Puretracks launches to fanfare as stakeholders ask government for support

The new and much-heralded Puretracks music service likely only has a matter of months before American entrants begin competing in earnest for Canadian customers, say company executives, and government support could be the key to helping the business survive. In candid interviews with Canadian NEW MEDIA, Graham Henderson, VP of new media for Universal Music Canada - a significant investor in Puretracks - and Alistair Mitchell, CEO of Moontaxi Media Inc., which provides the service, say they expect and welcome U.S. competition, but the opportunity exists now for Ottawa to step up to the plate to help ensure a Canadian presence in the market. Puretracks was launched last week to great media fanfare and appears to be meeting the demand by Canadians for a legal alternative to file sharing applications such as Limewire. Executives say demand has outstripped expectations in its first days of operation to the point where potential customers have at times been unable to log on due to heavy demand. The site offers $0.99 music downloads that can be burned or ported to portable devices and has attracted interest from consumers who can purchase exclusive tracks that are only available through the service by artists such as Sam Roberts. Aware that competition is coming, both Henderson and Mitchell say the company’s unique Canadian outlook, combined with high-quality downloads and exclusive offerings, will be important ways of staving off contestants such as the deep-pocketed Apple Corp. offering iTunes. With the announcement of a new licensing framework by the Canadian Musical Reproduction Rights Agency Ltd. (CMRRA) two weeks ago, the Canadian marketplace is now an open book. CMRRA president David Basskin tells CNM that the framework, which allows for the payment of royalties to songwriters and publishers, represents the last regulatory hurdle to fall to foreign competitors. "We don’t speak for Americans or Canadians," he says. "We speak for music authors and publishers." He says his group welcomes U.S. entrants and he was recently in the States to pursue discussions with Apple. Basskin further notes that other American companies have indicated their intention to pursue this market. TELUS deal? Mitchell says Puretracks has several advantages over U.S. online music services that puts the Canadian service in a good position. He says the music site features Canadian artists, both established and emerging. But he notes that a national perspective will have to be bolstered by the company’s partner relations and marketing effort. The company is already working with equity partners Universal and recently announced ROW Entertainment, which owns CD Plus. Henderson tells CNM that the company has a relationship with TELUS Corp., though neither Mitchell nor TELUS will confirm a deal. If true, the service would likely mirror the relationship between MusicMatch and Sympatico as an alternative for broadband music delivery. Standard Broadcasting is also a minority equity partner in Moontaxi and the two companies’ plans for exploiting that relationship should be announced in the coming months. But both Mitchell and Henderson say another stakeholder, the government, could be brought on board as a partner to help ensure the company’s survival against a Yankee onslaught of services. Henderson, particularly, says the government is acting too late to jump on the bandwagon. He says he’s facilitated meetings between Telefilm Canada and Moontaxi that ultimately proved fruitless, a situation that leaves him exasperated. Henderson likens the situation to that which existed when the federal government failed to act to create a Canadian-owned distribution system for music several decades ago, leaving independent Canadian labels dependent on multi-nationals for global distribution of their product. Henderson says he and Mitchell have asked the government for a multi-million dollar marketing budget that would include conditions tying the money to promotion, for example, of Canadian artists or emerging Canadian stars. He’s frustrated, though, at the speed at which Ottawa is moving. " gone to them and they asked for a conservative amount of money and they’re basically being stonewalled. I’m at my wit’s end with them. They keep saying, ‘we’re looking at it. We’d like to do it. But, if we give them money, we’ll have to give money to Quebeçois companies’ - and it’s, like, oh my God, I don’t believe I’m hearing this. So I don’t think I’m telling tales out of school to say that the Canadian government and Heritage could lose an historic opportunity to cement Puretracks’ position in the firmament," Henderson says. "All the Canadian government has said is it’s interested in giving them like, a million , which, frankly, is a bit of a spit in the ocean. They really need to cowboy up there and pony in, like, three million or something. They need to get serious about this and do it right, and that would be a major marketing campaign where they could throw money at promoting artists, and billboard and postering and radio and TV and I think the bigger the splash now, the bigger the ripples will be and that will see them through launches of these other services. Because, you know going to spend a lot of money when they come knocking." Mitchell is more circumspect in confirming that the company is seeking Canadian government support. He tells CNM: "I make a point of saying competition from the U.S. is a good thing. I don’t want to make them sound like Darth Vader. I mean, competition’s a good thing for consumers. I just think we need to grab the opportunity here which may not be here for long. To say: you know what? The online music space is a burgeoning one and it would be a crying shame if we didn’t make sure that a leading Canadian company that has spent the last three years growing this company tooth and nail to the point where it’s now a fantastic, viable offering, not to be able to ensure it is a Canadian competitive force moving forward. I just think there’s a huge opportunity there for stakeholder support from all quarters. "We’re obviously trying to make the case that it would be great if we could in some way engage the support of government and Telefilm and the like. But, we do need to meet their policy profile, and in some respects I think policy on this - as you can appreciate - sometimes takes years to make. I’m not sure it’s in place. Our challenge is that the opportunity is right now and I don’t think that there’s going to be a opportunity like ours to support in the foreseeable future. So I don’t know. I wouldn’t at all characterize it as frustrating; I’d just characterize it as an opportunity that any company like ours, whatever industry you’re in, will turn to various different stakeholders to grow the company. And, obviously, we would do that with government as well." CMRRA deal opens doorThe issue has come to the fore as one of the last hurdles to offering downloadable music was removed with the announcement of the CMRRA licensing deal. Brian Robertson, president of the Canadian Recording Industry Association, says the deal took over a year to conclude because several issues had to be resolved before rightsholders and the record labels could feel secure in offering the service - as opposed to in the U.S. where a similar deal has been in place between the labels and Harry Fox for significantly longer. "We’re creating a whole new business retail model here, so there’s got to be some certainty of compensation to all the rights owners, particularly the CMRRA. Specifically was the music publishers and through them to the songwriters. And there has to be the certainty of a business base that will allow the logging to take place, a reporting process, the electronic systems and the new licensing systems that have to be created because, all of a sudden, you’re dealing with an avalanche of 250,000 songs that are on an entirely new method of compensating. There’s a whole new retail business base that you’re creating. So that’s what’s been taking the time." Henderson believes the deal was actually reached relatively quickly given the complexity of the issues. He notes, for example, that the first hurdle was to ensure discussions were taking place with the right parties. At the outset of negotiations, the CMRRA said it couldn’t negotiate Internet rights since digital issues weren’t in its current agreement with publishers and songwriters. More significantly, the deal was also accomplished without setting a rate at which CMRRA members would be compensated. Henderson says the compromise was reached with a six-month negotiation window to finally settle on a number - something that will likely be made easier when English rightsholders establish their own right. If the parties can’t agree, however, they have agreed to take their case to commercial arbitration. "I think that is going to be a huge bonus for us, because we’ll get in front of a commercial judge or someone who understands our business, hopefully, and we can get a quick result."

Puretracks launches to fanfare as stakeholders ask government for support

News | 10/22/2003 4:00 am EDT

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