Having vowed to keep the blog positive and focused on the new developments that could actually save the industry, I’ve decided to do what any cynical old music business weasel would do:

I’m calling on people younger and smarter than myself. (Doug Morris—wake up from your nap and take note.)

In what may be the best marriage yet of music and social networking, turntable.fm debuted this summer to rave reviews. One of those instant fans was my A&R colleague at Shapiro Bernstein, David Hoffman. Having educated our office on the endless possibilities of this new service, David recently sat down with my Berklee intern, Jorge Oliveres, to share the good news—two young guys looking at one exciting new facet in the future of music:

turntable.fm

Turtntable.fm is a virtual nightclub in which users are the DJs. The website is divided into “rooms” that play different styles of music. Users can chat with each other and bob their avatar’s head by clicking an “Awesome” button if they like the song that is being played or they can click the “Lame” button that, if pressed by enough people, skips it. DJs can choose the music they are going to play from a huge database or they can upload it themselves.

David Hoffman, Director of Creative Services at Shapiro Bernstein & Co., Inc., began using turntable.fm since soon after it was launched and he is extremely excited about its potential. I had a chance to talk to David about all the opportunities a service like turntable presents for both music publishers and songwriters.

David Hoffman

I heard you are very interested in turntable.fm.

I’m interested, almost slightly addicted to it. Probably a month ago now, a good friend of mine who is also in the music industry and one of the most knowledgeable music people I know, emailed me about turntable.fm. He said, “You have to check it out.” He’s also a DJ and I have, from time to time, guest DJed on his show–so we know each other’s music tastes pretty well. When he told me to check out turntable, I went on it immediately and was hooked. The next day I came to the office, stood up in front of everybody and was like, “You have to check out turntable.fm!”

I follow the digital music industry and the future of the music industry through blogs and reading up on the trades, and this, turntable.fm, [represents] the potential that I see for the new cloud services that are coming up. Hopefully, it’s something that will stay around for a while. Even if it doesn’t, it will show the potential of how great music discovery can be with the right website and the right digital tools.

What do you think of the legal implications of turntable.fm? I was reading that right now they claim they are protected under the Digital Millennium Copyright Act.

Like Pandora, and a few other services, they are operating under the DMC Act of 1998 that allows Internet radio to exist as long as it operates within the confines of the law. If you spend a lot of time on turntable.fm, you’ll notice that there are some interesting little rules that they don’t tell you are rules. For instance, if you go into a room, you can’t listen to music just by yourself. As with Pandora, if you want to hear the latest Beyonce single, it’s not necessarily going to play that first; it’s going to give you other music. That basically limits the listener to what is now Spotify. [On Spotify], you call up the song and listen to it, but Spotify is a service you have to pay for. Right now you can get it for free if you have an invite, but eventually you’ll have to pay. There are other rules too: you can’t play an artist more than a certain number of times in an hour.

Last week turntable signed agreements with both ASCAP and BMI. That’s really great news because I think a lot of these services didn’t originally sign with the PROs because they figured they didn’t have to. Turntable.fm signing with them is a big step in the right direction.

I think the only problem they’ll have moving forward, and it’s a big one, is the fact that you are able to upload your own music onto turntable.fm. That’s where the waters get a little bit muddy. If I create a mashup of a song and I don’t get permission from the publishers to create that mashup, that piece of music is technically one big copyright infringement. I’m able to upload that song and play it for people, and I believe once you upload a song to turntable.fm, it stays there. And those are the most popular rooms–the ones that play these mashups and remixes.

It’s going to come to a point where they’re going to have to do some licensing like Apple has done with the cloud services and Spotify has done. I hope they can really get it together. I also hope that the music industry realizes the strength of turntable.fm. I think they do.

What do you think is its potential? How could publishers take advantage of this?

Publishers can take advantage of it in a lot of different ways. Number one: for music discovery. It used to be, back in the day, music lovers would go to record stores. You’d go to a really good one (for me it was always some of the Ma and Pa cool shops or going to the Tower Records on West 4th Street). You’d go in and just thumb through the records. If I was into jazz that day I’d go to the Miles Davis section and say “Oh, wow, this is a CD I hadn’t seen before,” an interesting import CD or something, and I’d buy it. For music discovery [today], aside from word of mouth and what you read on blogs, the organic element of actually discovering something for yourself is kind of lost.

Turntable is the perfect place [to recover this] because you’re combining word of mouth (you’re learning from someone that you’re virtually meeting or someone that you know because they’re on turntable) and you’re listening to it. You’re talking about the music, you can link from it, and that, from an A&R perspective, is the closest thing to that original sense of discovery.

As publishing companies seek out talent, they can go into the cool room on turntable.fm, figure out who the DJs are going to be, and actually listen to it, learn about it and be on stuff before anybody else. I can’t tell you how many bands I’ve heard on turntable that I’d never heard before. When you are in a great room and the DJs are really going with the vibe, there could be a song that may not be your favorite song if you just heard it out of context. But when you hear it within the context of songs that are along the same vibe, [it] makes a big difference to someone who has a good ear for music and is out there to scout talent.

Not only publishers, but also record labels, managers, publicists, booking agents; everyone [can take advantage of this] to promote music. There was a band who was inviting people to a turntable.fm room for a listening party to debut their new CD. If one of our artists or songwriters has a new album or a new song, instead of sending out random emails or taking every music supervisor out to lunch and handing them a CD, I can invite them to a turntable.fm room. I’ll know if they’re there or not, see that they’re bopping their head, thinking it’s “Awesome” or not, and I can actually talk to them about it within the chat room. You’re basically creating a virtual listening party. I think that more and more bands are going to take advantage of it, and I think publishers will as well. There’s definitely the potential to have music supervision and A&R rooms.

I was also wondering about the potential it has on the other side, for emerging artists. Do you think it’s a good platform to promote new music?

I think it’s one of the best platforms. Whenever I speak on panels, people ask, “How do I get my music into the hands of the gatekeepers?” I say, “The best way to do it is to give it to someone who knows that person.” The analogy I like to use is [this]:

I’m in my apartment in NY and I hear a random Chinese food menu come underneath my door. It’s from the local Chinese place and I’ve never heard of them before. I take it and throw it out. But if Eric [Beall], my colleague, says to me, “Hey, this great new Chinese place opened down the block from me, you should check it out, ” I’ll probably go there the next day.

I take pride in listening to most stuff that comes to our office. But if I’m learning of music because I’m getting a random email, I’m thinking “OK– most of the stuff that comes randomly is not very good.” But if I’m learning of the music at turntable.fm from someone I know, or even someone I might only know virtually, it’s a different situation. If they’ve played a few good songs that I liked, and they say “Check this out,” I’m going to listen with open ears.

It seems like a really cool blend between social networking and music. I’m surprised something like this didn’t come out before.

I agree with you. It’s such a simple idea. Yet the potential is massive. Think about colleges. Since it came out in the summer, it hasn’t made its impact on college yet. Once the fall semester starts, you’re not only going to be at a party and listening to awesome music— you’re going to be playing the music. You’ll bring your laptop, we’ll get up on turntable.fm and start our own room. And while we’re partying, we’re also going to be DJing. If I were in college, I’d probably do that about 14 hours a day.

Right now [turntable has] limited capacity to 200 people [per room]. I think that will eventually expand. It’s going to become more like satellite radio. It will be an Internet radio station playing in the background, somewhat like Pandora because you’re choosing your overall theme, but more like satellite radio or traditional radio with great DJs. In fact, you might personally know the DJs.

What about when turntable has an application? What about when automobiles are wired with wifi? Once it’s on your phone and you’re able to DJ on your commute to work, you’re going to say, “This is really tremendous.” There are so many ideas I’ve been reading about, like an external “Awesome/Lame” button. You can be hosting a cocktail hour and secretly, in your pocket, hitting ”Awesome”.

Also, the link with Spotify is fantastic– turntable and Spotify go together like peanut butter and jelly. You’re discovering [music] and immediately clicking the Spotify link so that you can learn more about the band later. When you’re DJing, you can call up and research songs on Spotify—it’s a better interface than turntable for that.

Turntable.fm is the first thing in a really long time that’s made me very excited about music discovery. Instead of being an old curmudgeon saying, “Back in the day it was so much better,” this is the sort of thing that [has me] thinking, “Wow, this is amazing!”

David Hoffman is the Director of Creative Services at Shapiro, Bernstein & Co., Inc., one of America’s oldest independent publishing companies. At Shapiro Bernstein he is an A&R rep, TV/Film/Advertising placement person and song plugger amongst other things. The catalog ranges from classics including “In The Mood,” “On The Sunny Side of The Street” and “Ring Of Fire” to current hits by David Guetta, and current indie-darlings Savoir Adore. David is also a music supervisor who has worked on indie films like “Still Bill” a documentary on Bill Withers, and advertisements for Apple and Puma. Prior to becoming a full time publisher, David was a professional drummer with the popular instrumental jazz/funk/jamband ulu, touring upwards of 220 nights a year. Before hitting the road, David worked at BMI and Giant Step Inc.

David has been a featured speaker/panelist for CMJ, ASCAP Expo & ASCAP Night School, AIMP and others and DJ’s regularly on EastVillageRadio.Com.

Follow me on twitter @EricBeall

Not too long ago, I had an opportunity to work on a project alongside a large, big-name consulting firm. Here was an army of highly-educated wunderkids, all who came bearing one hundred questions, but rarely even one conclusive answer. As the project grew longer and longer, and the answers increasingly elusive, I decided that these people were simply not very good consultants. After all, where were the solutions the client needed?

One day, I shared my concerns with a friend, who herself is one of those sought-after, big-name consultants. She smiled. “Ah… they sound like they’re very good at their job,” she said admiringly. “If they accomplish the objective, everyone goes home. Smart consultants never solve a problem. At least, not before they’ve uncovered a new one.”

This came to mind recently, when I saw NMPA President David Israelite’s recent comments about the need for blanket licensing, bravely made in front of the publishing masses at the NMPA annual meeting, and also reiterated in Billboard:

http://www.billboard.biz/bbbiz/industry/publishing/david-israelite-nmpa-president-s-guest-post-1005250672.story

David Israelite

On the face of it, Israelite’s primary point is unassailable. The current system of licensing, particularly in regards to mechanical and synchronization licenses, doesn’t work and must be fixed. Who could dispute it? As Israelite quite honestly points out, after all the legal sturm und drang about YouTube, if Google came to the publishing community tomorrow and completely acquiesced to all demands, offering to pay whatever it took to license the rights they needed, the publishers would be completely incapable of actually doing the licensing necessary. On a legal, practical, and PR level, that doesn’t put the publishers on particularly solid ground.

Especially when it comes to licensing synchronization uses, music publishers have always insisted that the use of a song in “synchronization” with a moving picture (like a video, film, advertisement or game) requires the licensing approval of each owner of the copyright. That’s a number that as recently as the 1980s
meant potentially three or four songwriters and their publishing representatives, but can now often mean up to ten or twelve writers, some with different publishers in each territory of the world, some of whom may control as little as 1 or 2% of the song.

Needless to say, this could require weeks of phone calls and research, and that’s just to find out who controls the necessary rights. After that, the poor music supervisor, film studio, TV producer or advertising agency still has to come up with a sync fee number and legal terms that will satisfy all parties involved—all of whom of course insist on favored nations status with each other. Now multiply all those headaches by several hundred thousand.

Why several hundred thousand? Because in the internet age, that’s the way companies are interested in licensing music. The focus now is not on one specific featured use in a movie or advertisement. It’s not even on ten songs all needing mechanical licenses to appear on an individual album. Rather, services like YouTube, iTunes, Spotify, and others need to license the whole of popular music, en masse, in order to be able to offer the variety and selection that the consumer demands. In that context, one by one is a little impractical. Like having to obtain permission to use each individual word in your novel.

Needless to say, the need for blanket licensing is pretty obvious, particularly to those who spend each day trying to work through the morass of the current system. Historically, music publishers have not stood out for their foresight and boldness. Yet even they will acknowledge that the crisis has arrived, and something has to change.

In the area of mechanical royalties, Israelite suggests an approach that grew out of an attempt to reform the compulsory license section of the US Copyright Act (Section 115). This would provide for a series of mechanical licensing agents (similar to the PRO’s like ASCAP and BMI). Publishers would have the right to choose among the agents, or change agents, but these designated agents would represent the one-stop, or maybe three or four-stops for anyone seeking a mechanical license. Further, these same agents could also license synchronization rights, on a pre-set, “blanket” rate basis. The blanket licenses would cover everyone and everything, eliminate the back and forth negotiation over each individual permission, and hopefully bestow that warm and fuzzy feeling for which blankets are known.

It sounds more efficient for the publishers as well as for the people seeking to license music or to build services around music. And while it certainly takes away some of the possibility of demanding a king’s ransom for that 7.5% share of the classic copyright that you own, the increase in the number of small wins, on a global basis, will probably more than make up for the loss of the occasional jackpot. Not to mention, it might keep folks like YouTube from just tossing in the towel and taking the music without any licensing at all.

So why hasn’t it happened?

As I said up at the top—not everyone loves a problem-solver. If the consultants fix what’s broken, everyone goes home. Likewise, music publishers don’t necessarily want to remove the logjams in the licensing system. Those logjams are largely the reasons publishers exist in the first place. Simplifying a system is rarely good news for the middle-man. And publishers are the ultimate middle-men between songwriters and the people who actually use the music the songwriters create.

If one agent is responsible for issuing all of the mechanical and sync licenses according to a pre-set fee structure for a particular composer’s catalog, why would that composer need a publisher? After all, the agency is presumably already taking some sort of fee for its role in the process. Why would a songwriter also give a publisher a 25% share of the income for the next 15 or 30 years? To do what? In a more precise example—if the whole music licensing world worked in roughly the same way as ASCAP and BMI do with performing rights, would future songwriters have any real need for a publisher?

Skeptical music weasel that I am, I don’t anticipate that the NMPA membership will be rushing out immediately to champion the cause for blanket licensing. Still, realist that I am—it’s probably worthwhile for those in the publishing game to take a glance at the inevitable and ask, in our customarily self-interested way:

What does this mean to us?

Three quick things to ponder, as our livelihood passes before our eyes:

1. Age before beauty.
The older publishing catalogs, particularly those built in the Fifties, Sixties and even Seventies, when you could still manage to obtain a full-publishing share for life of copyright , are looking even better. They won’t be doing deals like that no more.

2. Quantity over quality.
It’s hard to see how a blanket licensing system will not in some way reduce the viability of building a successful business around a few isolated “big copyrights”. While the sync fees may come down for any one individual copyright, the theory is that the money will be made up in volume. It may well be true, but it’s a system that favors the major publishers, who own thousands of licensable songs, rather than a small independent with one classic in the catalog.

3. The end of the paper tiger.
If licensing problems disappear, administration is no longer a service for which songwriters will pay. That means it’s all about advances (as if it weren’t already) and creative services. Songwriters may still need a bank, at least to keep them alive in the early stages of their career. They may also still need someone to help them jump-start their career and keep it moving—pitching songs, setting up collaborations, and finding opportunities for their music. At least, I hope they will.

Otherwise I’m going back to my consulting business.

Follow me on Twitter @EricBeall

If The Shmoo Fits…

Mar 23 2011

In case you’re lying awake at night dreaming of being the next Rebecca Black (and really, who isn’t?), you might want to read a little further before you equate fame, which is cheap and getting cheaper, and fortune, which is ever more hard to come by. Just last week, the Copyright Royalty Board released the statutory royalty rates for Internet radio royalties, which are royalties paid by webcasters for the streaming of sound recordings. It’s not exactly the pot of gold at the end of the rainbow. At the same time, it’s actually a step forward from where we were several years ago.

To be fair, YouTube is not one of the services covered by these royalty rates (although YouTube’s rates are not much better). The published rates apply to “noninteractive streaming”, which refers to streams that do not allow the listener to specifically select each individual track– it covers everything from radio-like “broadcasts” to what are termed “pureplay’ webcasters like Pandora. And more importantly, these rates are for royalties paid through Sound Exchange to performers on the “sound recording”– that’s in addition to the royalties paid to music publishers and songwriters, through ASCAP, BMI and SESAC. If you are a performer who writes and publishes his or her own music, you should receive royalties from Sound Exchange (representing your earnings as a musician and/or owner of the sound recording) and from ASCAP, BMI or SESAC (who collect your money as the composer and publisher of the song).

Like most agreements that are the result of hundreds of negotiating hours between attorneys, the basis for the rates is almost entirely incomprehensible. There is a distinction between broadcasters (commercial radio stations for example) who are streaming their programming on the Internet and “pureplay” webcasters like Pandora, who do not have a broadcast component to their business. There are exceptions for small services that can’t afford the agreed upon rates as well as noncommercial services. NPR gets its own special deal. Then we get to do the negotiations all over again in 2015. Still, it’s worth at least getting a rough idea of what your music earns for you, as a performer, when it shows up on an Internet stream. To get the full story, check out:

http://www.broadcastlawblog.com/2011/03/articles/internet-radio/final-webcasting-royalty-rates-published-a-comparison-of-how-much-various-services-pay/

Here’s the basic breakdown for 2011:

Broadcasters Per Performance Royalties:
$.0017 per performance

Statutory Webcasting
$.0019 per performance

Pureplay Webcasting
.00102 per performance

I know…. it’s alot of zeroes before you even get to the decimal point. You read correctly: it’s significantly less than one cent per performance. Ouch.

But keep in mind that this number is multiplied by the number of people listening to the stream. Therefore, a “pureplay” service offering 10 songs an hour to 1000 listeners would be paying a royalty of $10.20 per hour– or about a dollar per song. That’s not so bad, especially if you’re talking about a lot more than 1000 listeners.

Indeed, before we start complaining about the rates, it’s worth noting that performers are still fighting (after only about 80 years) to receive any royalties at all for use of their music on commercial radio. While songwriters and publishers receive performance income from the use of the songs in a radio broadcast, record labels and artists receive nothing, except that all important “exposure”. Which leads me to my real point…

Why is it that songwriters, publishers, labels and performers always seem to find themselves begging and pleading for a small crumb from the pie when it comes to every new media invention throughout history?

It happened with radio. In fact, it’s still happening with radio. Since the 1930′s, writers and publishers have been battling for what amounts to a tiny percentage of the overall profits from commercial broadcasting, when virtually every radio format in existence (except news, talk and traffic) is entirely built on music! And performers still haven’t managed to get anything at all.

It happened again in the 1980′s with MTV. Here was a television network built entirely on music, that paid nothing for the music videos upon which the channel relied. Today, the videos are in short supply, but MTV continues to pay almost nothing in synchronization fees for the music that it uses throughout shows like “The Hills”, “Gossip Girls” and “Jersey Shore”.

Then it happened yet again with YouTube in the last decade. In a virtual replay of the MTV story, the creators of YouTube constructed an Internet broadcasting network fundamentally based on the illegal, unlicensed use of any and all music, then sold the enterprise off to Google for a billion dollars, never having paid a nickel to OK Go, Soulja Boy, or any of the other YouTube phenoms who brought the company most of its biggest stories. Since then, Google has adapted a more acceptable position in regards to royalties, and YouTube is licensed by the PROs. However, as any songwriter or artist will tell you, the money being generated for the creative community is more symbolic than substantive.

OK Go

When a problem keeps occurring over and over, it’s usually worth considering whether YOU might be doing something wrong. Sooner or later, the music community– labels, publishers, songwriters, artists, producers and musicians– is going to have to take off the headphones and step away from the control board, or duck out of the board meeting, or skip the after-party and take a few minutes to ponder:

Why do we keep getting screwed by the people building businesses around the music we create?

Here are three quick explanations of why the music business seem to continually find ourselves desperately, hopelessly passing the bucket around the media industry, hoping someone drops in some spare change:

1. We are incapable of acting in concert.

We can make concerts all right. But labels, publishers, artists and musicians can never manage to act “in concert”– that is to say, as a unified front capable of fighting for the rights of everyone in the industry. Publishers distrust labels. Labels take advantage of the artists. Artists desperately undercut one another, hoping to grab an opportunity to set themselves apart from the pack. Now we even have the problem of publishers and songwriters going around ASCAP,BMI, and HFA to license directly, effectively damaging their own representatives in the collective bargaining process, all in order to save a few percentage points worth of fees. Not surprisingly, everyone in the media, from advertisers, to networks, to film studios and Muzak programmers, have realized that there is always someone willing to license their music for next to nothing, or at least less than their buddy is charging. We are, by and large, an industry of weasels, and it’s not helping our cause.

2. We forever believe in the myth of “exposure”.

I remember when I first started playing the guitar, back in grade school. Soon I had formed a band, and even at that young age, I quickly realized: everyone always has a party, a dance, a wedding or a bar mitzvah that they want you to play for free– “because it will be great exposure”. Of course, it’s not entirely untrue. Clearly, OK Go got plenty of benefit from their “free” YouTube video, as has Rebecca Black. But as a business model, the idea of giving away the product to another company who then keeps all the money that your product generates has not panned out very well for us.

In perhaps the greatest irony of all, the music industry actually winds up paying out huge amounts of money to radio (and back in the day, to MTV) in order to get those media outlets to use their music for free. It’s not just that we’re giving it away for nothing. We’re actually begging, pleading, and paying out the nose just to be able to give it away. Meanwhile, someone else is building their Clear Channel, or MTV or YouTube, largely from people tuning in to hear our product. And the more people that tune in, the more someone else earns, while we get nothing. But don’t worry. It’s great exposure.

3. We continue to focus solely on creating music, rather than selling it or marketing it.
Why was it Apple, rather than Sony for instance, who created the iPod, and iTunes? Why didn’t the major record labels, having already learned about the power of music videos from all the “exposure” they got from MTV, come up with YouTube? Why couldn’t a music publisher have invented Pandora? Instead of battling endlessly with the corporations who control these ventures, none of which have any inherent investment in music, the industry could actually control and profit from the medium it uses to promote and disseminate its product to the public. Instead of passing the bucket around after the set, the musicians could actually own the club.

It never happens. The history of the music business is the story of one fatal flaw, and that is the inability to think beyond the music itself, to how the public wants to receive that music. We’re creators and owners of content. But we’re never interested in thinking about how that content could be used.

Doug Morris

A few years ago, Doug Morris, then the head of Universal Music, gave a widely publicized interview with Wired magazine– where he bemoaned the effects of the digital revolution, and complained that everyone was treating the record industry like “The Shmoo”:

“There was a cartoon character years ago called the Shmoo. It was in Li’l Abner. The Shmoo was a nice animal, a nice fella, but if you were hungry, you cut off a piece of him and put onions on it, and if you wanted to play football you just made him like a football. You could do anything to him. That’s what was happening to the music business. Everyone was treating the music business like it was a Shmoo.”

Acknowledging that his lack of knowledge in regards to technology made it difficult even to hire the necessary experts, Morris insisted that his job should solely be finding and developing new artists.

“There’s no one in the record company that’s a technologist. That’s a misconception writers make all the time, that the record industry missed this. They didn’t. They just didn’t know what to do. It’s like if you were suddenly asked to operate on your dog to remove his kidney. What would you do?”

Given an attitude like that, it does seem a little surprising that Morris would be the choice of Sony (didn’t they use to be a technology company? ) to revitalize their music division in the year 2011. But of course, that’s exactly the problem. We’re so used to being the Shmoo, we couldn’t possibly think of doing anything else. It might be wise for musicians and performers to keep their calculators handy. Because we’re going to have to continue to live off royalty rates like $.00102 per play for some time to come.

Sometimes tough times breed a certain sense of solidarity among those suffering together, creating a sense of unity and a determination to stick together for the good of all. The English in World War II come to mind. Sadly, one seems to have to go back in history a bit for such tales of shared sacrifice in the name of a common interest.

On other occasions, economic or physical hardship can lead to a desperate willingness to do anything and everything, including dining on the bones of your buddies, if that’s what it takes to survive. Try throwing a tiny scrap of meat to a group of hungry lions, then watch the carnage ensue. Or just turn your eyes to the 21st century music industry, and watch the weasels beg, borrow or steal from each other, in a desperate grab for a piece of their quickly-shrinking pie. Not pretty.

Of course, it’s not surprising, either. As much of the formal structure of the music business evaporates (including such small structural details as “creator makes music; listener purchases music”), the large players begin to fall apart, and the whole playing field becomes increasingly populated by individual entrepreneurs trying to fight their way through the crowd, it’s only natural that an “every man (or woman) for himself” mentality takes over. We’re all just trying to make a living after all. Nevertheless, there is a real danger for the creative community, when we begin to undermine any effort to act collectively in advancing our own economic interests.

Needless to say, the people who use music, whether in advertising, on records, in television shows or in bars and restaurants, have noticed the growing levels of economic desperation among those who write songs and publish them. They’ve also noted that there is more than enough music to go around. Consequently, we’re beginning to see efforts by those who request music licenses to circumvent the collective organizations that have represented American songwriters for decades. Why license songs through Harry Fox, ASCAP, BMI or SESAC when you can go directly to the songwriters and publishers? Those using music as part of their business can negotiate directly with the music creators, eliminating the middleman and all the bloated overheads of those admittedly bureaucratic organizations. In some cases, they may actually increase the amount of money going directly to the copyright owners.

This issue came to mind recently when I heard about the licensing policies of DMX, a music programming service that has emerged as one of the chief designers and suppliers of music to a variety of different venues, including retailers, bars and restaurants, hotels, and airlines.

www.dmx.com

Traditionally, companies like DMX function in much the same way as commercial broadcasters, obtaining blanket licenses from ASCAP, BMI and SESAC which allow them to use any and all the music represented by those organizations in return for an annual fee, which is negotiated by each of the performance rights organizations. Those fees are collected by the PROs, and divided among their members (the songwriters and publishers) based on which songs are being used most often. Clearly, it’s not a perfect or even remotely precise system, which partly explains why DMX is so eager to offer publishers an alternative.

Rather than licensing through the PRO’s, DMX encourages publishers to issue direct licenses to DMX, in which DMX will have access to all of the songs in the publisher’s catalog (or in an individual songwriter’s catalog) and will pay the songwriters and publishers directly, rather than through a performance right organization. At first glance, it seems a pretty good deal. What writer or publisher wouldn’t want their music played in public venues? Why wouldn’t the payments for those uses be higher if ASCAP or BMI weren’t taking their fee off the top?

All true. By most accounts, DMX pays more money with greater accuracy for these music uses than the PROs. The truth is that BMI and ASCAP have never managed to pay more than a tiny dribble of money for this particular type of public performance. In fact, DMX also has “blanket licenses” with the PROs, in order to allow the company to use music that the individual publishers or songwriters might not be willing to license directly. Presently, writers and publishers have a choice: to license and collect directly through DMX, or to simply collect through the traditional blanket licensing system of the PROs.

So why would any publisher elect to receive less money, less efficiently? It all comes down to a sad, but simple reality:

No one lives at the top of the charts all of the time. Unless of course they’re Dr. Luke or Stargate, and even they have to cool down eventually. By requiring radio stations, television stations, and yes, companies like DMX, to take out “blanket licenses”, the PROs have been able to use their strongest songs and members as the basis for negotiating licensing rates that benefit all of their members. In order to have access to the biggest classic songs and contemporary hits, companies like DMX have to pay a fee that can then be shared with the songwriter who had only one big song, or the small publisher who has some golden oldies, but not much else. The power of a few hit-makers is leveraged to benefit the whole music community. Given the realities of the music business (in any era), most of us will find ourselves at both ends of the spectrum, from stars to starving, at different times in our careers.

Call me a cynical old music business weasel (you won’t be the first one to do it), but my instinct is that companies like DMX, or those insisting on receiving direct mechanical licenses rather than going through Harry Fox are not acting out of a general beneficence toward songwriters and music publishers. They are seeing an opportunity to undermine the organizations that license, collect, audit, lobby politicians and pursue legal action on behalf of songwriters and publishers, large and small. Even if they have to offer to pay a bit more money in the short-term, if these music users can eliminate the pillars of the creative community, then all the rules of the game can be changed at will. Each songwriter and individual publisher will be left to fend for themselves, based on the value and desirability of their particular catalog at any particular time.

We all like to see our music used, and we all benefit by those who help place the music in public venues. But think twice about issuing direct licenses to companies like this. These people are not your friends.

Sadly, there are two sides to this story, and the flip side is not so pretty either. If we’re going to be cynical about the motives of those outside of the creative community, we have to bring a little of the same skepticism about the motives of some of those working on our behalf. There are some ugly secrets at ASCAP and BMI that need to be exposed—more on that next week. If one is looking for heroes, the music biz in decline is not the place to find them.

Still, a little perspective is in order. Songwriters in the 21st century are far better off than those in the 19th. American songwriters are far better off than those in countries without strong PROs. The principle of collective bargaining power is a large reason why. Just because times get tough, we might want to think twice about killing off our old friends on behalf of some new ones.

Life in the Slow Lane

Aug 12 2010

While I was walking home tonight, I passed by a museum and something in the window caught my attention. It was a display of a small antique pipe organ from the late 1700′s– it looked like a very early attempt to create a miniature Wurlitzer that could be played at home. A rather odd, “Chitty Chitty Bang Bang” type of contraption, it reminded me of the homemade time travel machine rigged up by Doc Brown in “Back to the Future”. In its day, it probably looked as cool as the iPad. Now, it’s not something that anyone uses to get the job done.

The sight of this awkward, ungainly invention brought me back to an analogy made by one of my colleagues earlier in the day, as we discussed the current challenges of copyright licensing. “I feel like we’re trying to drive some old unrestored 1950′s clunker” he said, “the kind that only the old guy that owns it can actually drive, because you have to know just how to wiggle the gear shift and how many times to pump the brakes to make it all work”. I heard almost the same sentiment at a lunch with one of the industry’s most respected copyright lawyers. Everyone in the music business knows it’s true, though few will say it publicly, since it directly undermines our demands to get paid for what we own. But the old copyright system just ain’t working anymore. The truth is:

The process of licensing copyrights has to change drastically and fundamentally, if the whole concept of copyright is going to survive at all.

Right now, we’re driving down the Information Superhighway in that old 1950′s jalopy– we’ve got it floored and we’re doing about 35 miles an hour. Copyright holders are not only being run over, we’re also being passed by, as young entrepreneurs from the Google, YouTube, Spotify generation create global empires built on providing immediate, free access to entertainment and information. Meanwhile, the copyright community is still back somewhere on the side of the road, trying to figure out who owns the rights in which territory and for how long, and who has the right to issue the license, and how many licenses will be necessary, and what should the license cost. At best, we’re an impediment. At worst, we’re irrelevant.

Consider:

At a family wedding, the bride and groom do a crazy dance to a medley of big pop hits– it’s all relatively harmless (at least from a copyright standpoint) and clearly covered by the principle of “fair use”. After all, this is kind of what music was made for. But not too surprisingly, the dance is captured on videotape by the people filming the wedding. It’s then posted on YouTube, probably as a simple, cheap way of sharing the moment with family and friends. Again, it’s all still covered by fair use, since it’s largely a private activity and there’s no attempt to sell anything.

But suddenly, the family wedding video becomes a viral phenomenon, and millions of viewers go to YouTube to watch the silly dance, generating plenty of tangible economic benefit to YouTube in the process. At this point, clearly the copyrighted material contained in the video (that is the medley of recorded music to which the dance is performed) should be licensed, and the labels, artists, publishers and songwriters should be compensated. But how? Just a guesstimate would indicate that there could be 15 different artists, all of the major labels (some of which might no longer own the master recordings in question), probably at least fifty songwriters, and twenty different music publishers, each of whom would have to grant permission, and then play a role in determining the appropriate sync fee for each song. It would take months for a two minute home video, and probably cost in the six figure range. Ridiculous.

Here’s another:

A video collector owns outright some archival footage of a big star performing on a TV variety show from years ago, which a new mobile entertainment provider now wants to license and sell as a download to mobile phones in Asia. But within this short segment, the big star performs a song, which would have been licensed under a sync agreement that covered only that particular performance, in that territory, during a specific window of time. In order to use the footage in a different medium, territory and era, a new sync license will need to be negotiated with all of the publishers (many of whom have sold their catalogs or allowed the copyrights to revert to the songwriters). And then there’s the matter of union fees. Several of the performers on the show may have been members of the American Federation of Television and Radio Artists (AFTRA), Screen Actors Guild (SAG) or the American Federation of Musicians (AF of M), which means there might be residual payments due for any reuse of the show. Good luck figuring that one out.

A last example:

A music fan in Japan wants to purchase the new CD by an American act signed to Columbia/Sony Records in the US. The CD has never been released by Sony in Japan. The fan logs on to Amazon, locates the CD, and purchases it. But Amazon can’t fulfill the transaction, due to a copyright infringement lawsuit initiated by Sony Japan. As the local distributor of Sony product in that territory, Sony Japan owns the rights to sell that product in their region. By allowing the consumer to purchase directly from Sony in the US, Amazon is infringing on the copyright. And it’s true, even though Sony Japan has no intention of making the record available in Asia. As the copyright holder, the local company has the right to distribute the product or not, at their discretion.

In part, this explains why a consumer in the US who wants an album by a French artist released only in France can’t simply go on iTunes and purchase it. He or she can go to iTunes France and see the album or hear samples of the music. Certainly, the consumer can steal the record on any number of illegal sites. But purchase it? Nah. That would be copyright infringement. Go figure.

Anyone who reads this blog regularly knows that I’m a staunch defender of copyright. I’m not a believer that information wants to be free. I am however realistic enough to know that information wants at least to be available, at some generally reasonable price. Right now, our copyright laws are a hodgepodge of political compromises and outdated principles, all changing from country to country. In a global world, they are structured territory by territory. In a society based on instant access and immediate gratification, they are restrictive and reliant on step by step negotiations with half a dozen different parties for a single use. They can’t survive like this.

Unfortunately, there are no attractive solutions. Clearly, any reform needs to be done on a global level. The web is worldwide after all. That should be easy. We can take it up right after we solve the problem of world hunger and get everyone to agree on global warming.

Even worse, the only viable answer to the internet-related problems seems to lie in some kind of system of blanket licensing, similar to that used by the performing rights organizations to collect on music being used in public venues. In some form or another, a tax or surcharge would need to be assessed on electronic equipment or computer technology, or directly on internet service providers, mobile phone networks and other “distributors”. The money collected would then be shared among the entire creative community, from publishers and labels to artists, writers and union members.

If that seems like a simple and clean resolution, it’s not. The problem is that all of the money would go into a fund, and then be distributed to the copyright holders without any clear way of attributing it to a specific use. Worse, the ability of each individual copyright holder to negotiate fees on his or her own behalf and to collect them would be lost– thus eliminating two of the major functions of a music publisher in one fell swoop. In essence, such a move would make much of the music publishing role obsolete. If only for reasons of self-interest, it’s not a proposal I relish.

The only thing worse is the alternative, which is what’s happening now. We are already becoming obsolete, simply because people are ignoring us. Sure, we can still make things grind to a halt with a major lawsuit here or there, or exact our revenge with a jumbo copyright-infringement settlement–after about ten years in court, fighting appeal after appeal. But the judges are getting less sympathetic, the law is seeming less and less just to society at large, and the internet generation is moving ahead without us. Most importantly, we’re leaving stacks of money on the table every day, by not being able to take advantage of licensing opportunities for our music. There’s no value in owning copyrights if no one has the time, patience or money to license them. Already, more and more creators are simply making new product which they own in its entirety, and licensing it directly to individual services.

There was an article in the New York Times today, about an inmate who after having been wrongfully imprisoned on death row for twenty years had just been set free. His one request to a benefactor had been a Walkman, only to be informed that no one used them any more, and handed an iPod. As the surprised ex-con acknowledged, it’s painful sometimes, but things change. You have to move on.

Otherwise, you’re an artifact in a museum window.

The New Big

May 16 2010

A good friend of mine, one of the best “songpluggers” left in the music industry, has his own company through which he consults for a number of publishing companies and songwriters, pitching songs throughout the world. His company slogan, emblazoned on every email is:

Small is the new big.

He’s right– in more ways than one. Clearly, small companies with low overheads and fluid business plans are better suited to manage the challenges of the “new” music industry than the massive conglomerates that have been the dominating forces over the past several decades. In fact, even many large, well-established companies have realized that small profit ventures like low-percentage administration deals, music library businesses, gratis sync licenses that yield only performance income, and no-advance sub-publishing arrangements have replaced the big-money pay-offs on co-publishing, life of copyright deals and six-figure sync fees. Small money is not only the new big money. It seems to be the only money there is.

But “small is the new big” in another sense as well–perhaps it would be more accurate to say, “small is tomorrow’s big”, and it always has been. The music industry is full of niche markets, many of which are deemed too small or specialized to interest the major record labels, or their colleagues at the major publishers. These little pockets of activity probably don’t show up on the Billboard charts. The music may not even be sold through conventional music outlets (whatever those are anymore). The markets are too obscure to interest the big industry players, not nearly sexy or cutting-edge enough to bring up at an A&R meeting, and too limited in their earnings to attract the attention of the investment community or the financial guys at the major music corporations. And yet, if you look at some of these markets twenty years later, you’ll usually find that at some point, a smart, wily, unconventional entrepreneur came in and quietly made a killing, while all the rest of the industry slept. Out of nowhere, the small business person becomes the new big one.

Happened to read an article today about one such example– a very dramatic one at that. Check out an article called “The Influencer”, by Connie Bruck, in the New Yorker magazine.

http://www.newyorker.com/reporting/2010/05/10/100510fa_fact_bruck

New Yorker articles being what they are, this is a long and fascinating story of entertainment mogul and political powerbroker Haim Saban, full of complex political and ethical implications. But for music business weasels like myself, the primary point of interest was this one:

Saban made his initial fortune as a music publisher. He’s now estimated to be worth more than $3 billion dollars. Do I have your attention now?

In 1986, Saban sold his first music publishing catalog to Warner Communications for about $6 million dollars, which he then used to expand his empire, buying additional catalogs, and then expanding his media holdings to eventually include Fox’s Family Channel and now, Univision. Still, I feel fairly confident that most in the music business would hardly recognize his name, except for having seen it on the outside of office buildings or theaters in LA. For all his years in the music industry, Saban doesn’t seem to have any big hits or legendary acts to his credit. He probably didn’t often hang around the schmooze circuit of awards shows and music conferences. I can’t see him checking out bands at Stubbs at SXSW.

So how did he manage to make a fortune in the music business, anyway? The answer:

Cartoons.

Not exactly the mainstream of the industry. Indeed, it was even less so when Saban got into it, in the late 1970′s. At the time, Saban was managing a young French singer from Israel named Noam Kaniel. The manager brought Kaniel to Paris, taught him French, secured a recording contract and had a minor hit with the artist when he sang the theme to “Goldarak”, a Japanese cartoon series broadcast in France. You can’t get much further from the mainstream music business than that. Yet for Saban, it became the opportunity of a lifetime.

The exposure to the cartoon business allowed Saban to see that a huge amount of music publishing income could be generated by TV cartoons, which are licensed to television stations around the world and played countless times. If you’re wondering what the word “perennial” means, think about Bugs Bunny or the Road Runner, and how many times you’ve seen certain classic episodes– and how many times your kids have seen, or will see them as well. Now, imagine what those generate in performance income from ASCAP, BMI, SESAC, and the other societies around the world.

Quickly, Saban seized the moment and began signing writers to create music as “works for hire”, which he then provided to the cartoon production companies for free– Saban registered the works and took the publisher share (and often the writer share as well). In less than ten years, he was selling the company for seven figures. Small got big and was getting bigger.

It’s a remarkable story, but not an entirely unique one. There are similar tales throughout the music and entertainment industry of people who found a spot in the shadows where they could quietly mint money, while others grabbed the headlines. Actually, the story of Saban reminded me of Clive Calder, the founder of Jive Records and Zomba Music, who I had the good fortune to work for in the late 90′s, before he sold his company for more than 3 billion dollars. Like Saban, Calder found his initial opportunity in niche markets like heavy metal and hip-hop, snapping up the publishing on early hip-hop artists and producers when the general consensus was that hip-hop was unlikely to yield any enduring copyrights. Rap was too small a business to matter much, and even many of the other entrepreneurs that were pivotal in the expansion of the genre failed to see the value of the publishing rights, and focused only on starting record labels.

All of this came to mind when I met this week with Chrisie Santoni, a talented songwriter, performer and publisher. In our discussion about her band and the success she’s had in creating a self-sustaining business around her music, she happened to mention that there was another element to her company which focused on children’s music. As it turns out, she has constructed an exciting new business, Dancing Bears Music, built around her work as a performer and music educator for children– playing shows and selling CDs. Still, I could tell that she was a little hesitant to mention it, knowing that music for children was something that rarely registered on the radar of most music business weasels.

http://www.dancingbearsmusic.com

That’s their loss. The fact that most of the major labels have entirely abandoned the children’s market is incredible, especially since it’s one of the few genres that can still move physical product. People who balk at paying a dollar to download a song for themselves will happily buy a fifteen dollar CD for their kids (especially if it keeps the kids quiet in the car!). Why label A&R’s and music publishers would rather wager money on a buzz band from Brooklyn, instead of a children’s project that could be sold to all the people wheeling strollers around Park Slope is utterly beyond me. But I know that it spells opportunity.

It’s not the only such opportunity out there. Niche markets like world music, foreign language releases, theater music, modern classical, jam bands, soca, dancehall and many others all have the potential to generate big money, and yet fall outside the purview of most major label and publishing A&R people, who are segregated into pop, rock, country, urban, and (maybe) Latin departments.

Of course, there are no guarantees. Many small niche markets never grow much, and others quickly become over-saturated to the point where no one can make any money. Niche markets probably won’t get you a profile in Billboard, or generate a major label bidding war. At worst, a niche market provides a small but steady income with a minimum of risk. At best, it could be tomorrow’s hot new thing, and you’ll be there before anyone else. So never be embarrassed or hesitant to focus your company in areas that the mainstream industry dismisses as marginal. There’s a lot of money to be made on the margins. For small publishers who want to get big– this is where you start.

A quick note in closing:

I want to be sure to let all of you who follow this blog know about my new business: Ask The Music Business Weasel! This is an hourly consulting service aimed at songwriters, artists, and publishers looking for information, feedback, or advice on confronting challenges in their business. The consultation can happen in person, over the phone, through skype, or whatever suits you– but it’s a chance to chat and try to brainstorm about opportunities and strategies for your music career. If you’re interested check out my brand new website:

www.ericbeall.com

If you go to the section marked: consulting, you’ll find more information about the service. Just drop me an email at ericbeall@ericbeall.com, and I’ll be in touch to set something up.

We’re seeing the future— all over again. Just when the music industry had finally started to almost get the hang of selling mp3s on iTunes (even if we still haven’t figured out how to sell music from around the world, which blows my mind) the weather shifts and suddenly our new technology is dead.

“Gone is the MP3!” all the headlines are reading, and indeed, for the first time, the sales growth of digital track downloads dropped drastically this year, from a growth rate of 26 percent in 2008 to only 8 percent in 2009. Apparently all of us who were waiting for legal downloading to make up the revenue lost to the death of the CD had better find a new dream to embrace, because this once-new technology appears to be over before it began. What once was the future now appears to be officially “past”.

What makes it official of course is Apple– as we all know, it’s Steve Jobs’ world and we’re just living in it. When the big Mac shells out money to purchase the start-up venture Lala, with its whopping 100,000 person customer list, something must be bubbling. As we enter a new decade, it now appears that bubbling sound is the music stream, which is bringing you the next big thing:

Cheap music!

Uh… wait. Don’t we already have cheap music? NO! This will be cheaper still!!! While iTunes, that old-school relic of yesteryear, still wants to sell you a download for a dollar, services like Lala will allow you to stream the same song once for free and then give you unlimited access for 10 cents a track. The hitch of course is that the music doesn’t really “belong” to you. It’s more like a library book that you never have to return– which is close enough to ownership for me. Rather than shelves of CDs (like your grandparents have) or iTunes folders full of MP3s, the listener can access a full collection of music from the Web-based “cloud”, for either a per-song fee, or perhaps a monthly subscription (as in the Spotify model).

In a perfect illustration of the new technology approach to finance, Lala, a company started with $35 million of venture capital (provided in part by Warner Music) generates revenues under $10 million dollars, but is purchased by Apple for somewhere between $17 million (not too great a deal for Warner) and $85 million (which seems completely inexplicable). The general consensus is that Apple did not buy the company with the intention of replicating Lala’s current business model, but rather using the start-up’s technology and executive talent to launch their own Apple streaming service, which if they do it really well, could render iTunes obsolete.

Interestingly, the one hitch in Apple’s plan, and the one silver lining for the music industry, is that the current music licenses allowing Lala to offer legal music streams are not transferable as part of the sale. This means that Apple will have to re-negotiate the licenses with the major labels and publishers before they can launch their new service– a prospect that has label executives digging in for their last real chance to save their industry (and their jobs). While it would appear that the general licensing framework on the publishing side has already been laid by the recent agreement with the DMA (see the blog “Triumph or Turkey”), both the labels and publishers are determined to protect their interests within whatever business model Apple eventually constructs. If songs downloaded from iTunes will now be kept in a permanent online “locker” from which they can be streamed at any time on any device, labels will want a higher price per download, a fee for each stream, and a cut of any fees that Apple gets to increase the size of the locker. Publishers will expect a “mechanical” royalty for the stream, as provided in the new DMA agreeement, and ASCAP and BMI will certainly consider the “stream” a performance.

http://ericbeall.berkleemusicblogs.com/?s=triumph+or+turkey#

That’s all good– provided the model catches on. Not too surprisingly, the jury is still out on that one. So far most streaming models have proven very popular when the music is free, but far less so once that whopping 10 cents per track price tag is attached. Subscription models have not caught on either. Spotify offers a premium subscription at 10 GBP per month. So far, only about 10 percent of their customers buy in.

The inescapable fact is that until these services become profitable, the money for music-makers and music licensors will be pretty paltry. On the positive side, Apple has proven quite adept at figuring out how to make money off of music. The danger is that the new streaming service kills off iTunes, which is just starting to make some real money for the music business, and replaces it with something that earns ten percent of what iTunes did.

In general, it’s hard for me to be overly optimistic about the technological trend. First, we replaced the CD, which sold for as much as $15-20, with a product that sold for a dollar. Now we’re poised to replace the service that sells music for a dollar with a service that sells it for 10 cents. That’s not a great direction for music publishers, music labels, artists and songwriters to be headed. Given the precarious position of major labels like EMI, collection organizations around the world, and the thousands of small and large music publishers who saw as much as a 30 percent drop in income last year, we MUST collectively drive a hard bargain with Apple. That won’t be easy. Then, once an agreement is in place, we must continue to take legal action against unlicensed services that undercut Apple and other legitimate business partners.

If streaming is the future, and it likely is, then we need companies like Apple to make that business profitable. We also need to see a fair share of those profits. Otherwise, our vision of the future will indeed look a lot like a cloud– gray, ominous and full of hot air.

Triumph or Turkey?

Dec 03 2009

Hope everyone had a very happy Thanksgiving! And on that note, if you were struggling last week to find something for which to be thankful (and those things were definitely in short supply this year, particularly in the dark and lonely corridors of the music business), I received one from my friend and fellow Berklee blogger, Mike King, who writes Music Business and Trend-Mongering…

http://mikeking.berkleemusicblogs.com/

Mike brought to my attention a very informative and interesting blog at thefutureofmusic.com, which explained, as clearly as could possibly be expected within such murky waters, the recent settlement on a mechanical royalty rate for songs played on online music services. Check it out:

http://futureofmusic.org/blog/2008/10/01/agreement-royale

Given that we’ve been following in this blogspace the ever-raging war between the Israel and Palestine of show business, that is the digital media community (which includes large companies like Yahoo and AOL, relatively established ventures like Pandora and Rhapsody, and new companies like Spotify) and the music industry (including labels, publishers, performing rights organizations, artists, and writers), it seems worth taking a minute to try to put some perspective on what has been achieved with the latest peace treaty. As always when entering a war zone, it’s probably best to dredge up a little history, just to understand what’s been achieved, and why everyone was so mad in the first place.

The conflict is rooted. as is all evil, in money, and who gets how much of it. When the digital world first emerged as a place to both purchase and/or stream music, the music community was forced to redefine the idea of a “mechanical royalty”, which is the royalty that is paid to songwriters and publishers each time a “mechanical reproduction” of their song is purchased. In the old world, this translates to .091 cents for each song on each CD that is bought by a consumer. This “per-penny”, “per-song” system is at the core of the music publishing business, and it’s something that publishers were desperate to preserve even within the new digital environment.

In part the attachment to this system is rooted in accounting realities: each songwriter needs to be paid each time his or her specific song is used, not just given a random portion of a lump sum paid out to songwriters in general. But more importantly, publishers wanted to establish with finality that each digital use, whether a digital download (as on iTunes, which has been paying the 9 cent mechanical royalty from the beginning) or a stream (in which the music is not actually owned by the consumer, but is constantly accessible to the consumer) constituted a “mechanical reproduction” of the song, and therefore was subject to a mechanical royalty.

Not too surprisingly, the digital media community saw things quite differently. While generally willing to acknowledge that an actual digital download constituted a “purchase” of the song and therefore required a mechanical royalty (unless of course one were to do like the vast majority of music listeners and simply download it illegally), services that offered “streaming”, as opposed to downloads, felt that they should be treated more like a radio station, and that their music uses should be subject only to “performance royalties” (the money collected by ASCAP, BMI, and SESAC for public uses of music on the radio and television). The music industry was quite happy to acknowledge that “streaming” should be licensed by ASCAP, BMI and SESAC, and indeed, most of the prominent streaming services are licensed by those performing rights organizations. However, the music weasels also wanted the mechanical royalty, in addition to the performance monies. Them were fightin’ words.

That’s where the war began, and we’ve been following it on this blog ever since. Having reached this impasse in the early days of the digital music revolution, the two parties agreed to fight it out… later. The publishers, not wanting to miss the boat entirely on a new way of marketing music, but also not wanting to lock in an unfair compensation system for a pivotal new technology, agreed to make their catalogs available for a one or two cent royalty, under the proviso that some kind of more reasonable “per-song, per-play” mechanical rate would be negotiated in the not-too-distant future.

It’s worth keeping in mind that much of the publisher’s wariness came from their prior experience with licensing music to DVD’s. In that instance, publishers agreed to very unfavorable terms for the use of music in “DVD” ‘s, after receiving promises from the film studios that once the new technology took hold, there would be plenty of money to go around. Of course, the new technology did take hold, there was plenty of money, and none of it found its way into the pockets of the publishers, who were stuck with that first, precedent-setting agreement. This resulted in much gnashing of teeth, and vows of “never again”.

On the flip side, the digital media, filled with myriads of start-up ventures, felt that if they could buy some time to get their new companies off the ground and into a profitable position, the music industry would view them as valuable partners, and be willing to agree to a more equitable royalty situation. Or maybe they just figured they could get the music really cheap for now, and then later use their increased bargaining power and hopefully some favorable court decisions to really put the screws to the copyright holders. Hard to say exactly.

Unfortunately, the war didn’t quite go according to plan for either party. The music industry quickly found that the new “mechanical” royalties from digital downloads were draining off their old “mechanical” royalties from CD album sales, and actual overall income was plummeting. The digital music services found that consumers were not that eager to actually fork up money for something that they were now used to getting for free. On top of all that, the music industry sensed that they’d once again been out-weaseled, as the DMA (Digital Media Association) backed away from negotiations, and focused instead on legal efforts to re-define which uses required a mechanical royalty in the first place.

And yet, out of this ugly little tale of self-interest, deception, suspicion and greed, springs a small blessing– which leads me back to the whole idea of what we can be thankful for this year. After years of arguing, the two beaten-down, weary factions finally reached an agreement, and here’s what it amounts to:

Limited download and interactive streaming services will pay a mechanical royalty rate of 10.5% on the revenue they generate, MINUS any amounts for performance royalties.

In other words, services like Rhapsody and Napster are indeed subject to both a mechanical and performance royalty, but the entire compensation for songwriters and publishers from any limited download or interactive streaming site is “capped” at 10.5% of the site’s revenue. For the record, an interactive stream is one that’s selected by the user (that is, music on demand), and a limited download is one that’s based on a subscription (and which disappears when that subscription ends). The mechanical royalty does not apply to “jukebox” type streaming, which is not selected specifically by the user (like Pandora).

Like most blessings, this one is decidedly mixed. It does give the DMA what they needed most, which is some ability to gauge what their overall music costs will be, and some flexibility in their price-setting to the consumer. Obviously, if you’re in the business of selling a product, you like to know what it’s going to cost you to provide it. By assuring the digital services that the combined PRO royalty and “mechanical” royalty will not exceed 10.5% of their revenue, the new agreement should help the digital music services build a more stable financial model in the future.

The new deal also gives publishers part of what they wanted, which is the legitimate claim to something more than a performance royalty from services that offer a consumer direct access to specific music. It opens a Pandora’s box (yes, that’s a pun) of accounting problems, as publishers will now have to somehow negotiate, audit (?), and continually adjust rates for each of the thousands of services that exist or are in the launching stages, not to mention figure out how to collect and properly apportion the new money to the appropriate songwriters.

But in a barren land of nothing, at least this is something, so let’s raise our cups in thanksgiving, especially to the powers that negotiated the agreement on behalf of the publishers, labels and others: the National Music Publishers Association (NMPA), the Nashville Songwriters Association International (NSAI), the RIAA, and the Songwriters Guild (SGA).

Now that we’ve laid our weapons down (temporarily at least) it’s time to turn our attention to something a bit more productive:

Let’s make some money.

If it seems strange that Mike King brought to my attention an agreement that directly affects the publishing community, it’s because most publishers haven’t exactly been on the edge of their chairs, waiting to see how this war turned out. A growing number of us increasingly suspect that we’re fighting over a useless piece of land in the desert.

The fundamental problem with this agreement is that none of these services are generating much in terms of real revenue. The subscription model is growing less and less attractive, as consumers have quite literally not bought into it. The “free” streaming services are generating plenty of activity, but very little in the way of advertising revenue, which is where the money is supposed to come from. In the end, receiving ten percent of the total revenue of these services may wind up being less than the one or two penny rate that we were getting as part of the temporary agreement.

Worse than that, many of us suspect that these services may not actually be intended to make money. Looking at the YouTube model, it’s clearly quite possible to use “free” music as a “carrot” to attract loads of visitors or viewers to a site. A buzz-savvy entrepreneur can then use that high level of traffic to foist the new start-up venture off to a giant corporate media company like Google (YouTube) or News Corp (MySpace)– all without ever having generated any real profits. In that scenario, the founder of the site gets rich, and the publishers and songwriters who provided the music that brought all that traffic are left with, yep, ten percent of nothing. Sound familiar?

I suspect that somewhere towards the end of the first Thanksgiving feast, after the pie had been consumed and the last bit of wine drained from the bottle, someone on the side of either the pilgrims or the American Indians probably mentioned that there was still some work to be done in the harvesting, and that they should all probably get back to work. Judging from current music sales, publishers and record labels and songwriters all need to get back to trying to make music that the public is truly compelled to purchase. Across the table, digital media services need to start figuring out how to sell that music in a way that actually generates profits, rather than simply giving it away. If both parties do their jobs, maybe next year we’ll all have more to be thankful for…

It Takes an Army

Jun 20 2009

Okay, so let me start by saying that after watching “Total Eclipse of the Heart” (Literal Video Version), I take back all the bad stuff I said about YouTube. Sure they steal from copyright holders (think about the fact that this literal video version has earned nothing for the songwriters or publishers of the song, despite millions of views). But I gotta be honest, this video is really, really funny.

http://www.youtube.com/watch?v=4XkD5sJwwrE

On a completely different note…

One of the more important events in the world of music publishing took place last week, and most songwriters probably didn’t even know it happened. The International Confederation of Authors and Composers (CISAC) held its second annual World Copyright Summit on June 9-10 in Washington, DC, with an invitation list that included representatives from across the entertainment and technology fields, including executives from the Motion Picture Association, the Consumer Electronics Association, Microsoft, my good friends at YouTube, as well as government officials and legislators. But the guest list was heavily weighted toward the music publishing community, with senior executives from a wide variety of publishers large and small, as well as collection societies from all over the world.

While I did not attend (someone’s gotta stay home and take care of business, after all), I understand that the discussions were comprehensive and thoughtful, and relatively free of vitriol, despite sizable differences amongst many of the parties involved.

The truth is, both sides are frustrated with the licensing systems that exist, which are admittedly far out of step with the realities of the digital, global world in which we live. Rights-holders feel utterly unprotected and incapable of mounting any defense against the endless and uncontrolled proliferation of copyright violators. On the flip side, many well-meaning entrepreneurs watch their business plans crash on the rocks of the licensing laws, where the use of even one song on a website can require the permissions from publishers and collection agencies around the world. Having recently completed a book that required lyric reprint permission from a number of sources, I can tell you first-hand that the licensing situation, as it exists today, is a slow-moving horse and buggy caught in the middle of a high-speed, worldwide Information Highway.

http://www.amazon.com/Billboard-Guide-Writing-Producing-Songs/dp/0823099547

From what I’ve heard, one of the most constructive ideas that emerged in the conference was the idea of a worldwide licensing database that would allow licensors to go to one stop to obtain permissions on a worldwide basis. Just the challenge of tracking down the rights-holders in each individual territory can often be overwhelming. I still remember working as an A&R person on the “Wild Thornberrys” soundtrack for Jive/Nickelodeon, and trying to license a beautiful African song called “Awa Awa”, a journey that took us from France to Africa to Brooklyn that almost resulted in a last minute change in the movie due to the difficulty of tracking down the rights holders. Multiply this by several thousand songs and you start to get some idea of the challenges faced by many start-up, music-based ventures who are trying to do the right thing by licensing the music they use.

The spirit of cooperation and thoughtful discourse that dominated the Copyright Summit is exactly what we need to begin to address the challenges of making music make money in 2009, and beyond. But the Summit is also a demonstration of the increasing advantages of being in business with a large publisher or collection society in this generation of copyright disputes and international piracy. I’ve been outspoken in my first book, Making Music Make Money, about the importance and viability of songwriters creating their own music publishing venture, and this blog has emphasized over and over an independent approach to the business of songwriting and music publishing. But, it has to be acknowledged that it is becoming increasingly difficult for small, independent publishers, especially those who are not affiliated with the major collection societies like Harry Fox Agency, to get paid, and more importantly, to protect their interests on a worldwide basis.

If you look at the attendees at the Copyright Summit, they were predominately representatives from the major publishers, large independents, the major collection societies like HFA, ASCAP, BMI, SESAC and their international equivalents. By virtue of size and influence, these are the people who will be at the table when the decisions about the future of music publishing are made, and consequently, whatever new systems emerge will be designed primarily to serve these companies and organizations. Between the battles with the record labels, the digital music providers, the international licensing organizations and the governments of countries all over the world, it’s becoming more and more challenging for a lone songwriter/publisher to defend his or her rights, and also to actually collect the royalties that are due.

Having said that, I’m not telling anyone that they should give up their independence. But I am suggesting that songwriters and independent publishers are going to feel increasing pressure to find partnerships with larger entities, at least in the short term. We are living in a moment in which the rule-book is being drastically re-written. At least during that formative period, there are definite advantages to having one of the major players on your side. When you’re in a street fight, it’s good to have a big friend.

If your company is at the stage of earning consistent, measurable royalties, it may be time to consider striking at least an administration deal (an arrangement in which one publisher does not share the control of the copyright, but simply collects the income and distributes it, in exchange for a percentage fee) with a larger company or organization. Beyond the major publishers like EMI, SonyATV, Universal or Warner Chappell, there are numerous independent publishers that excel at these kinds of services. Check out:

Kobalt Music: www.kobaltmusic.com
Bug Music: www.bugmusic.com
Royalty Network: www.roynet.com
PEN Music: www.penmusic.com

You could also use a collection service like Harry Fox Agency, which is the largest collection organization for mechanical royalties in the US. Remember, these partnerships are not a matter of giving up any control over your copyrights. These partnerships are simply a means of issuing licenses and collecting your money. Just as importantly, they can offer some assurance that you will have a piece of the often haphazard payments being made by digital music companies or monies collected in lawsuits. At the very least, you need to become an active member of ASCAP, BMI, or SESAC, as well as trade groups like the NMPA. Now is not the time for going one on one. The challenge of getting paid requires some teamwork.

http://www.harryfox.com

http://www.nmpa.org

If you want to learn more about administration deals and how they work, I’d encourage you to check out my online course, Music Publishing 101 at Berkleemusic.com. The whole course is focused on helping you to create your own independent publishing company. Nevertheless, there is also ample discussion of how to build an effective team to support you in your independent venture, and that includes organizations that can help you get paid. The new semester is starting soon– so check it out today…

Alright– I promise. This is the last YouTube diatribe at least until the end of the summer. But since the most recent call to arms on this blog, I actually wound up doing a NPR radio interview for a story about the growing influence of YouTube in the music biz. The prospect of being on the firing line prompted me to do a bit more homework about the licensing battles involving YouTube at the moment– and the more I read, the more angry I’ve become. So now, I’m really fired up.

Yes, I know that YouTube provides a very valuable service to unknown and developing artists in helping to expose them to a wider audience. I know that YouTube can be a useful A&R service, helping to draw label and publisher attention to particularly reactive songs or artists. But for active or aspiring songwriters and music publishers, I think it’s worthwhile to understand how YouTube has approached rate negotiations with publishers, record labels, and copyright owners. It certainly presents a pretty clear picture of the level of seriousness they are bringing to the negotiating process and to complying with copyright law. It also makes very clear the actual monetary value they attach to music.

In a nutshell, here’s the situation:

With the record labels, YouTube is currently in negotiations to renew licenses made several years ago. While the labels thus far have fared better than anyone else with YouTube, the actual income generated under these early license agreements is negligible. YouTube income has certainly not done much to break the free-fall in which labels now find themselves, nor has it softened the blow to the artists, most of whom are still wondering when that elusive YouTube income is going to show up on their accounting statement.

But on the publishing side, it’s even uglier. For the performing rights organizations, led by ASCAP, the last three years of negotiation have proven extremely disillusioning. Back in 2005, YouTube agreed to make performance payments, based on an understanding between ASCAP and YouTube that both parties would eventually settle on a reasonable rate. Unfortunately, it’s easier to agree to agree than to actually agree. After years of negotiations, YouTube and ASCAP have failed to reach an agreement upon a reasonable rate, and YouTube has paid nothing to the PROs while that fruitless negotiating was going on. If you want to know why those talks fell apart, here’s one clue:

Just last week, a judge from the US District Court ordered YouTube to pay 1.4 million dollars for the unlicensed use of ASCAP’s material from 2005-2008. Then, the judge ordered YouTube to pay $70,000 a month, beginning in January of 2009. To put that in proper perspective, consider that Imagem Music recently purchased the Rodgers and Hammerstein song catalog for somewhere around $20 million dollars. So while the purchase of one song catalog from one writing team (granted a pretty good one) will set you back $20 million, the judge is granting YouTube unlimited access to HALF OF THE ENTIRE SONG CATALOG IN AMERICA FROM THE LAST 100 YEARS for $1.4 million dollars. Even the judge acknowledged the measly nature of the sum, saying:

“Even considering that the fees paid to ASCAP will represent only about one-half of the total fees that YouTube pays to music performing rights, the contemplated interim fees are clearly reasonable, even conservative, in comparison to those called for in other licenses for the performance of copyrighted content on the Internet,” Judge Connor said.

Well, he got that right. $1.4 million dollars is scraping the bottom of the barrel, given the extent of unauthorized use of copywritten material over the past four years. But get this– YouTube thinks even $1.4 million its too much! How much would it like to pay for access to the entire ASCAP catalog, which includes thousands of classic songs from every era in modern music history? Uh, maybe about $80,000?

Huh? Did someone forget a zero or two on that number? No. YouTube has proposed that they will pay $80,000 to cover the last three years, and then about the same amount annually in 2009 and beyond. That’s a pretty sweet deal. It’s also a pretty revealing one, in case you’re wondering what YouTube and Google think copyrighted music should be valued at. Basically, less than the annual salary of one mid-level executive in their office.

Of course, YouTube and Google claim that since YouTube has proven woefully unsuccessful at actually making any money, they shouldn’t be saddled with the hindrance of having to pay fees for use of the material that is at the core of at least fifty percent of their most popular programming. The flaw here is that YouTube was never actually designed to make any money.

Like many internet businesses, the strategy from its conception seems to have been to create a site that was immensely popular rather than income-generating. Of course, this was done with the knowledge that such a popular destination could then be flipped for a massive financial payout to its creators, despite the fact that there were no actual earnings. Not surprisingly, this is exactly what happened when Google purchased YouTube for $1.65 billion. How convenient for the creators that they didn’t have to share any of that $1.65 billion with the people that created the material upon which their “network” is based. They probably would have sent over a check for 80 grand.

When one considers the financial burden of paying ASCAP royalties upon a company like YouTube, it’s worth remembering that YouTube is basically an entertainment network that creates absolutely nothing of its own. Every minute of its programming is made up of things either donated or stolen. YouTube is a TV station that doesn’t even own a camera. Given that they have virtually no overhead, it doesn’t seem unreasonable that payments for rights to the material they use should cost them at least half of what they actually bring in, maybe more.

During the interview with NPR, I was asked about the promotional service that YouTube provides to the music industry. Surely, the exposure that it offers artists at all different levels has to acknowledged. In fact, in this blog, I’ve suggested on several occasions that the smartest career strategy for a new, unknown artist would be to create one great song, do a truly inventive, provocative, funny, attention-grabbing video and post it on YouTube, then see how the audience reacts. As a means of being “discovered”, there aren’t many better, or more accessible forums.

But for established artists, record labels, and publishers, the “promotional” value of YouTube is starting to look rather dubious. Promotion for what? To help artists sell albums? That’s clearly not working. Check the album sales of the music industry as a whole since 2005. Whatever promotional service YouTube is providing, it’s not very effective.

Suppose you owned a butcher store and a man set up a table in front of your shop, handing out free hamburgers. You might complain— but then he would explain that really he was providing a promotional service for your butcher shop, showing people just how tasty a well-cooked piece of beef could be. What seemed to be direct competition for your shop would prove to be a boon to your business. Great.

But what if your butcher business then proceeded to crash and burn, as your customers took the free hamburgers, ate them for dinner and never came into your store again. How long would you wait until you tried to get rid of the less than helpful “promoter” outside your store?

As I’ve said before, the day of reckoning may have arrived. Warner has taken a bold, if marginally effective step, by pulling product off of YouTube. ASCAP continues to fight the good fight. On the other hand, Universal has immediately abandoned the protection of its writers and artists, and hopped into bed with YouTube, trying to put the rest of the industry at a disadvantage. And here’s another less than encouraging story from the front-lines of the battle:

PRS, the licensing organization for publishers and songwriters in the UK, has been in its own rate dispute with YouTube, running into the same negotiating brick wall that ASCAP, NMPA and others have encountered. In a move that took the industry somewhat by surprise, YouTube recently countered PRS’s tough negotiating stance by pulling off all PRS-licensed, premium music videos supplied by the labels in the UK.

It now appears that PRS has come back to the negotiating table with a new offer. Rather than insisting on the previous royalty rate of .22p per track, they have put forward a new compromise. The new per track price?

0.0085p

Yep. From 22 pence to less than a penny. There’s not much you can buy for less than a penny anymore– here or in London. Apparently, a song is one of them. For songwriters and publishers, what you can see on YouTube tonight is your career slipping away…