Imeem is rumored to have paid $20 million in advances and also gave labels equity in the company. It disputes the $20 million figure, but the equity is a matter of public record. Sometimes the demand from the record companies is so much that it makes deals impossible. A mobile messaging company halted negotiations after a label demanded 85% of the company's gross revenue -- music licensing not involved.
"If you were opening up a retail store on Madison Avenue, I think you have to get a lease for the space," one unnamed major-label executive says, according to Reuters. "If you want to build a legitimate business, there are costs associated with doing it, and that's no different in the virtual world than the physical world."
With CD sales continuing to decline and digital music not making up the gap, record companies are willing to stretch any new source of revenue as thin as it possibly can, just to make quarterly revenue objectives. "What was once considered a major advance -- $500,000 or $1 million -- is becoming a $2 million or $5 million advance and really over-the-top requests for equity," EMI digital executive Ted Cohen said.
Cohen continued: "The deals are still unrealistic. If you raise $15 million to start a business, and have to spend $12 million just to pay off the content companies, that leaves you with $3 million to run a company. I don't know anybody able to do that." Despite being controversial, giving an equity stake to a label might be a smart long-term move.
If they have a stake in the company's performance, they have greater incentive to nurture it. Imeem's relationship with record labels has reportedly been very fruitful.
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