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.

So… enough of the feel-good blogs.

In a couple of recent postings, I’ve relayed the happy news that the Copyright Tribunal has come down firmly on the side of the creative community, the songwriters and publishers, with their recent rulings regarding the mechanical royalty and ring tone rates. So far, so good. But as we come up on the Halloween holiday, it’s good to remember the first rule of the “fright night” movie:

Just when everything is looking good—
–SOMETHING UGLY IS WAITING AROUND THE CORNER…

And you can be sure that he, she, or it is just waiting to stick the knife in you. As pleased as music publishers and songwriters should be about recent political and legal developments that could mean big money for creators and copyright holders, we should also remain vigilant, and keep one ever-open eye trained on our real enemies in the long-term battle to keep the creation of music a viable business pursuit.

Indeed, just like in the slasher movies, the bad guy is seldom exactly whom you think it is. It’s not really the DMA (Digital Music Association), the ones who wanted to slash royalty rates from 9.1 cents to 5. It’s not even multi-million dollar corporations like Yahoo, AOL, and YouTube, who have built their business on the back of music which they have resisted paying for. It’s almost certainly not the casual illegal downloader, grabbing tracks off of illegal sites and thereby depriving Doug Morris and Steve Jobs of their 99 cents. Those groups aren’t helping us– but they’re just decoys, distracting us from the real killer lurking in our midst.

Interestingly, the real enemy lies in corners of the media intelligentsia– egghead authors, columnists and pundits with whom most songwriters and publishers have little or no familiarity. But for those that read the Wall Street Journal, Wired magazine, and other decidedly non-music oriented publications, you may have caught a glimpse of the masked monster lurking out there in the dark. If you want to meet the enemy, check out the Time magazine Business & Tech section’s review of Lawrence Lessig’s:

“Decriminalizing the Remix”

Lessig is a Stanford University Law professor, and one of the most outspoken and engaging critics of the nation’s copyright laws. He advocates reforms that would make it far easier for his heroes, the remixers, mash-up makers, collage artists, and other “secondary users” (i.e. not the people that came up with this stuff, but the ones that found it out there scattered around the pop cultural landscape) to create derivative works without the permission of (or without compensation to) the original creators. This is not an unpopular view.

In fact, it’s a view that is gaining considerable intellectual respectability– far more than one would have anticipated even ten or fifteen years ago, when copyright law was considered a fundamental requirement for an advanced economy. Lessig is also a columnist for Wired magazine, which has been one of the champions of copyright reform. That magazine is also the source of the famed “long-tail” argument, a theory that was supposed to save the music industry, but which has instead proved to be pretty much a complete bust (see my blog “The Long Tail Was A Very Short Tale”).

Other critics of copyright have emerged in Europe, where there is a growing movement against the “stifling” effects of laws that protect creators, and grant them the right to control the use of their creation. Now even the documentary film makers are getting into the act, with the recent release of writer/director Brett Gaylor’s movie:

RiP: A Remix Manifesto

Everyone seems to love the remixers these days. Strange that the remixers don’t manage to sell more records. But I suppose that record buying isn’t exactly the ethos of Lessig and Gaylor.

The danger here is that this is how real change happens in our society. The discussion begins on a very intellectual level, safely disconnected from the real world of commerce and big business. Theories are discussed, books are written, positions are debated, but the discourse remains pretty well isolated from the day-to-day lives of the everyday person. It would be safe to say that few music licensors, and frighteningly few music creators give a great deal of thought to the basic existence of copyright law. It’s simply assumed as a given by most of the industry built upon it. But it’s not a given. Nothing is. Like most every social construct, copyright law exists only so long as the majorities of people in the society respect it, value it, and are willing to defend it.

Whether you agree or disagree with things like the “non-smoking” movement, the “green” movement, or even the “neo-con” movement against things like excessive government regulation, the seeds of change usually begin in the form of intellectual ferment within universities, think-tanks, intellectual journals and the like. Gradually then, they begin to take root in the mass media– until they ultimately start to affect the way the general public views a particular issue. Twenty years ago, who would have thought it would one day be illegal to smoke in an outdoor space? When the public changes its opinion about a particular subject or principle, the laws will eventually change to reflect that shift. As a generation of young people raised with the concept of “free”, download-able music come of voting age, the writings of people like Lessig will find a receptive audience. There is every possibility that ten years from now, the general public support for the idea of copyright law will have simply melted away.

In some ways, it could hardly be surprising. In his movie, Brett Gaylor centers on the DJ, remixer Girl Talk– a king of the mash-up, who borrows liberally from dozens of well-known and obscure musical copyrights to form his new musical “collages”, and is, as he was once described in the NY Times magazine, “a lawsuit waiting to happen”. To Gaylor, Girl Talk is a victim– a creator of a new art form (not that new actually) being unfairly restricted by conventional copyright law. In the same way, Lessig is a champion of the “amateur culture” propagated by outlets like YouTube that encourages consumers to “create art as readily as they consume it”. Let’s face it, if it’s an us or them battle between creative professionals and amateurs, between people that want to build their lives (and incomes) around creating art and selling it, and people who just want to have fun goofing around with music– there are a lot more of them (the amateurs) than us (the professionals). In a democracy, that’s a dangerous position in which to find ourselves.

Let me be honest: I’m a big fan of Girl Talk. One of my all-time heroes was Hank Shocklee and the Bomb Squad, who arguably took sampling to its ultimate level with the Public Enemy records of the Eighties and Nineties. I like a funny video on YouTube as much as the next guy. I spent my life in dance music, and had the good fortune to have my music remixed by some of the greatest remixers ever– including Todd Terry, David Morales, and Masters at Work. And I recognize that copyright law can make life miserable for people that work in the art of mash-up, mix-up, and “found” art.

I’m sorry about that. But I’m also a trained musician, and at the risk of sounding elitist– when it comes to music, I am one. The ability for the best musicians and composers to make music not just a hobby, but also a very lucrative profession has served American culture quite well over the past hundred years. The world of “professional” musicians has given us Gershwin, Leiber & Stoller, Motown, Cole Porter, and plenty of others. If I have to sacrifice a couple of homemade videos of someone’s infant dancing to a Prince song in order to preserve that, I’ll take the trade. I watch Myspace as much as every other A&R weasel– and I’m not sure that any of us would claim that the talent pool has increased in quality simply by giving the world access to posting their own creations. The truth is that creating music demands a certain investment of time, talent, creativity, and sheer hard work in order to get it right. People that make that investment need and deserve to be compensated for their work. That means protecting what they make, and allowing them a reasonable level of control in the way that others use their work. It also means preserving some level of (dirty word) professionalism (that is, the ability to make this work a profession) for those who wish to spend their lives in the trenches of the creative community. Sorry for the inconvenience.

Beware!! Just when you thought it was safe to go back in the water– here I am to warn you of sharks. But keep an eye on the disciples of copyright “reform”. Though they may masquerade as the friend of the aspiring musician, they’ve got a dagger under their coat. Copyright law may not be fundamental to music, but it is certainly the foundation of the music business. If you want to make this your life’s work, I suggest you keep a tight leash on that elephant in the room…

Sometimes, just standing still can be considered progress. Sometimes not losing is winning. After last week’s debacle in the stock market, would you have felt pretty good if you wound up even? In times like these, damage control is not a bad strategy.

That said we could join with the National Music Publishers Association and its member publishers, as well as songwriters around the country in celebrating what the NMPA calls “an important milestone for the music industry”. Admittedly, it’s not quite the victory that some might have been hoping for. But when the Copyright Tribunal voted on Thursday to leave the mechanical royalty rate at 9.1 cents, and to apply that rate to permanent digital downloads, the creative community heaved a sigh of relief. It may not be the 15 cents the NMPA was asking for (which nobody thought we’d get), but it’s not a rate reduction either, which is what organizations like Digital Media Association (DMA) who represent clients like Apple, Amazon, and Pandora) had been advocating. With the ground shifting relentlessly beneath our feet, we’re perfectly happy just standing still.

Actually, music publishers and songwriters did better than standing still. While the general mechanical rate remains the same, that rate has now clearly been extended to all services that offer music to download. The gray area is gone. Everyone pays, and best of all, they pay retroactive to 2001.

On the ring tone side of things, we may have done better. Here we got a big raise. Instead of the 9-10 cents that is more or less the standard today (although in fact, there are no standards), ring tones are now to be licensed at 24 cents. Given that on many pop songs, the ring tones are outselling the album, this is a huge bonanza for writers and publishers.

A quick review might be in order:

“Mechanical” royalties are payments made by the record label or whoever is selling the music, to the songwriters and publishers of the song. Mechanicals are paid on any “mechanical reproduction” of the sound recording– that means CDs, ring tones, digital downloads, and any other product we can manage to sell.

Services that offer streaming or subscription services are not covered by this specific ruling, as those are not considered “mechanical” reproductions. However, it does appear that the RIAA and the NMPA are also close to an agreement with the DMA on those issues– with everyone agreeing on a royalty rate tied to a percentage of revenue generated by the service.

Here’s what it all comes down to:

Money. A major windfall of money to be distributed by Harry Fox Agency (which quickly announced that they were “ready to implement” the new rates (I’ll just bet they are), and to pay out the royalties that they’ve been collecting since 2001. That means a big bundle of money going out to publishers over the next 12-18 months, who will then pass it on to songwriters. As bad as our business has been over the past 3 years, the truth is that some of the gloom and doom was an illusion. Music was still being sold and listened to– we just weren’t being paid for it. Now we will be, and that’s going to make everyone on the creative side feel much more optimistic about the future of the music industry.

On the other side, this will clearly increase pressure on record labels, who were hoping for some relief on the mechanical royalties that they have been paying– as well as those royalties that they often have NOT been paying, like ring tone income. Record companies have never been very happy about paying the folks who write or publish the songs, and now they get to do even more of it. The bright side for the record companies is that they will now have a new income stream to help their bottom line, once they begin to see some of the “streaming and subscription” money now on its way.

The big danger in this decision is the threat it will pose to many digital services. I-Tunes has already threatened that it may require a significant price increase for the single song download. But I-Tunes is the strongest player on the team. Many digital services, as well as ring tone companies, subscription services, and streaming sites are barely surviving at present. Few of them are solidly profitable. Faced with having to pay royalties on the music that they’re using, many may not be able to survive.

While I have no great love of companies that want to use music as a fundamental part of their platform but don’t want to pay the people that make the songs, we do have to acknowledge that the music industry needs these innovative companies who are desperately trying to figure out how to sell music in our new digital age. We need at least some of these companies to thrive, and we need new people to continue to try fresh, exciting music-based ideas. Overall, 9.1 cents seems fair. 15 cents would have likely closed down many of these fledgling companies, in some cases before we ever found out whether their business model was effective.

Someone said that in a democracy, the best solution is usually the one that leaves all parties feeling less than satisfied. Publishers and songwriters didn’t exactly hit the jackpot with this ruling, but we did take a step to fairness. That’s probably the best we could expect– and probably the best thing for the overall industry. A quick shout out of congratulations to the NMPA’s man of the hour, David Israelite, who was the music publishers’ primary spokesman and negotiator on this issue, and by all accounts, did an amazing job. It’s a curious phenomenon that in most cases, the lobbyists who are constantly courting lawmakers are generally one hundred times smarter and shrewder than the bumbling politicians with whom they’re dealing. Don’t know why that is. But David Israelite is as sharp and savvy a representative as the music industry has ever had. If only he were running a record company…

Really enjoyed hearing your comments about last week’s blog on “product placement” in songs. There was some very insightful stuff that came from the wide variety of people that watch this space each week. Thanks so much for weighing in, and for supporting the blog!! Keep the feedback going…

Sometimes, just standing still can be considered progress. Sometimes not losing is winning. After last week’s debacle in the stock market, would you have felt pretty good if you wound up even? In times like these, damage control is not a bad strategy.

That said we could join with the National Music Publishers Association and its member publishers, as well as songwriters around the country in celebrating what the NMPA calls “an important milestone for the music industry”. Admittedly, it’s not quite the victory that some might have been hoping for. But when the Copyright Tribunal voted on Thursday to leave the mechanical royalty rate at 9.1 cents, and to apply that rate to permanent digital downloads, the creative community heaved a sigh of relief. It may not be the 15 cents the NMPA was asking for (which nobody thought we’d get), but it’s not a rate reduction either, which is what organizations like Digital Media Association (DMA) who represent clients like Apple, Amazon, and Pandora) had been advocating. With the ground shifting relentlessly beneath our feet, we’re perfectly happy just standing still.

Actually, music publishers and songwriters did better than standing still. While the general mechanical rate remains the same, that rate has now clearly been extended to all services that offer music to download. The gray area is gone. Everyone pays, and best of all, they pay retroactive to 2001.

On the ring tone side of things, we may have done better. Here we got a big raise. Instead of the 9-10 cents that is more or less the standard today (although in fact, there are no standards), ring tones are now to be licensed at 24 cents. Given that on many pop songs, the ring tones are outselling the album, this is a huge bonanza for writers and publishers.

A quick review might be in order:

“Mechanical” royalties are payments made by the record label or whoever is selling the music, to the songwriters and publishers of the song. Mechanicals are paid on any “mechanical reproduction” of the sound recording– that means CDs, ring tones, digital downloads, and any other product we can manage to sell.

Services that offer streaming or subscription services are not covered by this specific ruling, as those are not considered “mechanical” reproductions. However, it does appear that the RIAA and the NMPA are also close to an agreement with the DMA on those issues– with everyone agreeing on a royalty rate tied to a percentage of revenue generated by the service.

Here’s what it all comes down to:

Money. A major windfall of money to be distributed by Harry Fox Agency (which quickly announced that they were “ready to implement” the new rates (I’ll just bet they are), and to pay out the royalties that they’ve been collecting since 2001. That means a big bundle of money going out to publishers over the next 12-18 months, who will then pass it on to songwriters. As bad as our business has been over the past 3 years, the truth is that some of the gloom and doom was an illusion. Music was still being sold and listened to– we just weren’t being paid for it. Now we will be, and that’s going to make everyone on the creative side feel much more optimistic about the future of the music industry.

On the other side, this will clearly increase pressure on record labels, who were hoping for some relief on the mechanical royalties that they have been paying– as well as those royalties that they often have NOT been paying, like ring tone income. Record companies have never been very happy about paying the folks who write or publish the songs, and now they get to do even more of it. The bright side for the record companies is that they will now have a new income stream to help their bottom line, once they begin to see some of the “streaming and subscription” money now on its way.

The big danger in this decision is the threat it will pose to many digital services. I-Tunes has already threatened that it may require a significant price increase for the single song download. But I-Tunes is the strongest player on the team. Many digital services, as well as ring tone companies, subscription services, and streaming sites are barely surviving at present. Few of them are solidly profitable. Faced with having to pay royalties on the music that they’re using, many may not be able to survive.

While I have no great love of companies that want to use music as a fundamental part of their platform but don’t want to pay the people that make the songs, we do have to acknowledge that the music industry needs these innovative companies who are desperately trying to figure out how to sell music in our new digital age. We need at least some of these companies to thrive, and we need new people to continue to try fresh, exciting music-based ideas. Overall, 9.1 cents seems fair. 15 cents would have likely closed down many of these fledgling companies, in some cases before we ever found out whether their business model was effective.

Someone said that in a democracy, the best solution is usually the one that leaves all parties feeling less than satisfied. Publishers and songwriters didn’t exactly hit the jackpot with this ruling, but we did take a step to fairness. That’s probably the best we could expect– and probably the best thing for the overall industry. A quick shout out of congratulations to the NMPA’s man of the hour, David Israelite, who was the music publishers’ primary spokesman and negotiator on this issue, and by all accounts, did an amazing job. It’s a curious phenomenon that in most cases, the lobbyists who are constantly courting lawmakers are generally one hundred times smarter and shrewder than the bumbling politicians with whom they’re dealing. Don’t know why that is. But David Israelite is as sharp and savvy a representative as the music industry has ever had. If only he were running a record company…

Really enjoyed hearing your comments about last week’s blog on “product placement” in songs. There was some very insightful stuff that came from the wide variety of people that watch this space each week. Thanks so much for weighing in, and for supporting the blog!! Keep the feedback going…