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Small Russian Labels Balk at 'Unfavorable' Licensing Deals From VKontakte

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The VKontakte app shown on an Apple Inc. iPhone 5. 

The social network VKontakte -- aka "The Russian Facebook" -- which recently launched a paid music service and has license agreements with Sony, Warner and Universal, is having trouble signing deals with smaller, local labels.

"Judging by experience, VKontakte only sings deals with labels following court litigations with them," Sergei Morozov, general director of Moroz Records, told Billboard.

However, Moroz Records recently lost a case, in which the label sued VKontakte over copyright breach, as the court sided with the social network, ruling it was just an intermediary and could not be held responsible for illegitimate content uploaded by its users.

"At this point, the court was on VKontakte's side, but we will appeal the verdict," Morozov said.

VKontakte, owned by the online giant Mail.Ru Group, declined to give any specifics on how the process of signing licensing deals with local labels is going, providing only general comments.

"The majority of rights holders, interested in managing their content on Mail.Ru Group's platforms, are already collaborating with us," a spokesman for VKontakte told Billboard. "We are interested in collaboration with any new rights holder on a mutually beneficial basis."

However, a number of Russian music labels, including Moroz, Navigator and Misteria Zvuka, don't yet have agreements with the social network.

"Theoretically, we are interested in signing a licensing deal with VKontakte," Morozov said. "But conditions that VKontakte has offered are much less favorable than those on which deals were signed with the international majors and some local rights holders."

In early May, VKontakte launched its long-awaited legitimate music streaming service, planning to gradually replace illegitimate content uploaded by its users with licensed tracks.

In 2014 by Universal Music Group, Sony Music and Warner Music Group filed a lawsuit against VKontakte over copyright breach, which led to licensing agreements between VKontakte and the three major labels, singed in 2015-2016.

A few similar agreements with foreign and local rights holders followed, including those with the Merlin indie label network and local First Music Publisher.

However, to be able to offer to its users fully licensed content, VKontakte will have to sign deals with remaining local labels.