addition to eMusic. I cannot believe they have done this and hope to high heavens they will change their collective minds.