For the San Francisco-based start-up, this is the third licensing agreement with a major record label. Over the past few months, Musicbank has signed deals with BMG Entertainment and Seagram's Universal Music Group to offer users access to the labels' catalogs.
In addition, Warner Music took a minority stake in the company. BMG and Universal also took stakes in Musicbank in their deals.
The agreement is another instance of a major record label licensing out rights for a Web start-up to tap its coveted catalog. Many Web companies hungry for content are warming up to record labels to figure out how to gain access to their songs.
The Musicbank service will let users listen to songs from CDs they already own over the Internet, assuming those songs fall under one of the licensing deals. A user will put a CD into a computer's CD-ROM tray, and the Musicbank site will scan it and OK online playback. Through a password-protected account with Musicbank, users will be able to listen to the music they've registered from any computer, without needing the CD, simply by visiting the site.
The company also has a deal with Virgin Megastores to let users listen to their CDs from Virgin's Web site immediately after purchasing the disc in a store.
Avoiding MP3.com woes?
Musicbank, which has delayed its launch until later this year, will bring in revenue by way of advertising on its site. The company plans to introduce high-speed and wireless versions of its service, for which it will charge premium subscription fees.
Chief executive Michael Downing said that Musicbank will target advertising to listeners based on taste and genre. For example, listeners with a preference for classical will get different ads than those presented to hip-hop fans.
Downing would not elaborate on the terms of the deal, but said the licensing fees were negotiable. Musicbank will be charged per stream, but Downing would not disclose the price per stream.
"We've been working on these relationships with labels for almost a year now," Downing said. "We've been able to get licenses and set up relationships in a way that doesn't cost too much money."
In many respects, Musicbank is doing what online music site MP3.com avoided. MP3.com created a music-playback service called My.MP3.com, which essentially let users listen to digital streams in the same way one would with Musicbank. However, MP3.com amassed tens of thousands of CDs to create its library without the permission of the major labels, drawing swift legal action from the record industry.
MP3.com has since settled with four of the five major labels, for reportedly millions of dollars per label. However, Universal, the only label that refused to settle, successfully won a lawsuit that awarded it $25,000 per infringed work. MP3.com estimated during the trial that 4,700 compact discs covered by Universal's copyrights were stored on its database, possibly exposing the company to damages of $118 million.
The labels have plans
The major record labels have been taking tentative steps into digitally distributing their songs. They are doing so in the wake of the booming popularity of the MP3 audio compression format, which has become the de facto standard among online music fans, as well as copyright pirates. The labels are also waging war against the upstart Napster, alleging that its file-swapping service promotes illegal distribution of copyrighted works.
But as the record industry has taken legal action to rein in uncontrolled distribution of their works, the companies have also launched their own initiatives. All of the Big Five labels--Warner, Universal, BMG, EMI Recorded Music and Sony Music Group--have launched their own digital initiatives. EMI, BMG, Universal and Sony have also begun charging consumers to download songs and full-length albums off the Web.
Meanwhile, record labels and Internet companies have begun entertaining the idea of creating subscription services that let users download or listen to a wide selection of songs for a monthly fee. Universal and Sony are developing subscription services in which consumers pay a monthly fee for access to selected songs. Universal has begun a closed trial for its service.
Internet giants such as America Online have also begun prodding the idea of launching a subscription service. But creating a subscription service and offering a comprehensive selection of songs means doing deals with the labels. That could be a tricky competitive situation, given AOL's pending merger with Time Warner, the parent company of Warner Music Group.