Consolidated labels have a future in digital


Digital DownloadsSo says Moody’s Investors Service, which believes that the global marketplace, whittled down to three major players, gives each the scale to negotiate favorable rates with online music portals that will need big label content in an increasingly competitive digital environment.

Moody’s analyst Gregory Fraser observed, “Following this latest round of industry consolidation, the three remaining major label groups have increased scale, expanded their respective rosters of top-selling artists and increased their holdings of valuable recording and publishing copyrights. Consequently, we believe Universal, Sony and Warner will have improved bargaining power to negotiate more favorable rates with new and existing digital music service providers.”

When the big three make their own deals with users, it will take performance rights organizations out of the picture, increasing the income for the label. Moody’s says this will be no major loss for the PROs at first, since digital isn’t their main revenue streams, but as digital gets more wind in its sails the PROs will begin to feel the loss.

Global digital music sales are anticipated to come home at $6B by year’s end.

Moody’s explained two major benefits for the big labels: “First, Internet radio services are required to pay performance royalties to copyright holders of the sound recording, which terrestrial radiostations in the US have not been required by law to pay.

“Second, Moody’s expects licensing all of the three major label groups’ catalogs will be imperative for the survival and success of an online streaming service, especially as competition among digital music services intensifies.”

Fraser concluded, “We caution that the benefits to the three major labels outlined are largely conditional upon the success of Universal, Sony and Warner to negotiate royalty rates that allow them to earn a respectable return on their investment in Artists & Repertoire and certain high-priced acquisitions. At the same time, we believe that the development of profitable digital music service business models is in the interest of holders of music copyrights, because it will incentivize the innovation of digital music distribution channels.”