After uproar, MySpace signs indie music deal

Bright Eyes is among the many indie artists that weren't in the roll-out of MySpace Music but are now.

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NEW YORK (Fortune) -- When MySpace rolled out its new music service last month, some of the most prominent independent record labels withheld their artists because they believed the social network was treating them unfairly. That was a public relations nightmare for MySpace which touts itself a champion of "indie" bands.

On Thursday, however, MySpace unveiled a deal that should begin to quiet the critics. The News Corp. (NWS, Fortune 500)division announced it had licensed over one million tracks from IODA, a San Francisco-based digital distributor of independent music. IODA's artist roster includes indie faves such as Paw Tracks's Animal Collective and Kanine Records' Chairlift.

"The independent music community has been a cornerstone of MySpace Music," said Chris DeWolfe, co-founder and CEO of MySpace in a statement. We're thrilled to welcome IODA and its more than 50,000 artists to MySpace Music."

The battle between MySpace and the independent music community erupted in late September with the launch of MySpace Music, an ad-supported music service that enables the social network's 120 million worldwide users to stream songs for free.

To get major label artists like Coldplay and Britney Spears, MySpace made the four biggest music companies-Warner Music (WMG), Universal, EMI and SonyBMG (SME)-its joint venture partners and gave them equity stakes in the new service.

But it wouldn't do the same for independent labels. The independents protested loudly. They pointed out that MySpace had been happy to build its user base by featuring bands like Animal Collective and Chairlift that have significant online followings even if their sales don't match those of Coldplay.

MySpace's critics said the social network was now turning its backs on the same artists who had been instrumental in its growth.

Frank Hajdu, executive director of MySpace Music, says nothing could be further from the truth. "There has been a lot of public misconception about MySpace and its involvement with the independents with the launch," he said. "We've always been committed to the independents from the outset."

He declined to discuss the terms of the IODA deal. Kevin Arnold, CEO of IODA, was more forthcoming. He said it had taken a while for IODA to strike a deal with MySpace because the social network had initially offered no guarantees, only a share of the music service's ad revenues.

IODA won't get equity in MySpace Music. But Arnold said MySpace had sweetened its offer in recent weeks. "We made significant improvements over the previous proposal," he said. "There are a number of things that are important to us-some guarantees and assurances that there will be revenue for streaming our music."

Perhaps the most vocifierous critic of MySpace Music has been Charles Caldas, CEO of Merlin, an international licensing group representing over 12,000 independent labels, among them Domino, Koch Records and Beggars Group. On the day of the new service's launch, he accused MySpace of trying to stiff Merline's members by withholding equity.

Caldas was in Los Angeles meeting with MySpace on Thursday. He could not be reached for comment.

"We are still in active discussions with Merlin," said MySpace Music's Hadju. "We hope to consummate something shortly."

Not surprisingly, artists have also been critical of MySpace for treating independent labels differently than the majors.

"This was a real slap in the face to the independent labels and artists that were so instrumental in building MySpace in the early days," says Acrobat Records' Matt Nathanson, whose songs have been featured on television shows like NCIS and Scrubs. " It's nice to know that companies like IODA have come in and negotiated good terms on behalf of the 'indies' online."