EMI, Spotify and Google

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This is Celia Hirschman with On the Beat for KCRW.

Guy Hands may finally be losing control of his company, EMI Music Group, to their chief investor, the financial bank Citigroup. EMI owes Citibank almost $3 billion. Mr. Hands recently signaled to his closest allies to expect the worst.

EMI's biggest music asset is the Beatles catalog, which was finally made available for digital sales on iTunes in November after years of delays. In the first week, over two million Beatles tracks and 450,000 Beatles albums were sold. But now that this long awaited retail door has been opened, there are no more rabbit tricks for EMI to pull out of the hat. Citibank is closing on EMI's heels.

Just how will a traditional financial banking conglomerate integrate management styles with a creative music company? Not very well I imagine. My guess is the financial institution will want to sell off EMI to another entertainment related organization for day-to-day management.

It's worth noting that two major music start-ups have yet to materialize as we close the window on 2010. Not two little companies, but two international powerhouses. Spotify and Google. Both companies were rumored to launch by Christmas and each of these companies has the potential to seriously affect the iTunes consumer base, yet, it appears neither will make the timeline.

While Spotify has earned rave reviews from its European customers, the company has yet to successfully negotiate licensing agreements for the US market. The record labels are not convinced that the Spotify subscription model will generate enough money to warrant licensing, and Spotify has not be able to guarantee the labels a stable rate of remuneration.

Google's Music Service is facing a different problem. Google wants to offer cloud based streaming alongside paid downloads, all with the ability to be stored in a digital locker, usable on any device. Labels fear that illegal downloads will be included in that digital locker, encouraging potential customers to continue the illegal behavior.

With CD sales on a serious decline, record labels loathe to cut into the iTunes profits they are currently seeing, making negotiations with Spotify and Google even riskier.

There has to be a middle ground. Record labels need to make progressive business deals, that stem the enormous amount of illegal downloading that already exists. Otherwise, if the business barrier to entry is so constrained, the ever-decreasing sales base of music will simply continue to erode.

It's time the labels made business deals that served the consumers' interest. Cloud-based streaming services have great potential, as individual downloads continue to decline. If the subscription business model works for cable television, for Netflix and for satellite, why not try it with music.

The riskier move is doing nothing. If you don't swing at a pitch, you can't get a hit.

This is Celia Hirschman with On the Beat for KCRW.