Apple Pie-In-The-Sky.

11 06 2015

Apple Music. We’ve all been breathlessly waiting for it, right, because we assumed, it coming from Apple and all, that Apple would introduce into the streaming music market something amazing and new, superbly brilliant and innovative, that would make us suddenly get the urge to start paying $10 per month to pay for music that we can essentially get for free from Spotify or Rdio or  Pandora or Youtube.

But, it didn’t. I suppose you could argue that a live radio service, peopled with some interesting music folks, can rope consumers into paying $120 per year for Apple Music. But, I fear that you would lose that argument. People love freemium. The stats bear it out. And Apple Music probably won’t change that.

Apple has made a series of mistakes which may doom the fledgling Apple Music. Let’s take a look:

Apple’s first error in judgment was buying Beats for a whopping $3 billion, which gave them a music platform, yes, but also lousy headphones and a pair of oldheads, Iovine and Dre, who were well-versed, not in the new technologies, not in any fresh ideas, not even in any new, innovative music, but just in back-room old boy network-style deals, keeping bad musicians afloat with expensive marketing schemes, and making terrible-sounding headphone gear. The music platform? Apple, you could have gotten a much better deal on that turkey.

It’s second, third and fourth mistakes were eliminating a “freemium” tier from Apple Music. Sure, you can listen free for the first three months, but then, after that, it’s pay up or go away, buddy! I don’t understand what these folks don’t understand about free v. pay: if given the choice, and you can put up with the ads, most people will take free! As of today, Spotify reports 20 million subscribers and 75 million freemium users. I have no idea how many people listen to music for free on Youtube, but I bet it’s way northwards of 75 million; I mean, youtube has, after all, about 4 billion video views per DAY, and 91% of music fans take a listen to a song on youtube prior to purchasing it (according to a Viacom study). That’s alotta free, my friends!

Sure, Spotify may indeed shed some fickle subscribers who flee over to Apple; some people are so brand conscious, they’ll buy anything from Apple, regardless (see: the Apple Watch).  And, since Apple has very deep pockets that are much, much deeeeper than Spotify’s, and sells other stuff other than music, Apple doesn’t really need its music streaming service, whereas that’s all that Spotify has, so the subscriber-shedding that Spotify may experience could hurt it. In any case, Spotify is, as of right now, the winner in the streaming subscription service wars. So, Apple will just bring in its big guns and try to fairly compete with Spotify, right? Well, hold on there, cowpokes.

It was announced a few days ago that Apple is being sued by the states of Connecticut and New York over allegations that Apple entered into non-competition agreements with the major labels:

http://thetechportal.in/2015/06/10/apple-music-under-scrutiny-in-ny-and-connecticut-over-collusion-in-deals-with-music-labels/

In other words, the labels, in order to have their music content streamed on Apple Music, may have had to agree to exclusivity with Apple Music, thereby crippling Spotify and others with a freemium tier. In fact, Apple doesn’t want anyone to offer a freemium tier, for obvious reasons. Apple Music wants to force you to pay, and it seems, by the looks of this investigation, that they will use any Machiavellian means necessary to make that happen.

This turn of events should not only worry us consumers who want competition in the marketplace, consumers who want freemium tiers, as well as those who pay for subscriptions, but it should absolutely infuriate artists. The notion of an artist’s music imprisoned on one streaming site only should send chills up any artist’s musical spine; exclusivity on one site can slash the artist’s bottom line to shreds. The only way that artists and songwriters are going to make any decent coin in this tech-dominated environment is to have their music streamed all the frig over the place, i.e. on any untold number of competing streaming services, streaming outlets, globally, each one paying music licensing fees and gathering public performance fees for the writers.

As if this bit of Apple hubris wasn’t enough to make you think that Apple is rotten with worms, even more embarrassing for Apple Music was its rollout. Check this out: at one point, Apple’s Sr. VP of Intel Software and Services, Eddy Cue, stood up and touted the fact that even unsigned artists can upload their music onto Apple Music! Wow!! How innovatively, generously stellar of you, Apple (as if unsigned artists have no other place whatsoever to upload their content to, like on FB, on Instagram, on bandcamp.com, on Youtube, the list goes on and on). But the main problem was that Mr. Cue cue’d up some “music” from a so-called indie artist named Loren Kramar who, basically, doesn’t actually exist as a working musician, and has ties to Joe Weinberger, A&R at Interscope, Jimmy Iovine’s former label. See the connection? Hmmm? Mr. Cue, you mean to tell me that you couldn’t find a REAL working independent, unsigned musician? Sheesh.

http://www.digitalmusicnews.com/permalink/2015/06/08/apple-shines-spotlight-on-unsigned-artist-who-doesnt-exist

Oh, Apple, I used to love you so. I gleefully looked forward to Steve Jobs announcements of groundbreaking disruptions, translating to better ways for us to use technology for pleasure, business or just coolness. Apple, I’m afraid, you are now just a ugly shadow of your former self, making up fake musicians, piggy-backing on already-existing technologies we already like from someone else, shoving music into our libraries when we don’t want you to, creating stupid crap like the Watch with a steep learning curve (not to mention making you look ridiculous as you talk into your wrist), fueling your monopolistic greed by trying to squash the other kids on the block into dust, and thereby snatching our much-loved freemiums from our happy ears.

So, thanks, but no thanks, Apple Music: You have fallen way too far from my tree.





The Music Industry Hunger Games: Winners and Losers

21 05 2015

Here is the text of a presentation I gave recently. Hope it’s informative!

Welcome to the Music Industry Hunger Games, where music industry combatants vie bravely for their piece of the ever-shrinking pie.

The difference between the old music business and the new one is quite stark. Technology has not only disrupted the traditional music business model, it has subsumed it.

At the turn of the last century, it would have been difficult to imagine the youtube.com explosion, the rapid ascendancy of mobile phone “apps” usage and creation, the introduction of cloud computing, the huge advancements in smartphones and other advanced personal computing products, and the impact these disruptive technologies would have on the music industry as it now stands.

Also, because this technological revolution occurred so quickly, with little warning, the law has yet to catch up to it to any meaningful degree. What are the rules? They do exist, but is anyone paying attention to them?

For one thing, copyright enforcement in the music industry has had its problems, to say the least.

Copyright stakeholders playing “global whack a mole” with piracy sites, and labels selectively enforcing their copyrights interests, for example, threatening the likes of Ms. Lenz or suing Ms. Thomas-Rasset while allowing Greg Gillis (Girl Talk) to get away with mashing up thousands of those same labels’ sound recordings with nary a legal peep makes for a pocked enforcement landscape.

On the other side of the street, Hip hop and other artists rip off sound recordings and compositions from vast numbers of indie artists who simply don’t have the resources to redress the infringements….and, of course, EDM artists and DJs are out there, remixing like crazy.

OTOH, as a result of free streaming services, and the advent of the Cloud, illegal downloading has pretty much hit a wall.

A study released in late 2013 by networking company Sandvine on Internet traffic trends found that peer to peer traffic is now below 10%, down from 31% five years ago and 60% eleven years ago. Less P2P traffic equals less piracy according to a report from Envisional.

YouTube is now the premier platform for consuming music for US teens according to Nielsen’s annual Music 360 report, with more than 64% of teens consuming their music that way. And, currently, it’s completely free.

And, are the major labels, the tech companies and the telecoms playing by the rules? Well, if no one knows exactly what they are, that makes them hard to follow.

In other words…..in the music industry Hunger Games, there really are no hard and fast rules; it’s a fight to the finish….whatever that may be. and… every music industry player is still fighting to stay alive.

So who will be the winners and losers? Let’s take a look:

THE WEAPONS

Subscription and Non-Subscription Services

Crowdfunding or “Fan Funding”

Licensing

Digital Distribution

The Internet and the Law

These are some of the weapons in the Music Industry Hunger Games arsenal. They can be wielded by many different music industry participants; but are they effective?

1 – Subscription and non-subscription services: are these weapons used by or used against the artists? The labels? The publishers? The consumers?

2 – Crowdfunding: this is a weapon wielded by the artist to keep the labels away from confiscating their property via the ubiquitous 360 deals, but…..do artists know how to handle this weapon?

3 – Licensing: are these weapons for the publishers? Or weapons for the music users? Sure, there are more music users than ever…..but…..there is more cheap and available music than ever as well. So, the licensing explosion and musical bounty have been forged into a two-edged sword.

 4- Digital Distribution: Are these weapons for the artist/songwriter to get to their fans? Or a weapon with a dull blade? No doubt, the ability of artists to directly reach their fan bases via digital distribution was, and remains, a significant weapon in the music industry hunger games. But did it really level the playing field as it was supposed to do?

5 – Finally, there’s the Internet and the Law: Are these weapons used by tech companies to sue for lower rates (like in the Pandora/ASCAP legal dust-up)? Are they weapons wielded against copyright infringers for copyright owners? Are they weapons brandished by the large telecoms to impose ‘fast” and “slow” lanes on the Internet? The law, as a weapon, has been wielded by all, or should I say, by those who can afford this massively expensive weapon.

With battles engaged, for example, between Sirius/XM and the labels and artists over pre-1972 recording licenses to the Pandora/PRO scuffles, to the artists waging insurgencies based on their termination rights…and so many others in which this weapon has been used…the war rages on.

LABEL – WINNER OR LOSER?

CD Sales: Arrow Sailed Right Through Its Heart

Subscription Services: Bedding Down in the Swamp

360 Deals: A Construct Worthy of Pres. Coriolanus Snow

For a long time, more than a decade, it looked like they were going to be complete losers. Is this still true today? Let’s take a look.

ON THE LOSING SIDE:

It’s no secret that the recording industry as we knew it is failing. The net value of the pre-recorded music product as a standalone sales item is rapidly approaching statistically zero. CD Sales have plunged by more than half from 2003 to the present, and the net value of the music industry itself is 50% of what it was in 2003. CD sales are down to just 3o% of music industry sales revenues.

The top 10 selling albums in the US shifted 56.4 million units in 2000.  In 2013 the number was 14.7 million.  It is widely accepted that such pre-recorded music products will never regain any discrete monetary value based on individual sales. Unfortunately, standalone music product sales have been the core revenue stream for record labels since their inception. This is no longer the case.

ALSO ON THE LOSING SIDE:

This steep decline in record sales, coupled with several major record label mergers over the last ten years, has caused record labels to not only terminate hundreds of recording artist agreements, but caused the labels to be extremely cautious and reluctant to sign agreements with new, untried artists.

BUT…ON THE WINNING SIDE:

Labels are managing to keep their heads above water by licensing their enormous sound recording catalogues to subscription services such as Spotify. The interests of the major labels and the streaming services are very similar. The major labels’ futures – and fortunes – are firmly embedded and wedded with technology and telecommunications companies. Major labels have acquired interest in these companies over the past few years. In the original, upfront licensing model, labels focused more on large, upfront guarantees in exchange for the rights to use their valuable catalogs. But that has shifted considerably.

Spotify, for example, pays the labels huge, multi-million dollar advances and/or equity interests; now, major labels own approximately a 20% equity interest in Spotify, for example.  These equity percentages are awarded in exchange for content licensing. And they can reap great rewards.

As we know, Universal Music Group received $404 million from the sale of Beats to Apple. (Of course UMG will need it when all of those class action suits are finally settled in the wake of the FBT Productions v. Aftermath debacle). And, recently, major labels are pushing for a sale of Spotify north of $10 billion, even though the valuation has not yet reached that number, as of this writing.

This shift from upfront payments for licensing to the equity model is a result of labels coming to the realization that there may be a market for mergers and/or acquisition in the offing with respect to the streaming services, perhaps by a major telecommunications company such as Verizon or Time Warner or Comcast.

So, if Spotify and other services have “exits” as lucrative as the fledgling Beats Music did, wherein a large investor purchases the entity, then the payouts to the major labels will be quite generous.

And then…there’s the 360 degree deal or broad rights deals: a “must sign” if an artist – especially a mid-level artist – wants a major label deal.

In response to the decline in discreet product revenues, it seems that practically all record labels, including major, mini-major, and independent record labels, instituted the “360 degree exclusive recording artist deal”, a new recording artist agreement which entails record labels now requiring their exclusive recording artists to relinquish some percentage of any and all revenue streams in which the recording artist does or will participate during the duration of the agreement.

That means that the label will receive not only its traditionally large percentage of record sales revenue, but also, an agreed-upon percentage of revenue generated from the artist’s touring receipts, merchandise sales, publishing fees and royalties, book deals, acting activities, sponsorships, among other things. It can include every kind of entertainment activity.

The Turtles Rise Again:

A potential win for the labels – and artists who own their own old masters – happened recently:

In A California decision that came down in 2014, A U.S. District Judge ruled against SiriusXM, saying that it violated recording artists Flo & Eddie’s master recording rights by playing Turtles records without licensing them. Flo and Eddie owned these masters.

These Turtles masters were created pre-1972, and therefore, governed by CA state law. California state law, as it is written, gives the master recording owner exclusive performance rights, the court ruled. Consequently, the judge further ruled in Flo & Eddie’s favor on all causes of action as it applied to public performance, but not to alleged reproduction copyright violations.

So, at least in CA, it’s possible that labels have one in the “Win” column. We’ll see what happens on appeal. In the meantime, the ruling could have an impact beyond California. Legal precedent from a decision in a federal court in a suit with similar issues in another court is definitely a plus. But each state has its own copyright law, so the fight may still have to move on a state-by-state basis.

So, is the Label a winner or loser?

ARTIST – WINNER OR LOSER?

Artists and their Love/Hate Affair with Streaming

Label Deals: Few, Far-Between and Far-Reaching

The Gig Money Myth

Fan funding, Tip Jars, etc.: Begging for Dollars?

It was always an uphill climb for music artists to gain an audience within or without the corporate music industry structure – the new technologies haven’t altered that tenet. But the technological methods that an artist must now master and employ, the absence of a financial support structure, and the economic education now required to keep track of revenues and the social media acumen necessary for a musical artist to find her audience has created a new paradigm for both nascent and established artists’ development.

The average musician is underemployed.  According to a musician survey conducted by the Future of Music Coalition (FMC), just 42 percent of musicians are working full-time in music.   The rest are complementing their music with day jobs that have little or nothing to do with music.

Musician salaries are intractably low. According to the FMC survey, the average musician makes $34,455 a year from music-specific gigs, with overall incomes (music+non-music) averaging $55,561.

So is there a winning side here?

 LET’S LOOK AT STREAMING SERVICES:

There are two kinds: interactive and non-interactive.

 FIRST, ON THE WINNING SIDE: SORT OF.

Non-interactive services, such as Sirius/XM, Music Choice, etc., are covered by compulsory statutory licenses. Pandora is more a “semi-interactive” service, however, and doesn’t neatly fit into either non-interactive or an interactive service, although it’s been officially classified as “non-interactive”.

In general, these licenses for non-interactive music streaming services, where the listener can’t pick the song, have been a net positive for the independent music label community because all music label copyrights, whether those of the major labels or those of independent labels or artists, are treated equally and paid the same rate amount for each stream – play – of that music.

Those rates are set by the Copyright Royalty Board (CRB) and administered by SoundExchange. SoundExchange has the authority to aggressively pursue the best possible statutory rates and handle all of the administration, including processing and auditing; this results in having a central group and voice to protect indie rights. It offers indies a major benefit, and revenues are indeed accruing and being paid out more than ever before for these rights.

And Internet Radio of all stripes keeps growing. Within nine years, Pandora has established itself as a major radio network with 77 million listeners and more than 9 percent of total U.S. radio listening as of May 2014.

In a deal signed between Merlin’s 20,000 plus indie labels and Pandora, Pandora agreed to assist their newer artists get discovered using Pandora’s discovery techniques to increase exposure to fans, and relying on playback data to decide on set lists and tour locations. On another note, TuneIn is trying to connect traditional radio stations, artists, and podcasters with their fans and create a platform where hosts and listeners can communicate directly.

SECOND, ON THE LOSING SIDE.

 INTERACTIVE: For music streaming services not covered by compulsory statutory licenses, like Spotify, or those that have an audiovisual component or allow greater customer interactivity to select the songs or create playlists, a direct license is required between the music service and the sound recording copyright owner. These services may equally be valuable to the independent music label and artist community but the deal terms are trickier, i.e. less money for the indies.

While Compensation packages under these agreements (generically) might include a combination of a per stream rate, revenue sharing, equity in the service, minimum guaranteed revenues, and an advance for the major labels, the indie labels are given short shrift here. This means less $$ for the indie artists in the “trickle-down” label world.

But it doesn’t mean that major label artists fare any better.

If an artist has a major label deal, If the advance or minimum guarantees exceed the amount earned during the licensing period the label will earn “breakage” in excess of the earned amount. Artists generally do not share in this breakage amount that is retained by the label if the streaming revenues don’t reach the advance.

For example, if a label receives $100,000 advance against streaming revenues, and the streaming revenues only reap $50,000 during the licensing period, the label keeps the additional $50,000. But the artist will not see any of this, pro-rated or not.

Additionally, if a buyout of one of the major techies occurs, the major labels who have equity shares could reap billions (see: Beats Music). But the artists will reap much less than that, i.e., zero.

AND AS A ANOTHER LOSING POINT:

Interactive Streaming services like Spotify offer very little transparency on their payout structures, which makes it a low-trust partner for artists. Even worse, Spotify is suspected of completely misrepresenting its per-stream payout structure, based on discrepancies with extremely low rates infamously and publicly published by actual artists.

Also, Google recently announced that Youtube’s new music subscription service, currently or maybe named “Youtube Music Key”, set to launch any day now, and the understanding is that it, has onerous payment provisions for independent artists and labels in their deal, and those that do not agree with Youtube’s terms will be removed from Youtube. That for any indie artist, would be a disaster considering youtube’s huge traffic.

So…What does this transition from sales to streams mean for artists? Artists are going to feel pain as the transition is occurring, but will the artists just have their scars to show for all of this pain? Perhaps ONLY when more than 100m people are paying to stream music, but that’s’ not around the corner.

ARTISTS AND THE RECORD LABELS\

ON THE LOSING SIDE: Because record labels are no longer expending large or even modest funds to support the artist unless that artist has already proven herself to be viable in the marketplace, this creates a catch 22 for the recording artist, as they now must gain a high level of viability on their own to potentially gain a label’s financial and marketing support .

As a result, artists are forced to expend their personal funds to create the music product and marketing. Since they must financially self-support, they often find themselves in a negative economic situation. Considering the huge upfront risk factors of releasing new music into the marketplace, this is a formidable obstacle for artists, especially emerging artists with few resources, to overcome.

In addition to financial self-support, each artist must now create self-sustaining music industry business structures. Without record label support, they must perform all of the attendant functions previously done by music industry professionals.

The dramatically changed market conditions and landscape resulting from leveling requires artists to not only create excellent music and offer audiences stellar live performances, but also become their own marketers, promoters, lawyers (with sometimes dire consequences), web designers, graphic artists, videographers, publicists, producers, audio engineers, booking agents and publishers.

However, it would be unrealistic to expect that any artist can effectively perform and juggle all of these specialized tasks while also achieving excellence in their art. This current environment has given rise to a “jack of all trades, master of none” crop of artists because artists simply don’t have the time and diligence to finely hone their art.

ON THE WINNING SIDE:

Recording artists now have widespread access to digital music creation and manipulation software and technologies (such as Garageband, Logic Pro Express and Pro Tools, all software-based recording and editing programs). This inexpensive and efficient software is not only pre-loaded into shipped computers, but rapidly improving in sophistication and ease of use.

This software is available literally at artists’ fingertips. Therefore, the cost of creating, i.e., engineering and producing, a decent recording has sharply declined over the past few years. SO, this allows artists to be their own record labels.

THE GIG MYTH:

Just 15% of people regularly go to gigs. And even for these consumers, live performance consumption is, in terms of total time spent, just a small fraction of their music consumption. So the paradox is that artists still needing to make a recording in order to drive live and merchandise income.

The live music value chain is an incredibly complex one with multiple stakeholders taking their share (ticketing, secondary ticketing, venues, booking agents, promoters, tax, expenses etc.).

The share of live revenue that artists make from live performances has declined every year since 2000.And, the secondary ticketing market is often fed before the actual market, thanks to bots, aggressive scalpers, or the artists and ticketing providers themselves.

Musicians are increasingly playing free shows, in the hopes of getting paid work down the line.  According to a recently-released report from the UK-based Musicians’ Union, more than 60 percent of artists have played at least one free gig in the last year.

And, even worse…for many venues, artists have to either pay the venues in order to play them, or pre-sell a pre-set number of tickets in order to be able to gig at that venue.

So, gigging, as we all know, costs money upfront.

CROWDFUNDING OR FAN-FUNDING.

Crowdfunding is a MIXED BAG of winning and losing. Yes, an artist can raise funds for a new recording. But oftentimes, the artist has no clear idea of what to do with the marketing aspects of the recordings’ release. Moreover, over-promising to donors can be a problem.

In other words, are independent artists equipped to know how, where and when to expend the funds they derive from Fan Funding sites once they have it in hand? Do artists do a financial analysis of the costs involved in sending out the “gifts” associated with the donations they’ve garnered thru the Fan Funding site?

In most cases, the answer is NO.

So, are artists winners…or losers? Hm….

PUBLISHER – WINNER OR LOSER?

PROs + DOJ + Publishers = ?

Copyright Enforcement

Streaming Services v. the Publisher v. the PRO

Publishing Industry is experiencing major legal changes that will result in paradigm shifts in their business models, centered around the performing rights organizations and their relationships with technology companies, specifically, Pandora.

We know that ASCAP and BMI each represent over a half a million songwriters and music publishers for performance rights. ASCAP and BMI each function under consent decrees entered into with the U.S. Justice Department.

The current consent decrees require that ASCAP and BMI must grant a license to any potential company or service that wants one. They do not have the right to say “no” to any potential licensee, among other things.

A major earthquake event occurred when EMI/April Music decided to pull its digital performing rights from the PROs, and negotiate direct digital performance licenses with streaming services such as Spotify and Pandora. Other publisher’s followed. But Pandora was not happy with this.

The music publishers were in disagreement with a judicially set rate of 1.85% of Pandora’s Annual Revenue. In fact, the music publishers thought the combined PRO rate of 4.3% was also too low. The reason?

Even though the Pandora rate is slightly more than traditional radio broadcasters pay for their ASCAP licenses, and commensurate with what other streaming services had been paying, services like Spotify and iTunes Radio pay significantly higher rates, ranging as high as a combined 10% of Annual Revenue.

Further, the rate that Pandora pays the record labels for the master rights (the artists recording of a particular song) is in the range of 50% of Annual Revenue. The publishers found this inequity not tolerable.

Publishers targeted the consent decrees, stating that these consent decrees interfered with their ability to charge fair market value rates, which is why some of the larger ones first began withdrawing their digital rights. The only way to get a higher rate, they conclude, is to pull the digital rights licensing away from the PROs’ control and make direct deals with digital services.

This would allow the music publishers not to be governed by the consent decree in matters dealing with digital performance rights licensing.

Some of the major music publishers and independent music publishers were in this process of pulling their digital rights with the PROs, and EMI, Sony/ATV and UMG Publishing even negotiated direct deals with Pandora as they were the first music publishers to pull their digital rights licensing from the PROs.

This process was moving forward for many publishers and then Pandora went to the ASCAP and BMI rate courts, asking those courts to rule that the publishers’ rights withdrawals did not apply to digital services like Pandora that had applied for licenses under the consent decrees.

Pandora also alleged that the major music publishers and the PROs were working together to make changes to ASCAP and BMI by-laws that would allow for partial withdrawals, yielding higher performance royalty rates for all music publishers.

Both rate court judges ruled that the music publishers could not pull just one set of licensing rights (e.g., digital rights) from either ASCAP or BMI. The judges said if the music publishers wanted to license directly, they would have to pull all performance rights licensing from the PROs. No music publisher wants to do that.

However, the ASCAP Judge ruled that Pandora had an interim consent-decree license, which is good through Dec. 31, 2015. On Dec. 18, 2013, in opposition to the ASCAP ruling, the BMI judge agreed that publishers had to be all in or all out, but in his judgment, he ruled that there was no interim consent-decree license, which meant that if publishers decided to withdraw from BMI after Dec. 31, 2013, Pandora’s BMI blanket license may no-longer cover some of the pubishers’ songs. . But he added that, if withdrawn, these publishers’ songs still reside in existing blanket licenses until they expire.

The result was that both UMG (on Dec. 31, 2013) and, more recently, BMG, made direct deals with Pandora for their catalogues. The reason they can do it and still stay with ASCAP and BMI: under the PRO rules, the PROs can represent publishers only on a non-exclusive basis.  

These “Pandora issues” heralded in some of the most significant upsets, and potential changes in the publishing industry that will reverberate throughout the music industry; it also led to the Department of Justice reviewing the Performing Rights Organizations’ long-standing “consent decrees”; the DOJ is in that process now.

Now, the PROs, the music publishers and others are asking the DOJ to agree to change the consent decrees so that it is clear that digital rights licensing can be pulled from the PROs.

This will mean all digital companies, including Pandora when its current license is up in 2015, will have to negotiate with multiple music publishing companies either to get their services up and running, or to continue to offer their digital music services, because they won’t be able to clear digital performing rights at the PROs alone if the music publishers withdraw their digital rights.

It will add a whole new level of rights clearance issues and liability to the process because the lawyers for these new digital companies will have to engage in these direct deals and ensure that they are covered for all of the music repertoire in their client’s digital services.

If the PROs and the music publishers are successful in modifying the consent decrees, they’ll indeed have a business solution for getting a higher rate, but it really isn’t a solution for the health and development of building new digital music companies and services. Because the rates will be higher.

So who are the winners and losers here? The battle continues to rage.

SONGWRITER – WINNER OR LOSER?

Publishing Companies Pulling Out from the PROs

Cacophony due to Oversupply

The License Battle – Screaming in the Dark

And…the songwriters…out there by themselves, lost in the forest with few arrows left in their quiver.

 ON THE LOSING SIDE

1 – There are few to no more publishing deals for developing songwriters.

2 – There is an oversupply of songs lead to a downward decline in licensing fees

3 – There is an oversupply of songs, which leads to placement services taking larger percentages for placement, and less time spent with each songwriter, i.e., no development or feedback.

4 – Songwriters are increasingly getting left behind by digital formats, including Internet radio.  In one disclosure, songwriter Desmond Child reported more than 6 million plays on Pandora for “Livin’ On a Prayer,” only to receive a check for $110.  Ellen Shipley, a songwriter whose biggest hit was “Heaven Is a Place on Earth,” received $39 for more than 3.1 million plays.

5 – Publishers may get the opportunity to disengage some rights from the PROs; if so, songwriter’s shares will decline, because of cross-collateralization, net revenue models (and recoupment provisions), and no direct payment from PRO.

6- Even for library music composers, the landscape is becoming more hostile; the rise of RPF licenses (Royalty Performance Free licenses) have emerged as further threats to composers’ existences.

BUT: ON THE WINNING SIDE: More performing rights money is being paid out than ever before:

Recently, BMI reported $977 million in revenue for its most recent fiscal year, a 3.5 percent gain from the year before and the most the organization has collected in its 75-year history. After subtracting administrative costs, BMI paid out more than $840 million in royalties to its members, which include more than 650,000 songwriters and music publishers. That is up about 3.2 percent from last year, and also a record for BMI.

TECHNOLOGY COMPANIES -WINNERS OR LOSERS?

Pandora v. Spotify: Which is a Better Model?

The music industry is now undeniably the technology industry; more than 70% of the music consumed in the first six months of the year in the US was either downloaded or streamed, according to Nielsen SoundScan’s latest numbers. And internet industries tend to be “winner-takes-all” markets.

We can look at: Google in search, YouTube in online video, or Facebook in social media.

But that kind of dominance takes time to emerge, and streaming music has yet to reach that point.

Many players compete for ears (and wallets): from the music services like Pandora and Spotify, to offshoots of radio, like Clear Channel’s iHeart Radio, to new services from the biggest companies in tech—Apple, Google and Amazon.

So….who will be the winner in the technology hunger games? Or will it remain fragmented?

Let’s look at the streaming landscape by examining Spotify v. Pandora.

With the exception of vinyl records, online streaming is about the only part of the recorded music business that is growing at the moment.

According to Nielsen, on-demand audio streaming revenue in the US was up 52% in the first six months of this year, while digital track downloads were down 13% and CD sales slumped nearly 20%.

But it’s important to distinguish between “on-demand” streaming services (like Spotify) and internet radio services (like Pandora). They have different cost bases and are aimed at different markets.

As stated earlier, on-demand services like Spotify are interactive services, allowing users to choose individual songs and create their own playlists. They typically have a free, ad-supported version, and a subscription version without ads that allows for offline listening.

With 10 million paid-up subscribers, Spotify is the clear winner in this camp. Other prominent include Rdio, Deezer, and Rhapsody. Rdio just did a price drop to $3.99 for a “bare bones” type subscription.

However, as stated earlier, interactive services cannot get the benefit of the Section 114 statutory license for digital sound recording performances. Also, Spotify pays out 70% of its revenue for licenses and payments. And it must host over 20 million songs on its site many of which are never listened to!

On the positive side, Spotify can make direct deals, so it can be offered all over the world, unlike Pandora, currently.

PANDORA POSITIVES:

  • It has the ability to take advantage of the statutory license, and
  • It only has to maintain a catalogue of about 1 million songs
  • PANDORA paid out around 50% of its revenue in royalties last year.

Pandora may be a better business model than Spotify, after all. It may be the winner.

Where Spotify is doing a good job of targeting the market for music ownership, i.e., albums and the like, which was worth roughly $14 billion globally last year (about $8 billion for physical sales and $6 billion for downloads), Pandora’s model targets instead the $16 billion in advertising dollars that advertisers will allocate and probably spend this year to regular broadcast radio.

On paper, though, nobody really has been able to make any significant money out of it. Not yet at least. So, even though Pandora is still not really making money, despite the fact that its founder extricated millions from it last year, could it still be the winner?

Since its IPO in mid-2011, Pandora has eked out a quarterly profit just twice. Over the last two financial years it has racked up more than $75 million in losses. Some believe this offers evidence of structural flaws in the Pandora business model. But others are convinced Pandora has a bright future.

Some argue that the Pandora model may have an easier way to generate profits: It pays most of its royalty costs on a per-stream basis, and so it can increase its profits by simply increasing the number of ads it plays every hour; this action would accomplish two things: (1) generate more revenue; and (2) slightly reduce its royalty costs (because it’s playing more ads and slightly fewer songs overall).

Pandora could also use the information it has about its listeners to target them with ads tailor-made to each user. This should increase the fees they charge for its ads than broadcast radio stations are able to do.

But if even Pandora’s ability to generate sustainable profits is still debatable, then what about Spotify, given its even higher content costs?

On-demand music services like Spotify have a specific problem, which is that they can’t achieve economies of scale. The weird anomaly in streaming music services like Spotify is that the more popular they get, i.e. the more people who stream music, the more royalties it has to pay out to the content owners. Spotify and its ilk generate the overwhelming bulk of their revenue from subscriptions, and seems committed to building its business on convincing people to pay for music. This doesn’t seem to be an ultimately winning strategy. Unlike Apple or Google, Spotify doesn’t have massive deep pockets that they are able to dip into, nor does it have another product subsidizing its existence, like a headphone or hardware company or even a search engine that would buoy it up when times are tough and while its building. In other words, from the gitgo, it is forced to stand on its own two feet, and quickly.

Spotify has signaled in the last year or so that it is heading for an IPO; its last valuation was around $4 billion. It’s dubious as to whether it’ll be able to achieve a major buyout enough to satisfy its investors.

 Maybe Google or Facebook will purchase it, who knows?

In light of all of this, on the other hand, streaming music is about to become a lowly gladiator in a high-stakes death match put on by the kings of the tech world, Apple, Google and Amazon. For these giants of industry, the music business isn’t an end in itself, but just one piece in their battle to control the future of the Internet. And the odds are most definitely stacked in their favor.

Consider this:

Apple expended $3 billion in 2014 on Beats Electronics, at least in part for its streaming music platform (which is mainly on-demand, but has also been described as a Spotify-Pandora hybrid).

Google recently bought Songza, a human curation service for music that some believe could threaten Pandora. And Google’s YouTube is the clear winner for on-demand streaming of music videos; it’s also launching a new subscription-based streaming service.

Finally, Amazon also recently launched its own streaming music service, Amazon Prime Music. Like its streaming video service, Amazon Prime Music is free to anyone who subscribes to Amazon’s premium home delivery service, a bonus for many. We’ll see how that goes.

But all of these mega-titans have tremendous advantages over Pandora, Spotify and all of the stand-alone services who are not backed by larger tech companies with more lucrative product lines: namely, the titans have very deep pockets and very little pressure from investors to reap money from music.

So, the winner here may be the company who does have to depend on music streaming or music subscriptions as their primary income source.

MUSIC CONSUMER – WINNER OR LOSER?

No Pay, Lots of Play

The Rise of Prosumerism

ON THE WINNING SIDE: CONSUMERS ARE THE CLEAR WINNERS!!!!!!

Most consumers, especially in the upcoming generation, don’t attribute much value to owning an actual recording, and most consumption happens at little-to-zero cost to the listener. An enormous, decades-long shift towards free (or near-free) music means that entire generations have never paid anything for recordings.  These consumers will most certainly be resistant to any hard and fast requirements to pay for listening to music, on-demand.

So, for music to have a true market value once again, it may be a case that this generation has to simply die out and a new one, used to paying for music, has to inhabit the music-buying space. Will that happen? Probably not.

With the influx of more pay-to-play music services, like Tidal, where there is no freemium tier, there are two “maybe” outcomes:

  • Drive more people back to piracy if they have to pay for music; and/or
  • Raise a new generation whose members are used to paying subscription service fees for ad-less listening, or offering some other value add benefit.

Maybe not.

ON THE WINNING SIDE: Prosumerism!

Prosumers are “producer/consumers”. This deals with the concept of UGC – user-generated content.

Social media and sites like Youtube have given rise to a whole new brand of artist, one that remixes, mashes up music and videos, and they make money doing it! It’s like a musical conversation is had between the actual artists and their fans. And then, the fans take it to a whole new level. The availability of easy and cheap music-making hardware and software have allowed the market to be flooded with (sometimes unworthy) UGC, and it’s hard for a consumer to distinguish between a “real artist’s” music and a hobbyists.

This is not a winner for artists, but a clear winner for anyone with a decent computer who wants to generate their own music, put it online, and start making some pin money (or sometimes, more than that).

Piracy Sites – Winners or Losers?

These are the real losers. But…they may have a comeback if all subscription services change to only “for-fee” subscriptions

OTHER LURKING THREATS

DON’T KILL THE INTERNET! We need it to innovate and grow our businesses!

The FCC recently stated that it is going to implement net neutrality principles and re-classify the telecommunications companies to bring them under FCC rules and regulations. This is great news for the music industry community. The mega-telecoms want a two-tiered internet, one with ‘fast lanes’ and one with ‘slow lanes’. And the ones in the fast lanes will be the ones that can pay the mega-telecoms the toll. However, the fight isn’t over; the mega-telecoms are lobbying hard to bring down the FCC’s recent ruling.

The issue of Net Neutrality – in all of its iterations – is one of the defining issues of our time. The Internet controls how we consume information, media, art; it’s a necessity for our businesses and how we use our websites and broadband; it’s critical to how we innovate, communicate and essential to how we learn and educate.

Control of the Internet is, indeed, control of our world and our minds. It’s important that the oligopolistic telecommunications companies, whose only desire is for profit, to be regulated like a utility company so none are left off of the information highway.

The Internet is THE portal for musicians, not to mention other music industry professionals and entrepreneurs. Both B2B sites’ and direct-to-fan sites’ viability are dependent on their ability to offer, display and deliver various types of content to users via the sites.

It would be disastrous for musicians and the music industry entrepreneurs, innovators and other creators if telecoms are given the green light to create a fee structure based on broadband usage, thereby essentially re-creating the Internet into Cable TV.

And innovation would grind to a halt. For example, if we had no net neutrality at the beginnings of the tech media revolution, we would have no youtube. Or Netflix. No online company would have the opportunity to develop without onerous fees.

And..net neutrality affects streaming services. The standalone services, such as Spotify, are particularly vulnerable to broadband caps; if only so many users can use the service, it wouldn’t make sense for a streaming service to stay in business. Regardless of the number of users, the streaming service would still have to pay licensing fees and guarantees. And the streaming service business would be stunted in its growth before it even began.

CONCLUSION:

In conclusion, the music industry combatants are armed, ready and some are dangerous. Some are more ready than others. Major obstacles will continue to be put in their way. And the law here is still being finely honed as a weapon; the danger is that, without a solid, legal framework, all of the participants in the music industry hunger games are shooting each other in a circular firing squad.

So…who will win and who will lose the Music Industry Hunger Games?

Here’s hoping they’re all winners.

 

 

 

 





Doom? Gloom? Not So Fast.

11 05 2015

WIPO (the World Intellectual Property Organization) held an event recently in NYC. And, if this article is to be believed (see link below), the “woe is us” level was at a fever pitch. Musicians were very unhappy. I say, “So, what else is new?”

Musicians are not a happy bunch, at least when it comes to how much money they believe they should be raking in. They always feel underrated, and under-appreciated. They’re unhappy when the system only consists of a major label straight line to stardom. They’re unhappy when the system is consumer-centric mishmosh-y matrix of streaming mayhem. It’s hard to make musicians happy about their worth.

But let me venture to say that it may seem gloomier out there, but it’s not exactly all doomier.

Allow me to address:

First, the PROs are collecting and dispensing more in revenues than every before. For one example, ASCAP had record revenues 2014 (see: http://www.ascap.com/press/2015/0302-ascap-hits-a-high-note-in-its-100th-year.aspx) totaling over $1 billion. Additionally, SoundExchange, the newest digital PRO for sound recording performances, paid out over $773 million in revenue in 2014 (see: http://www.billboard.com/articles/business/6457827/soundexchange-digital-performance-royalty-distributions-2014). The possibility of digital SR performance revenue was not in existence prior to 1995, when the Digital Performance Right in Sound Recordings Act came into being.

Of course, musicians who own their own sound recordings (a/k/a “masters”) must actually go onto the SoundExchange website and register those masters with SoundExchange to receive those revenues, but many still do not do so (you know who you are).

Also, as the new Fair Play Fair Pay Act wends its way thru Congress, and in light of recent decisions regarding pre-1972 sound recordings (see: Flo and Eddie, better known as The Turtles), as well as the DOJ examining and probably revising the PRO consent decrees, artists may experience new revenue streams, and perhaps more fair ones based on fair market value of their songs, in the near future. These could be game-changers.

Second, as referred to in the article, in the old, major label-centered music industry, only a mere handful of musicians became successful and subsequently, quite wealthy. This was due to the facts that labels had (1) the absolute power to filter artists for the masses, and (2) the serious tons of $$ to record, market, distribute, publicize and promote the recordings, and therefore, massive funds were limited to a few top priority artists. Major labels still expend gobs of dollars on their top priority artists.

But, now, each musician, no matter how good or how terrible, has the equal opportunity, at least initially, to reach its audience via Internet, app and other digital means. Whether the audience likes and purchases a musicians’ music is a whole different ballgame; in other words, in many cases, the market speaks for itself. If you’re a niche artist, you just may never make as much money as a pop artist – that’s the way it goes. Your audience is smaller. But a niche artist can now maximize his or her reach and revenues by targeting the niche’s rabid, loyal fan base. Barriers to entry and sustainability are gone.

Also, let us not forget that it’s considerably easier and cheaper than ever before to make a decent to high quality recording in the confines of your own bedroom due to digital technology advances in audio “gear”.

Third, as Richards said, “The global digital revolution has led to more music being made than ever before, and yet revenues are down”. This speaks further to my point above; more music is being made than ever before, but all of that new music is not necessarily more commercially viable. Therefore, less revenues! One of the main requirements for a product to be successful, i.e. commercial viability, is not present in much music available across the streaming and other digital platforms.

Additionally, there is an issue of too many choices which leads to less revenues, because this causes revenue to be more spread out among myriad songs, rather than being concentrated in a relatively few.

Also, the concept of supply and demand when applied here offers more evidence as to why there are less revenues; when music supply is high (and in the case of music, it is astronomically high), and the demand is flat or lower (the number of music listeners hasn’t changed all that much; some say it’s declined as other leisure activities have gained eyes and ears, such as video games, Netflix, etc.), the value of the music is bound to go down as well.

(That being said, the streaming revenue models are kind of upside down and thus crappy for artists, in that the more streams streamed on Spotify, for example, the less each artist makes, because payment is made pro-rata, taken from one huge pot o’ cash. How about a “tip jar”, Spotify, where a fan can direct money to his or her fave artist? Just sayin’.)

Fourth, let’s dispense with the idea that a download or individual per unit music sale is equal to one stream. It’s really not. A stream is one listener listening to one song over a digital device and, while tethered to a subscription, is not an individual sale with ownership attached to the physical thing (not the IP contained in it). Many more people are able to stream and share a song than buy a download, as it’s more affordable and bundled, and in some cases, free for the consumer. It’s more akin to radio airplay. It’s more fluid than static. And one can stream one song over and over and over again, ad nauseum, day after day, and place that song in playlists for others to stream, but one buys one download one time only. The artist gets nothing for that consumer’s subsequent listens of his or her downloaded song, played on one’s device.

Indeed, streaming has surpassed – or will surpass soon – downloading as the primary distribution system for music, but just because that is so does not mean they are equal in nature.

And, streaming services are changing as well. Some services will offer exclusive windows for certain artists, let’s say 3 months exclusive on Apple’s new service, then the song/EP/LP will be released to the rest of the services (but this will be reserved for already famous artists); others may have permanent exclusives (although that seems kind of ridiculous to me, unless there’s a large upfront fee to the artist/label, because that will hamstring artists ability to reap revenue across many streaming services). And I’m sure there are more models to come and ways to pique consumer’s interests in a particular artist’s new release.

Moreover, many new kinds of streaming services, apps, etc. are poised to arise (thank you net neutrality) which may allow artists to cobble together revenues from this potential plethora. Will such revenue equal what they could have made from individual per unit sales, now gone? I would argue that, for most artists, the “99%”, it could work out to even more revenue than they ever would have made in the old music industry.

Most artists would not have landed a major label deal, and even if so, most artists (85% to 90%) either didn’t make money, or were dropped within a short period of time if they didn’t hit certain target sales numbers. And most artists never recouped.

Most artists would never even have the opportunity to reach their target audience in the old music industry, nor could they ever have made a great recording without huge upfront costs – and then, how to distribute? How to get heard? Good luck doing that without a label, old music industry artists! At least, in the new music industry, indie artists only have their own benchmarks to hit, and they get to decide whether or not to drop themselves from their own labels.

Fifth, and I think this is a Big One, indie artists own their own intellectual property. They no longer have to give it up, forever, to the “label man”. Therefore, the artists have complete control over their own IP, and reap all the revenues (for their life + 70 years, if they want to keep it), without having to worry about recoupables or accountings, etc.

Also, they can license their IP at will; they can re-record a song, remix it, re-produce it, etc. whenever they like, and put out new versions of it,without re-recording restrictions, or fear of infringing on their formerly-owned copyrights. They can make live performance videos or short or long form music videos at will, and they’ll own and monetize them, too. All of this IP, over time, can become valuable, licensable, even transferable for advances and splits under the right conditions. And they don’t have to account to anyone else.

So, here’s the article, see what you think:

http://www.ip-watch.org/2015/05/08/at-wipo-event-music-creators-tell-of-desperate-economic-times/

 





Time Out!

19 06 2014

As most of you know, I’m an entertainment attorney, and a former musician/songwriter/producer.  (Although…..recently I wrote my first song in 15 years and played it in sort of a contest and won (!!!), so thanks, Cathryn B. and Cliff K. you know who you are). Anyway, I love my clients dearly; many of them have become friends over the years.

However, being an entertainment attorney for recording artists (as well as being a Jewish mother) means that I spend a lot of my time putting my artist clients on “time out” for not doing what they’re supposed to do, which is thinking ahead, and/or educating themselves, and/or looking before they leap; in other words, before they get into Capital T-rouble.

Trouble in this context means that, sometimes, they put themselves in a legal bind because either (1) they had no idea what they were really promising to do or to give away to somebody, or (2) because someone promised them something that sounded to good to be true and of course it was, or (3) because someone gave them something they needed and avoided revealing what they wanted in return and now it’s payback time, or 4) they got excited and started working with someone and thought they would be getting something they ended up not getting.

Hence, “time out”, boys and girls! As I used to tell my kid, “business before pleasure”.

Unfortunately, my version of “time out” is wa-a-a-y different than your Mom’s version; in my version, the time spent during the “time outs” is MY time, which means my clients’ “time outs” not only cost them time because some deal didn’t go through or their career is being held up because of some conflict, it costs them money. And “time out” could be avoided in many cases if you, the creative person – artist, filmmaker, actor, producer, photographer, or whatever your particular profession may be – would treat yourself  like the professional you are. How?

Well, first, you have to understand deep in your artistic soul that you are a professional business. You are not just an artist. You are in the market to create a product and then commercially exploit it. Remember that the word “exploit” in the context of the music business is a nice word with positive connotations.

Yes, yes, music is art, and art is sacred, blah blah blah.  But you’re not doing this for free. Unless making your art is either just a hobby for you, or you’re independently wealthy (and if it’s the latter case, do you need a great lawyer? JK).

The point is that you have to be aware by understanding your industry through study and observation, and be wary of every person with whom you have meaningful business contact in the music industry.

Here are a few “bewares” for recording artists. (Caveat: The following in no way generally impugns the professions or professionals I cite here – I could do a whole set of “bewares” for them, too).

1) BEWARE: OF PRODUCERS WHO GIVE YOU RECORDING FOR FREE-ISH.

There are a some music producers who have their own studios who will want to start recording you or your band, for little or sometimes no upfront money, without you having the first clue about what they want in return. (This falls under the “Don’t worry about it – let’s start and we’ll deal with it later” category). Sure, they may be very excited about your band and the creative juices may be flowing, which may explain their eagerness to jump in and start the process.

But, trust me, 99.99% of these music producers DO want something in return, and it’s usually a piece or all of your copyrights in your master recordings that evolve from those recording sessions.  And, under law, they may actually have a copyright claim in those master recordings. Or, at least, they may think they do. Without a written agreement upfront, the producer could hold your masters and all of your mix sessions hostage until you agree to the producer’s terms in writing, as you, the artist, have no leverage. I have witnessed hostage situations where the producer insists on owning a copyright interest in an artists songs, too, because nothing was ever spoken about creative contributions.

Therefore, never start a recording session with any producer until you have a Producer Agreement signed between you and the producer. If you have co-written songs with the producer, sign a “split sheet” or “co-writer” agreement. Going back and trying to make a deal after a bunch of tracks are done and songs are written is a fool’s errand for any artist. If the producer withholds your recording session materials from you, you’ll find yourself in an expensive legal wrangle. So, negotiate and finalize the deal upfront.

2) BEWARE: OF ARTIST MANAGERS. AND FAUX ARTIST MANAGERS.

First, let’s talk about faux artist managers. Faux artist managers are clueless as to what a manager’s job actually is, mistakenly believing that managers serve as booking agents. That would be a big “No”. In fact, it’s not legally sound to be both an agent and a manager, generally speaking.

Managers do not procure employment for an artist – that’s an agent’s job. Managers advise, counsel and guide an artist in his or her career and field offers of employment, and in many instances, they negotiate major deal points of those offers.

Managers stand in the shoes of the artist; an artist manager is an artist’s face to the world. They represent you, so your reputation and career may rise or fall based on the temperament of your manager.

If you’re a total P.I.A. diva, then a good artist manager for you would be a kinder, gentler version of you, so people hiring you will not hate you. If you’re a uncomplaining, go-along, professionally generous person, you may want to hire more of a pit bull manager to do the dirty work you cannot do to get you what you need.

But, in general, a bad manager is one who doesn’t know the business. Because a manager who knows the business knows when to be soft and when to be hard for the benefit of his or her artist.  A manager, in other words, is a very important and key part of your team; he or she can make or break you.

So, do not let just anyone be your manager. Do your due diligence if someone approaches you. Ask the manager for artist references, and liberally use your Googlefinger to find out all you can about this manager. And, if he or she passes the manager smell test, then….well…:

Sometimes, a real artist manager will just agree to represent you for a while on a handshake agreement. In other words, the manager wants to try you out and you want to try him or her out…y’all want to date, if you will, before getting married via the execution of a Management Agreement. This seems OK, right? Because a Management Agreement is generally for a term of years, no artist would want to get tied up for, let’s say, two or more years with someone they didn’t like or they didn’t get along with without a trial run, right? Right. And you can do that on a handshake, right? No, not really right.

From the beginning of any business relationship, especially one as close as this one, you must get some parameters in place – and in writing – prior to announcing to the world that this person is your manager. I like to call it a “trial period”, maybe for 6 months. (Yes, the manager will get commission during the trial period, anywhere from 10% to 20%).

During that trial period, the manager will represent you. In the trial period, you can see firsthand what he or she can and will do for you, e.g. how he or she behaves with booking agents, with venue owners, with dealing with merchandise tables, flat tires, etc., or with your and your band’s various personalities, how he or she resolves conflicts,  and fields offers, what kind of marketing and promotion advice the manager gives you and your band about your career, what kinds of contacts do they have, does the manager make sure your websites and social media are up and running and up-to-date, and how the manager networks with you, etc.  If, at the end of the trial period, you think the manager is The One, then sign a longer term deal.

The problem with failing to enter into a written agreement – even in the trial period – is that you don’t know what the commission will be (and based on what kinds of income, deductions, etc.), you don’t know if this person can sign contracts on your behalf (like performance contracts), you don’t know what happens after the six months, etc.

Do not agree to let anyone become your manager without a contract in place. (Do you see a theme emerging here?).

3) BEWARE: OF PUBLISHERS WHO WANT YOUR MASTERS, TOO.

This is an interesting wrinkle. Lately, I have been on the receiving end of hyper-overreaching co-publishing agreements. A TYPICAL publishing agreement deals with compositions and their copyrights. Period. A TYPICAL publishing agreement doesn’t care about the master recordings; in fact, they are rarely mentioned, unless the publisher wants to make sure they are allowed to plug the masters along with the compositions that are SUPPOSED to be the only subjects of the publishing agreement.

But the hyper-overreaching co-publishing agreement goes something like this, and I’ll paraphrase for you here: “Publisher will own 50% of all compositions and master recordings”. There you go.

As you know by now, each recording has two copyrightable elements – the sound recording (i.e. the “master” or the “track”) and the underlying musical composition (i.e. the “song”). And both of these elements have separate revenue streams. Usually, as you know, a record label will want to own your master recordings, or at the very least, license them – 100% –  from you, so the label is free to do what they need to do to promote and distribute your recordings. And you, the artist, receive an artist royalty from the label derived from the masters’ various revenue streams.

So….why is this hyper-overreaching type of new world order co-publishing agreement bad for you, songwriter? Let me count the ways:

1) If the publisher co-owns the masters AND the songs, instead of receiving 100% of the master recording fees for, let’s say, a synch license, you only get 50%.

2) If the publisher co-owns the masters AND the songs, instead of receiving 100% of your artist’s share of digital performance royalties from SoundExchange, you only get 50% (BTW, this is the $$ you get from streaming and when your recordings are played on the Internet or satellite radio).

3) If the publisher co-owns the masters AND the songs, instead of getting that record deal you’ve always wanted, you probably won’t. Because the label will only own (or be able to license) YOUR 50% of the masters; they would have to buy out the publishers 50% to get to 100%, of course. And the label will probs not do that. So, you’re stuck with no deal.

4) If the publisher co-owns the masters AND the songs, then for every CD sale that you make at your shows, or online, or whatever, the publisher gets 50% of your hard-earned distribution revenue.

Do I hear you say: “But…but….but….how can the publisher be so grabby, I mean, the publisher is not a distributor, right? The publisher isn’t promoting, marketing or publicizing, manufacturing my recordings, right? They’re not a record label, correct? And still they get 50% of all of my master recording revenue stream under this hyper-overreach deal?” My answer: “Exactamente!” (sorry about the spelling).

So….do not, under any circumstances, sign a hyper-overreaching co-publishing deal. If one is offered to you, run away. Or make big red X’s over the parts where the publisher says they want 50% of the copyrights in your master recordings, OK?

BIG RED X’S. WITH A SHARPIE. Or I will do it for you. NO problem.

So, remember – business before pleasure.

Because, really, you do NOT want me to put you on time out.

 

 

 





AppleBeats.

29 05 2014

So now we know that Apple has purchased Beats headphones, Beats Music, the “services” of Dre and the “legendary genius” of Jimmy Iovine. Why? What for? Beats Music’s subscriptions were truly anemic; even with millions in marketing and a hook-up with AT&T, its subscribers only reached 111,000. And Jimmy and Dre are, in some circles, kind of thought of as yesterday’s musicbiz news.

Granted, Dre and Jimmy have had a front line view during all of this music industry innovation, they created a billion dollar business with those ubiquitous Beats headphones, they basically know everyone in the worldwide musicbiz, and have universally-recognized brand names. Couple that with Beats Music’s already-created music subscription/we’ll-curate-your-playlist infrastructure, and one can only speculate that Apple and the two fellas have something special in mind.

But what is it?

Hey, AppleBeats! If you don’t already know what you’re going to do with your new shiny toy, I have a couple of ideas, so here goes nothin’:

1) Purchase the music industry. Google had its chance, and blew it, so now…you’re up, AppleBeats, time to round home plate. Yes, I know, it sounds like alot of cash, right? But for AppleBeats, it’s not really that much. And the ROI is instantaneous, as the music contained in all of the labels’ and publishers’ catalogues is being performed constantly, all around the world and being used all the time for synchronization with audio/visuals, and songs are being covered by other artists, too. Oh, my, the revenues AppleBeats could reap, immediately! It’s mind-blowing. Dre and Jimmy could manage this material, easy peasy, with a few good hires.

Also, AppleBeats could then completely bypass all of the licensing schemas for the songs and masters that the CRB, the Congress,  the courts, the free market, my grandmother and her doggie have come up with over the past few years to settle the turf wars between subscription services and the labels and publishers. AppleBeats would already own most of those songs and masters.

But AppleBeats doesn’t have to buy the entire music industry, really, and probably shouldn’t; it could leave one or two lesser players standing, just to please the monopolistic fears of the Federal Trade Commission and the Anti-Trust Division of the Department of Justice. Look, it doesn’t seem our government is having too many problems with the Pac-Man-like activities of Comcast or AT&T, and there are fewer players in the TV/cable industry than in the music industry, so…..no problemo, AppleBeats. Whip out your platinum credit card.

This would utilize AppleBeats very own, in-house subscription service, BEATS MUSIC, very well. And its very own A&R/producer team, Dre and Jimmy! But, AppleBeats, there’s so much more that Dre and Jimmy could do other than manage other labels’ and publishers’ catalogues…which brings me to #2:

2) Make AppleBeats Music. AppleBeats, now that it’s acquired Dre and Jimmy, could now confidently create all of their own music content in-house. Here’s how that works: AppleBeats builds the world’s greatest recording studio suite, see? And then Dre, Jimmy and maybe his buddy Ian Rodgers (although, why anyone would trust Ian Rodgers to A&R is beyond me, but whatever) seek out, sign and then produce artists.

And AppleBeats uses all of its infrastructure, including Beats Music, to get that music out there to all of you folks. The music marketing would act like a loss leader to sell Beats Music subscriptions, to allow AppleBeats to gather and sell your personal information, and, of course first and foremost, to sell the vast array of AppleBeats products. Beats Music will be loaded onto every single Apple product out there (remember “Internet Explorer”?).

But here’s the cool twist, AppleBeats,  that you really should think about, so listen up: AppleBeats not only signs artists, but hires as full time employees the newest and best-est producers, audio engineers and songwriters in the world.

And… this is the kicker….instead of AppleBeats using the antiquated, traditional record label, convoluted royalty system to pay its artists, AppleBeats actually puts their artists on salaries, i.e. AppleBeats makes all of them employees of AppleBeats just like the producers, songwriters and audio engineers, maybe for a contracted period of time, like 3 to 5 years. If AppleBeats decides they don’t want the artist anymore, fine, fire them and give them severance pay. If the artist wants to leave, fine, they get some kind of contractual penalty, like they have to give up their next X number of tracks to AppleBeats or something. We could work it out. And, of course, there is the issue that an employee’s creations are generally works made for hire. But again, as we say in the contract biz, all can be negotiated, depending on your bargaining power.

And the artists would get all the worker’s benefits, just like regular employees. There could be built-in yearly raises, bonuses for sell-out tours and high merchandise sales, or song/master placement in a major motion picture, etc. e.g.,  if a license fee for a movie, let’s say, exceeded the artist and songwriter salary by X%, then the artist and the songwriter (maybe even the producer of the master recording) gets a bonus.

Apple, of course, would own 100% all of the artists’ (and the songwriters’) intellectual property forever, of course. But that’s not much different than the traditional labels and publishers deals, wherein the labels owned 100% of the master recordings and the publishers owned either 100% of the composition copyrights or sometimes 50% under a co-publishing agreement.

Maybe an artist could negotiate an override percentage of revenue streams on the recordings after the contracted employment period ended, even. OK, I’m dreaming.

This business model would annihilate the old major record label model, where the artist basically gets zilch-o until “recoupment” and then, even if and when the artist recoups, s/he still doesn’t get her/his rights back in the masters. And, in old record label world, the artist could get unceremoniously dropped at any time, masters in the can, never released.

I’m thinking that all of the savings AppleBeats would eventually get from not having to pay licensing fees, royalties, etc. would allow them to do this model. The accounting savings alone would be in the millions.

So…the question is…..can AppleBeats afford to do all of this?  Well, they just paid $3 billion for a bunch of headphones, a piece of software and two old dudes. I think they can.





And (The) Beats Goes On…

13 01 2014

Beats is coming! Beats is coming!! Wake up the kids! Watch the fans flock!! 

The NYT recently reported that a brand, spanking new music streaming service called Beats Music is debuting soon, adding to the increasingly crowded cacophony of music streaming services. It’s reported that Beats Music is “a subscription streaming service he [Jimmy Iovine] founded with Dr. Dre that will challenge Spotify, Pandora and Apple’s new iTunes Radio in the battle over how people consume music online.” The thrust here is that the Beats headphones brand is so strong that it will lend muscularity and instant recognition to the new Beats Music streaming service. Ok! BOOM!

Note how they left out Youtube in the list of the market targets in their crosshairs. And that’s kind of weird, because lots of people listen to music on Youtube from what I understand. And it’s free. And…doesn’t Spotify, Pandora and iTunes Radio have a “free” model? Yes, I believe they do.

And…let’s see…Beats Music…does it have a free model? No, it doesn’t.

You’ll have to pony up one hundred dollars ($100.00) per year to listen to the exact same mega-billions of songs you can listen to alllllll over the Internet in tons of other sites….for free! Sound appealing to you?

An odd non-sequitur revealed in this article is its marketing strategy; it seems they feel a successful way to achieve maximum recognition and potentially market saturation is by having “regular plugs on the Ellen DeGeneres Show” and taking out a “Super Bowl Ad”. I suppose they believe that the target demographic for large consumption of music streams sits home every weekday and watches Ellen. I mean, I ADORE Ellen. But – and this is just my personal belief not based on any statistics or market research – I don’t think 19 year olds watch her on a regular basis. Please correct me if I’m wrong. So….maybe their target market is Mom-urbia. It would make more sense, because Mom-urbians have more disposable income than cash-strapped 19 yr. olds.

Well, if that doesn’t work very well, Beats Music has another marketing ploy, one that may actually reap it huge returns; Beats is jumping into bed with AT&T. That means that AT&T may be bundling Beats Music – for the $10/month subscription fee – in with their regular packages when you go to buy a new smartphone. And many people will probably add it in if they’ve never heard of Spotify or Youtube, I suppose.

But this is the thing: AT&T subscriptions are so expensive that maybe Beats is thinking the consumer won’t notice an additional, puny $10.00 per month charge. Or maybe AT&T will gloss over the additional cost of a Beats Music subscription, and sort of “sneak in” the charge to the customer’s AT&T phone bill; people don’t rigorously review their cellphone bills as a general matter. AT&T does in fact have some experience with adding charges to phone bills without explaining them to customers, so it doesn’t strain credulity to think it that this ploy could create insta-Beats Music customers. Just a theory….

So, why Beats Music? Why should you pay this amount every single month for something you can get for free? Well, here it is: Beats Music is touting itself as a new and innovative “discovery model”, i.e. Beats Music will discover music you like FOR you; you don’t have to do a thing except just listen and enjoy what they tell you to listen to and enjoy.

Beats Music will create playlists for your moods and/or locations and/or activities based on “algorithms” created from your listening habits.

But ALSO your playlists will be “curated” by super-knowledgable music-heads at Pitchfork (??really?? wtf do they know about any music other than indie pop-crap?) and Trent Reznor (I, for one, would not entrust my music selection to that dude, NIN’s cool factor notwithstanding) and Jimmy Iovine (isn’t he kind of old?) and maybe (Chief Executive) Ian Rogers of TopSpin Media fame (yes, my life is missing a software tech-head selecting my music). Ian says that the other people behind the other services “misunderstand music”. Hmmmm.

Honestly, do the folks at Beats Music really think that the puerile posturing Pitchforkians know me better than I do? Oh, you betcha, ’cause I’m a one-dimensional cardboard cut-out who only likes to discover music within that one dimension and never experience any music completely new or different, i.e. out of my pre-selected, pre-packaged, pre-determined comfort zone. How about you?

In other words, Beats Music is betting over $60 million that you’re culturally lazy and therefore sick and tired of searching out and discovering music for yourself or curating your own playlists, and will take all of that nasty bad messiness out of your hands, and spoon-feed you music that Trent, Jimmy and the nattering nabobs at Pitchfork will pre-select for you. And, they are betting that you’re OK with never discovering anything other than what you already know you like. And, on top of that, they will pre-determine what you’re feeling when you’re at the beach, and tailor that “beach mix” to the mood they’ve pre-determined for you.

Got it?

Now, I’m not at all against another music streaming service joining the bunch, because the subscription fees paid to Beats Music, if any human beings actually subscribe, will just add to the fractions of pennies artists are receiving from each streaming service; cobbled together, these penny fractions may – if the streaming service coalition becomes robust enough – add up to create a decent wage for some musicians.

However, it’s far from certain if Beats Music will be a sustainable business model. If so, it’ll have to have lots and lots…and lots… of subscribers. But Spotify is already the dominant player in both the freemium and paid subscription market, and they’re struggling mightily to significantly increase subscribers.

In any event, if they do succeed (and despite my snarkiness here, I hope they do – the more out there for artists, the better for all), if their success means higher payouts for musicians that will reap for some a sustainable living, then that would be fantastic. But..it’s a business like all the others, centered on maximizing profits, not payouts, so I’m skeptical.

If there indeed is a large, underserved segment of casual listeners who want music discovery curated for them, and are willing to pay a pretty penny for it, then Beats Music may work. OTOH, Beats may be tossing away their money on an already saturated market, a market that they’ve come to a little too late.

As for you avid music lovers out there, if you decide to toss your thinking, discerning brain (and money) away, sign up for Beats Music.

As for me? Well, I can think of a few better things to do with $60 million.

Quick Update: It’s reported that Beats Music’s launch date is January 21st. It will charge $10 per month or $100 per year. Also, it’s reported that it will offer a $15 per month family plan.





Look Before You Leap

4 01 2014

Recently, I logged on and listened to a free online seminar that was advertised as using music marketing techniques to monetize your music. About an hour and half in, while waiting for some new and exciting principles and applications thereof I hoped to learn (as I’m always up for learning something new), I realized that my knowledge base, alas, was not to be expanded that day.

It’s not that the moderators weren’t knowledgable. It’s just that they were very carefully only dribbling out skeletal overviews of a few traditional, tried-and-true marketing theories to the listening audience, implying (but not really showing you how) they would apply for the musician trying to monetize her music. But there was really no meat on the bone. Nothing potent, powerful or unknowable by simply googling “marketing techniques” was stated in this “free online seminar” for musicians. Why?

Well, I very soon got my answer, which I had suspected alllll along.

As I patiently listened to the “same old same old” marketing stuff,  at some point the seminar’s moderators began to take turns shilling for their own books and consultant services. At that point, I stayed on for a few more minutes, hopeful that they would get off of their own ego ledges and get back to seminar-ing, maybe more deeply. But, after what seemed like an eternity listening to “My book is great because….” and “Well, my book is greater because….”, and “I can teach you if you sign up….. at the low price of…”, I politely, unnoticed by anyone, logged off.

I’m sure that the hundreds (???) of musicians who listened in grabbed one or two golden nuggets of marketing information that they possibly could use to eek out a few more sales of their CDs or show tickets or whatever merch they’re selling. At the very least, perhaps they were inspired by the “success stories” born of these techniques as touted by the moderators.

And I wondered…..do the moderators honestly believe that just by following these simple marketing techniques touted in the seminar (and assumedly, in their books or by using their services) all of the musicians listening will have long, fruitful music industry careers? Well, of course not.

These moderators, who intimated that they had a veritable ton of inside, secret information they would, for the right price, convey through their books and consulting services, were the only ones who would potentially make money from this seminar. Because I bet that a fair number of listeners – starved for those crumbs of knowledge, desperate to get the keys to the City of Success – will buy those books and sign up for those fee-based consulting services.

It’s a sad truism that the musicians who shell out their sheckles for warmed-over, re-packaged “advice” they can get for free will get little to nothing for their money in return; these moderators and others like them are simply out to make a buck from these hungry hungry musicians, nothing more. If the occasional “success story” happens to occur – maybe an artist who read their books/used their services lands a great synch license or label deal – well, all to the good! That story can, and will, be used to sell more of their books and consulting services, regardless of whether or not the book or the services even contributed to that success! But, generally, using any kind of success story unless quantified by the artist as directly coming from these marketing services is smoke and mirrors to sell more books and services.

OK, yes, I’m truly cynical. But I’ve seen it happen, time and time again and more now than ever. However, sometimes, if the artist is awesome and it’s done correctly, and over a sustained period with all other factors backing them up, marketing and publicity do work to build a career.

It’s true that musicians are having an incredibly tough time making a decent living from just being musicians anymore. CD sales are on life-support and streaming is the CD sale’s impotent, income-challenged bastard cousin. Touring is expensive (but necessary to build a fan base). Publishing…well, good luck unless a real professional is in your corner pushing your material every day. And even then, it’s a long road to hoe.

So, it seems that the only industry populations actually making money in the music industry are the artist service providers (such as self-styled consultants or publicists or social media marketers), industry technology owners (e.g. Pandora/Spotify/Topsin Media), and major corporations who use music to sell their product and/or create good will for – or “brand” – their product.

There’s nothing inherently wrong with any of this, however. Music has been used to shill everything from Beyonce’s perfume to sneakers to toilet bowl cleaner. And musicians have expended jillions on publicists and marketers forever, usually through a label prior to the new DIY music industry’s rise, so the musician wouldn’t have to take the upfront risk.

But now, you’re spending your own hard-earned cash. So, I leave you with this one li’l caveat: Spend your money wisely. Don’t throw it away on the self-styled, so-called “consultants” who ask you to give them $$ upfront. Do carefully investigate each professional you wish to hire to help you. Get feedback from other musicians you trust who have used their services; you can ask for recommendations from the professional, but they’re not always verifiable. Read books, of course, but only ones that don’t promise to make you a star.

In other words, look long and hard before you leap.