LOS ANGELES (AdAge.com) -- Sony BMG Music Entertainment and EMI Music -- the world's second- and fourth-largest record companies -- have reached deals with social-shopping company Musicane to offer their digital song catalogues for sale online through widgets. The move reflects a record industry that's trying to loosen Apple's vise-like grip on the digital-music category.
Musicane operates in much the same fashion as Apple's iTunes: It pays the labels a percentage of the proceeds from the sale of song, and the label then compensates the artists according to their individual agreements.
"It's like a little traveling website," said Sudhin Shahani, Musicane's co-founder, adding that the new deals will allow the record companies "to get their catalogue and content wherever users are."
But Musicane has the added advantage of being able to offer additional money to artists who use its widgets on their own websites or blogs: An extra 5% of gross sales receipts is paid to whoever has installed the widget on a website, blog or social-network page. If that person is the artist, he or she will earn the 5% -- not an insignificant amount. (For independent artists, the benefit could be even more than 5%, because indie artists traditionally must go through a middleman to get on iTunes, and that middleman usually charges a few percentage points for his services.)
A call seeking comment from Jason Roth, an Apple iTunes spokesman, was not immediately returned.
Widgets, the tiny software applications that can be downloaded onto personal computer desktops, social-networking pages and blogs, have suddenly gotten the attention of record companies, because while digital music is exploding, the record business itself is imploding: According to a February Forrester Research report, digital music sales will see a compound annual growth rate of 23% over the next five years, reaching $4.8 billion in revenue by 2012 -- but that will fail to make up for the continuing steady decline in CD sales.
Indeed, only 10 years ago, music sales in the U.S. were cresting $14.6 billion; this year, they've plunged to $10.1 billion, according to the RIAA statistics.
Digital profits crucial
Increasing digital profits will be crucial to the record companies' survival, but with control over 70% of the world's digital-music market, Apple CEO Steve Jobs has so far been unwilling to loosen iTunes' grip on the throat of the recording industry. With almost no leverage, labels have had little choice but to writhe and choke as 99 cents has become the de facto price of a song on iTunes -- regardless of how much more a label might actually be able to charge for it elsewhere.
Earlier this year, Musicane reached a similar deal with world's largest music company, Universal Music Group. When included with Musicane's new, twin pacts with EMI and Sony BMG, the upstart now has the ability to sell 80% of the world's major-label recordings.
Weakening Mr. Jobs' control over digital distribution might be the key to record companies getting flexibility on song prices. That may be happening sooner rather than later: Musicane is also currently in negotiations with the world's No. 3 recorded music company, Warner Music, but a spokeswoman declined to speculate on when a deal might be reached.
Does Mr. Shahani think his photo will soon appear on Mr. Jobs' dartboard?
"I would like to think so," he said, laughing.
In the meantime, however, the record companies seem willing to take whatever gravy they can get beyond iTunes.
Instead of having to visit iTunes, Musicane's widgets allow users to personalize and embed their own media storefronts on their social-network profiles and blogs. Users can purchase music downloads without leaving the web page they are on, utilizing the company's unique embedded e-commerce technology, and even earn money by recommending their favorite music and artists to others.
Co-founded in January 2006 by Mr. Shahani and Indian entrepreneur Vikramaditya Jain, Musicane last year added Black Eyed Peas frontman Will.i.am (né William James Adams Jr.) as a financial partner. Mr. Adams has since helped introduce Messrs. Jain and Shahani to label executives, including those at his home label, Universal Music Group.
Boost from Will.i.am
Thanks to Mr. Adams, Universal agreed to allow Musicane to share the money earned from Musicane sales of his album, "Songs About Girls," with fans that embedded the widget onto their blogs and social-network profiles. The album made its debut at No. 38 on the Billboard 200 list in September of last year, and helped pave the way for Musicane to make more deals with other Universal Music artists, and with other labels.
Artists who will initially be available for download through the Musicane widget in the coming months include Beyoncé, Britney Spears, Coldplay, Kanye West, Pink, The Killers, U2 and Wyclef Jean.
Thanks largely to the Universal Music deal, in the last 10 months more than 500,000 online users have embedded a Musicane widget on a blog or social-network page, leading to more than 70 million unique impressions.
"We're opening the floodgates," said Mr. Shahani, "Anyone now has the ability to create their own music shop, so we're expecting a hugely drastic increase in these numbers."