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Oz music stores hit out at exclusive Net deal with rival

Tension mounts along online/offline border

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Two Australian retailers have promised to boycott products from record label Festival Mushroom Group (FMG), which this week announced an exclusive online retail deal with rival retailer Sanity. The rebellious move comes less than a month after UK retail chain Virgin Our Price threatened to cease payments to record companies unless they stopped giving what the chain claimed was preferential treatment to online stores. Music industry insiders quickly revealed Virgin Our Price's stance to be little more than a publicity stunt to mask its inability to pay record companies thanks to the retailer's cash flow crisis. However, HMV and Leading Edge's beef with FMG does appear to centre on a real conflict between online and offline music sales. FMG's deal with Sanity allows the retailer to sell digital copies of FMG artists' works exclusively for a three-year period, due to start in the middle of the year. In return, the Rupert Murdoch-owned FMG will take $678,000 in cash and Sanity shares. FMG's own, as yet unlaunched Web site will also offer digital tracks, but with just two companies providing them, there's hardly likely to be much competition on price. And that's what UK-owned HMV and Leading Edge don't like. The agreement is "not in the best interest of artists or fans", HMV MD John Hazell told Australian news site Fairfax IT, but it's primarily not in the retailers' interests. Leading Edge general manager Gavin Ward (who is, incidentally, head of the Australian Music Retailers Group, which - surprise, surprise - doesn't like the deal either) was more pragmatic: "Why would we promote anything on Internet or in our stores that is only available online from an opposition retailer?" Especially when it's Australia's biggest music retailer, as Sanity is. According to Fairfax IT, HMV comes in at number two, Leading Edge at three. Unlike Sanity, however, HMV is an international chain, and the company is already threatening to block FMG artists' overseas sales, though since few will be on FMG outside Australia, it's a moot point how effective such a threat would be. Still, it's all good posturing, which is largely how FMG characterises the whole affair. Given how small the online music business compared to CD sales, it has a point, though going the whole hog and tying itself to a specific retailer on an exclusive basis isn't exactly the most tactful supplier-reseller deal we've come across. ®

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