As major record labels slowly open their music vaults for online distribution of their songs, Web portals are flirting with entertainment companies for access to their coveted hits.
But while both sides realize that a portal's traffic leads to a wider audience, striking deals for access to song libraries remains a difficult journey. Portals have made a business of giving away content and services for free, be it news, email or instant messaging. On the other hand, the labels run businesses based on direct sales of CDs through music retailers.
"If you dig beneath the surface, (portals) just want to give it away," said one record industry executive who requested anonymity. "They're not interested in selling more records and furthering artists' careers."
Nonetheless, record companies aren't blind to the notion that putting complete song libraries in front of portal traffic could be a powerful combination for selling music online. The lessons of Napster are fresh in everyone's minds, showing that consumers want to find and download their music quickly and easily.
Partnerships are beginning to take shape slowly.
Just last week, Lycos and Excite@Home were named as partners for Universal Music Group's digital downloading trial balloon. Called Bluematter, the service will allow fans to download songs by Universal artists for a fee.
For Lycos and Excite@Home, the deals mark the first time a major label has offered downloads on their services. The deals also open the door for bigger arrangements in the future for the Web portals to license catalogs and offer subscription or per-play services.
"We've been talking to all the labels for a while," said Peter Negulescu, Excite@Home's vice president of content applications. "Those discussions are pretty open right now. We're looking at how we can package that up with our entire offering."
Added David Prichard, senior director of marketing for Lycos Music, "We're exploring a full range of models to work with the labels."
The two biggest Web contenders, AOL and Yahoo, are also looking seriously into these licensing deals. AOL has taken a major step into its music strategy with its acquisition of Net radio station Spinner and MP3 player Winamp.
Yahoo has launched its own music service, which offers information about artists as well as downloads through a partnership with Listen.com. However, its ambitions remain guarded. Last month, Yahoo scrapped a proposed acquisition of music-locker service Myplay, which allows fans to store their CDs on the Web and access their songs from any connected PC.
AOL declined to comment on its dealing with the record industry.
The two giants are interested in striking deals to access record libraries, but no deal is imminent, sources familiar with the matter said.
"They're saying, 'We have more traffic, so you need us more than we need you,'" said the record executive who requested anonymity. "That creates a pretty big gap between copyright holders and portal sites."
Matt Rightmire, vice president of Yahoo media and entertainment, said: "We've been talking to the labels for quite some time on and off. Reaching our audience is pretty much critical to what (the labels) want to do on the Web."
So far, record labels have been reluctant to make their songs available for download online, preferring to cut streaming deals, in which files are transferred over the Internet and played in real time but not captured on the computer that receives them. Warner Bros., EMI and BMG Music Group have agreed to license their catalogs for streaming with MP3.com in settling a copyright infringement suit over the company's My.MP3.com service.
Meanwhile, Universal Music Group has licensed its catalog to Musicbank, which plans to offer a similar service this fall, allowing CD buyers to have streaming access to songs they've purchased from an online locker.
"The online distribution platform divides into two buckets--streaming media (and downloads)," said Mark Hall, vice president of media at streaming leader RealNetworks, whose Real.com site ranks among the top music destinations on the Web. "Record labels are pretty engaged in streaming to promote their works, from full-length videos to albums and live concerts. That's a pretty big business."
But Hall said labels have been far more reluctant to allow music downloads. "There I'd say our position is that we would like the labels to move quickly and embrace the online business more quickly than they have been."
Although portals may be getting closer with labels, some wonder whether it makes sense for them to do it themselves. For third-party music sites such as Artistdirect, EMusic and Launch.com, a Web portal with full access to catalogs could pose a significant threat, given its sheer audience size.
As it stands, portals are partnering with many third parties for programming and content. Portals may be better off letting the third parties do the licensing deals instead of doing them themselves.
"The best thing to do is to ink carriage deals with online music companies," said Aram Sinnreich, an analyst at Jupiter Communications. "There is an evolving species of third-party digital music providers who will be in the business of licensing full catalogs and then spinning them off to media and commerce sites."
"I wouldn't even know how they'd do this stuff if they got the licenses," said David Goldberg, CEO of Launch.com, which provides music content to Yahoo. "I think it's much more likely that they'll work with people like us than do it themselves."
Whatever strategy portals adopt, discussions with the labels will continue.
The understanding between both sides is that Net users want their music, and Web portals have the eyeballs to further music's growth on the Web. The sticking points for these deals remain in the assurances that their guarded intellectual property will garner the audience at the right price.
"We want to reach as many music fans as possible," said Ted Cohen, vice president of new media at EMI Recorded Music. "If we can do that through working with Web sites that utilize music in their strategies, it's a win-win."