Posted in 2009 #27, Newsletter by Al Verik
I was at the Billboard Money and Music Conference earlier this year and there was a panel on “Investing in Online Music Start-Ups’. The moderator asked how streaming services are able to get their business models to work given the high streaming royalty costs. A panelist said the way he makes his model work is he uses indie music for 50% of his playlist and that he pays indie artists and labels less via direct licenses which enables him to dollar average to keep his royalty costs down. Remember this the next time someone asks your label or artists to waive or take a reduced royalty rate. These type of services want to grow their business models off your repertoire. Very nice! And then they explain that you get promotion in return.
I get four to five cold calls a month from proposed digital services of some type that tell me that they have the “next big thing” and want to join A2IM to “help” our label members. At some point in the conversation I ask how their economic model works, how they earn revenues and how their model compensates music labels and their artists. If they respond that the labels and artists don’t get paid, but they get promotional value that helps generate recorded music sales, I lose interest and explain that in our current market labels and artists must seek fair compensation for all uses of their music. (AM/FM radio tells us about the promotional value of airplay too but it’s an old, tired song, hence the need for the musicFIRST campaign, see below, about our effort to get you paid when they play your music).
The A2IM New Media Committee and your A2IM Board of Directors screen member applications to ensure they belong in our independent music community and your A2IM Board of Directors must approve all new members. Infringers of copyrights and those who do not compensate artists and the music labels that invest in the creation of that music are not accepted as A2IM associate members.
Should you ever waive your master royalty or statutory rights? It depends, what will you get for it? Statutory rates are set by Congress or governmental agencies like the Copyright Royalty Board (CRB) to ensure artists and labels get paid for their intellectual property, with the rates the same for all creators. An example, the webcasting rates set by the CRB for Internet streaming of music and paid to registered labels and artists by SoundExchange.
A previous A2IM newsletter article discusses the waiving of statutory royalties.
At this point we want to turn over this issue to a guest columnist, Nate Nelson of A2IM member Stones Throw Records, for his view on waiving royalties and issuing gratis licenses called “Promotion for What”:
I read the newspaper when I can. I listen to NPR on the way to and from work (I find it a funny parable that a lot of people who listen to music professionally rarely listen to it in their car). I sometimes get caught up with Anderson Cooper and the CNN homies. From all these sources, I gather a pretty fair assessment that traditional business in America is morphing. In a couple of years, that newspaper that I read in the morning won’t be a tangible item that lands on my doorstep but rather a hardware device that I turn on, pay a fee and download my morning news content. Because corporate sponsors & taxpayers help support NPR’s exceptional content, I can download the Fresh Air podcast from iTunes for free!!!
I can see past the economic meltdown that we’ve been swimming in for a little over a year now. There’s light at the end of the tunnel and it’s a new economy. One that utilizes technology. One that embraces change. One that finds ways to monetize and value content in new mediums.
So I find it appalling that many in the music business (and more specifically the independent music community) don’t value their content as much as they should.
I’ll elaborate.
I work at a record label. I have a specific function at the label: “take the master recordings that we own, take the compositions that our writers own and try to make us money.” So I’d like to preface this part of the article by saying that I’m not a promotions guy. They have another (less glamorous) name for me: the licensing guy. But here’s the rub: while I think limited promotion (publicity) is vital, I think licensing guys should be hired in droves.
Why?
The music industry is changing. There’s a traditional way of thinking that lingers in our industry that says this: “A&R will sign a new artist and get a record done, marketing & promotions will push for radio play & music blog reporting and we’ll sell a bunch of records and everyone will be able to make a living.” Except that no one is selling a lot of records anymore.
Promotion for What (Continued from Newsletter 27…)
By: Nate Nelson (Stones Throw Records)
So is the outlook bleak? Are, as I so often hear, the record labels collapsing? No and
here’s why:
Labels exist to help recording artists make money with their master recordings.
We in the industry all know the story:
In the good ol’ days of Sun, Elektra, Motown & Columbia, the label would record the
masters and sell them on a vinyl record. That was it. That’s how labels and artists
made money with recorded music. Radio came around and told the labels: “hey we
need some content to sell advertising space. We’ll play your music and help you sell
your records and in turn you won’t ask to get compensated for royalties.” It was a win-
win situation and it worked. Labels waived their royalties and received free promotion.
Radio broadcasters plugged records and made money selling ad space between each
spin.
That was then. This is now:
Most of recorded music is consumed for free by the consumer. Physical record sales
are down, because most music consumers are passive listeners. Many of us are
familiar with Chris Anderson: If a consumer can get what they want ON DEMAND for
free (whether it’s streamed or downloaded), more often then not there will be no
business transaction whatsoever.
Artists and labels have to deal with that fact. Clinging on to the business decisions of
the past is wasted effort.
So, the independent music community must be proactive in seeking royalties from third
parties that use our music to turn a profit. I’m not talking about gouging corporations for
fees. And I’m not talking about gratuitous requests. I’m talking about adequate
compensation for content that has value and sonically “brands” a product, organization
or visual entertainment medium. Being the licensing guy, I am often bombarded with
the endless requests for gratis or reduced fees with the argument that the requester’s
distribution vehicle (whether it be a DVD, videogame, TV show, website, download card
or physical compilation) will help promote the artist. I’m often left thinking: “promotion
for what?”
What are we promoting?
Live entertainment? While this is a potential business model for the artist (and for some
labels that are involved in that income stream), it seems a poor and unnecessary fit for
most label’s business. We monetize RECORDED music, not live music and think it’s
worth fighting for the survival and growth of our business.
Physical sales of CD’s, tapes and vinyl? I think I debunked that theory earlier.
Digital sales? Kind of. Some active consumers & kids with gift cards are buying digital
music but download sales are not keeping pace with the loss of physical declines
Free digital downloads? I think I’m getting closer.
I’m not naming any names, but among the most nefarious culprits exists a cable station
that used to play music videos back in the ’80s. All the culprits have the same
argument: “we want reduced or gratis fees to use your master recordings in our product
because we promote your bands & artists.” But this concept of promotion is not what it
once was. When there was a market to sell music in stores, promotion was essential
and still is but not to the degree that labels should be waiving royalties for the
commercial use of their music. I’m not surprised that record labels waived their royalties
for radio play. Our colleagues of yesterday were able to provide for their artists through
album sales alone. We’re not there anymore.
We’re here: our music still has the same value, but we’re not bringing in the same
amount of revenue that we did in the last half of the 20th century. We’re in the
business of cool. There’s still PLENTY of demand for our product (ask any college kid
who geeks out about all the albums he found on thepiratebay.com). The argument that
the industry is crumbling because labels aren’t putting out good music anymore is dead
wrong. It’s consumed now more than ever. And while an artist in mid to high demand in
the 1970’s, 1980’s, 1990’s was able to make a living producing his craft, many now have
a hard time coming up with the rent.
So when companies that are churning out bundles of profits are asking us to bow down
and take reduced rates because they’re offering great marketing opportunities, I think
we as the distributors of recorded music are doing a disservice to our artists if we take it
on the chin and let these exploitive business practices continue.
We make great audio content. We should know the value of our content and run our
business accordingly. When I think of another great record label shutting the doors to
its ongoing operations because it’s no longer profitable to distribute music, I know
there’s something that’s broken that needs to be fixed.
Hopefully my rant will help fix it.
Related
Tags: copyright, licensing, royalties, SoundExchange
