MP3.com: Sorry, no free royalties

Summary:Is there no free lunch in the online music world? Now MP3.com says it plans to start charging artists for its 'Payback for Playback' royalty-collection service.

Another free ride is coming to an end for Web music, only this time it's the musicians who stand to lose out.

As consumers grapple with content filters on Napster that may make it harder to find free tunes on the Internet, thousands of would-be rock stars got their own bad news Friday when Web pioneer MP3.com said it plans to start charging for an unusual online royalty system.

Dubbed "Payback for Playback," the program gave artists who posted music on the site a way to earn a little money whenever site visitors listened to their music. MP3.com Chief Executive Michael Robertson has long touted the service as an example of how the Internet was altering the economics of the music business, offering a way for even unsigned artists to get paid for their music.

As of April 1, the no-cover-charge model is coming to an end. Artists can still put their sites onto MP3.com for free, but they will have to pay $19.99 a month to be a part of the profit-sharing program.

That shouldn't be a problem for the most successful artists on the site, but the vast majority of musicians on the site today make less than the nearly $240 a year that will now be required to break even on the program. Although the program has handed out millions of dollars since its inception, only a handful of musicians have made any real money.

The move triggered some anger among musicians on the site, who had come to see it as place largely free of the pressures of the traditional music industry.

"Next they'll be charging us to be on their site!" wrote one anonymous poster in the site's artist forums. "They're almost as bad as the record companies at this point."

The move comes as MP3, like other music sites focusing on independent artists, struggles to turn a business that is developing more slowly than expected into a profit-making venture.

"There is still demand for (this kind of content) on the Web," said P.J. McNealy, a Gartner analyst. "The question is still whether there is a legitimate business model behind it."

MP3.com's decision comes a few months after the Internet Underground Music Archive (IUMA), one of the earliest music sites on the Web, stopped its own artist revenue-sharing program and closed down many of its other features. Other similar sites have been struggling as well; Riffage.com, a site that allowed new artists to post their material in hopes of discovery closed down late last year.

The new way, like the old?
The pay-for-payback model isn't unknown in the traditional music world. Organizations such as BMI and ASCAP, which collect and distribute royalties for songwriters and music publishers, collect some nominal application fees or annual dues, for example.

But the Web has been touted as a way for musicians to break out of the old mold. By reaching a potential new audience of thousands or millions of people, artists could gain new fans and--with tools like MP3.com's service--even turn this into a little bit of cash.

A few success stories have emerged on MP3.com's site. The top artist on the site last year, a band dubbed 303Infinity, earned more than $165,000. Currently, the top artist in the "Alternative" section on the site is major-label band The Offspring, with more than $18,000 in earnings this month. Behind them is a San Diego band known as "Nothing to Lose," with more than $2,000 in earnings.

Few of the tens of thousands of bands on MP3.com's site make it to that status, however. More typical are earnings of just a few dollars a month. Artists of this level are accusing MP3.com of leaving them behind.

"If you are like me, a poor struggling artist, the changes that MP3.com have made by having to pay a monthly amount is more than what I make," wrote a Tommy Deluciano on the company's message boards. "I think that it sucks that MP3.com was for the unknown artist and now, unless you are rich enough, there is just no way of making it."

The change isn't geared at saving the amount of money that the company gives out every month. MP3.com has traditionally divided about $1 million a month among artists who reach a certain level of listeners. That $1 million figure will be unchanged at least for April, the first month for which the fee will be required, the company says on its Web site.

The change could save the company significant administrative costs and headaches, however. Tens of thousands of artists had been enrolled in the program, with only a small percentage of them actually reaching the level where they would be paid. But records had to be kept on all artists.

The program has also been tarred with other monitoring costs as the company tries to make sure musicians aren't artificially inflating their own listening statistics.

Some musicians have been trying to cheat the system and grab more than their share of the cash by developing bots that repeatedly download songs or by posting band names and song titles similar to those of more famous groups. MP3.com said it learns of such violators by policing the system and hearing about them from other bands.

The company has a policy of aggressively cracking down on alleged cheaters, removing their sites without paying them while looking into the problem. Some bands have had their Web sites restored after such action, but many others are banned. Several bands have taken to message boards on the Web and on MP3.com's own site to complain of the practice. But the company insists that the only way to make sure the program provides a level playing field is to remove accused cheaters before they divert money from bands who are playing fairly.

The $19.99 monthly fee will defray some of these administrative costs, as well as likely reduce the number of people participating in the program. Artists who do sign up will get other benefits, such as more promotion in search results and a better chance to be included in the Muzak-like services MP3.com sells to businesses.

To be eligible to receive Payback for Playback payments for April, artists must register for the MP3.com's Premium Artist Service on or before 11:59 p.m. PST on March 31, the company said.

Staff writer Lisa Bowman contributed to this report.

Topics: Tech Industry

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