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Virgin Media's big new music service, announced last summer, has hit a snag. Independent music alliance Merlin has told its members that it can't reach a fair price, but still hopes to.

Merlin represents hundreds of small independent labels, and has the nod to negotiate on their behalf. The idea is that collectively they'll be able to get a better price for small operators in a market populated by the four giants: Universal, Sony, Warners and EMI.

"Merlin’s position is that it is not prepared to accept deals that do not in our judgement recognise the true value of the collective licence we offer, which in the UK, according to the 2009 Official Chart Company scan figures represents close to 11 per cent of the digital market," the group wrote to members last week.

"Although we are deep into negotiations with Virgin Media, we do not believe we have yet reached a point where Virgin Media’s offer in our view acceptably values a collective license to our members’ repertoire and as a result we will not agree to this offer in its current form."

Virgin Media says that negotiations continue. "We're still working on it," a Virgin spokesman told us last week.

The service, called Music Unlimited, was announced last June, with Universal Music as the initial partner. Sony has held firm against the "unlimited downloads" part of the deal, so it's likely to feature a fixed bundle of MP3s.

It's a dilemma that faces every service with a pool of money - how do you divvy it up fairly? Apparently, the majors want the spoils to reflect the Top 40. While independent labels had their first US number one album recently with Vampire Weekend, that would under-represent their contribution.

Ironically, Virgin was once an independent label. ®

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