In a record deal that shows that a major label is making concessions in the area of Internet rights, Universal's Farmclub label has given Los Angeles pop duo Fisher [ tickets ] control of its website and the right to renegotiate royalties when downloads become more prevalent.

Manager Elliot Cahn, a music attorney who once managed Green Day and ran the (510) label as a co-venture with Universal Music from 1995-1998, said that the deal had elements of a standard major label contract, but had better provisions on hot-button Internet issues.

Cahn would not reveal CD royalty figures in Fisher's deal--less than 15 percent is likely--but he said that the deal gave songwriter Kathy Fisher and keyboardist-producer Ron Wasserman (no relation to bassist Rob Wasserman) control of their existing website, veto power over their information on the Farmclub.com site, "enough money to make a really good recording," plus money to make videos and tour support, which major labels are not always willing to give to debut artists.

Digital-rights negotiations between acts and major record labels have come to the fore in the last six months. The majors' standard, first-draft contracts have included provisions that give labels ownership of their bands' domain names and slice down the royalty rates for downloads. But labels like Farmclub didn't anticipate that some young musicians, like New York pop band the Rosenbergs, knew the ropes and would broadcast their views to shake up the system.

The first-draft contract that Farmclub offered to the Rosenbergs--which the band chose not to accept--was tough in the areas of digital rights. However, "it's important to distinguish between first drafts of contracts and what a negotiated deal looks like. Often they're very different animals," said Cahn, who negotiated the deal with Farmclub general manager Amanda Marks, a hard-bargaining attorney.

Farmclub's television performance agreement, which included an option for a record contract, "wasn't just the first proposal for the Rosenbergs, but the first in a class of contracts for Farmclub," Cahn said. "Farmclub had no experience to inform them what they should be asking for... After the publicity, they were wise enough to drop the policy."

Fisher's royalty rate for downloads is smaller than the CD rate, but Cahn said he can live with that because the download market is still "miniscule." The contract provides for "an automatic renegotiation of the download rate'' when downloads account for approximately 25% of the music market, Cahn said. "I suspect there will be a lot of commotion in that area in the next couple of years," he added.

There may be commotion, but artists' royalties may not actually increase. A senior new media executive at EMI Recorded Music said last fall that artists' royalties "maxxed out a decade ago," and the recording industry contends that download costs are higher than CD costs. In addition to new expenses from on-line marketing, the costs of professional digitization are higher than home track-ripping, industry executives claim. They also contend that the server storage costs, telecommunications charges, software licenses, and, eventually, telephone help-desk costs justify the current retail price of albums and artist royalty structure.

Schuon, a former head of programming at MTV and VH-1, said that Farmclub could not widely distribute its albums and gain commercial success for its artists if it offered a 50/50 royalty rate on CDs, the rate that some Net music retailers offer on downloads.

"I think the misunderstanding [over the Rosenbergs contract] was that people thought that, 'OK, it's an Internet record company'.. so [people believed that] the rules, contractually, are going to be totally different, or similar to that of some other companies that are offering something on the Internet,'' Schuon said. ''The reality is we're interested in being in business with artists... that want to sell as many records as possible, and have a chance to connect with as many fans around the world as possible. That's what we offer, but that costs money. We never said [our record contract] was revolutionary or dramatically different.... There are hard dollars involved in broad distribution, marketing, publicity, manufacturing, music videos, tour support... They [Internet music companies] are not putting out the sometimes million or more dollars to roll out a record that we'll have to put out."

Music attorney David Chidekel, who represents both young and established acts, said that the majors have the power to push a pop record through, but "street" acts are in a better position to use the Net to market and sell their music themselves.

"If it's a pop-oriented artist that requires huge expenditures for promotion, marketing, sales, [and] needs radio," Chidekel said, "right now, you have to go to a major label, because they're the ones with the clout to do this. [Online record label] Atomic Pop can't do it; they can say they can do it all day long, but they can't do it. However, if it's a street-oriented act--a hip-hop act, a rock street act--those kind of artists are really set up for do-it-yourself situations... For the Ani DiFrancos, this becomes very interesting. I can tell you that a number of superstar artists are at least saying, at this point, that they want to walk away from their major labels.''

Those artists could sign separate deals for Internet and physical CD distribution and hire their own marketing, promotions and publicity firms, Chidekel said.

''They're going to flip [the business] on its head, and they're going assemble around them the various team players they need,'' he said.