July 26th, 2007
More On Last.fm and Streaming Royalties
Because my last post on this topic wasn’t fun enough, I’ve decided to follow up on an interesting development. My colleagues over at A2IM are now getting into the game. Today, President Rich Bengloff made the following statement:
“Every Independent music label has or should have its own business plan, but as our industry continues to shrink in terms of sales, from $14.6 billion in 1999 to $11.5 billion in 2006, and the trend down has continued in 2007, artists and labels need other income sources.
As a result, as a consequence of music consumption migrating from a sales consumption model to a performance (internet radio, satellite radio, time-shifting, etc.) consumption model, music label income from internet and performance sources, and music licensing, has become crucial for financial existence for both artists and labels. “
The statement continued:
” There are two ways revenues are earned from internet sources, via statutory regulatory royalty rates or via direct licenses.
An example of statutory royalty rates would be the rates set by the Copyright Royalty Board (”CRB”) for webcasting streams that you have all been reading about. The 2007 CRB rate of $.0011 per song/ $.0165 per hour (based upon 15 songs per hour) is what the SoundExchange will collect on behalf of artists and labels with no negotiation required by you personally, it’s the law. With a statutory royalty there is less collection risk. In this example, for instance, SoundExchange collects for you.
An example of a direct license is when two parties agree to a rate or a flat annual amount, which may be accompanied by an advance, either where there is no statutory license rate or where you agree to a different rate as a substitute for the statutory license rate. Entering into a direct license has the effect of the label waiving its statutory rights.
Every music label needs its own business plan and needs to make its own unilateral decision as to whether it wants to monetize its music or provide it free for promotion. That said, when a label receives an offer for a direct license arrangement, it is good business to weigh the possible benefit of the direct license, and whether the terms are fair and equitable. If the direct license involves a revenue stream previously covered by a statutory license the possible benefit of the direct license must be evaluated against the existing benefit of the statutory right - which will be waived if the label chooses a direct license arrangement.”
This says it all. If you run a label, release your own music, I truly suggest that you look into joining A2IM, as the information they provide on these hot-button-issues that affect us, is crucial to the survival of independent music.
Written by Bill Wilson
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On July 26th, 2007 at 5:20 pm
Fred said:
A cautionary note, from the standpoint of the artist on an indie label looking at a direct deal with webcasters:
The artists stand to lose big by direct deals between labels and webcasters. The basic statutory protection of the 50/50 split between label and artist is waived. So is the provision by direct payment to the artist.
On a direct deal, all payment will go through the label, and it will be up to the label to decide how much, if anything, the artist shares in the revenue. That’s not a promising scenario for artists.
Because of the 50/50 statutory split, and the fact that SoundExchange’s operational expense are running about 20% (they don’t give that number out, but it would be a fair estimate), a label can agree with webcasters to take as little as 40% (80% of 50%) of the statutory rate and still make as much as they did under a statutory rate with SoundExchange.
Of course, in that scenario, the artist gets zero, but don’t tell me it isn’t a real possibility. Some labels will play fair with artists. Some won’t. It’s the nature of the business.
I’m not a big fan of A2IM. When they organized, I was hoping to see some real innovation in the way label-artist relations were conducted, together with novel ideas about other aspects of the business. The major label business models were collapsing, and there appeared to be plenty of room for new ideas.
Unfortunately, too often A2IM seems to come off as RIAA-Lite. For the life of me, I don’t understand their lock-step support of the CRB royalty rates that are going to close down all those webcasters that primarily play indie music. That position is clearly justifiable for the major labels and the RIAA who need to regain some control over what people get to hear. It seems to be a self-inflicted wound, and maybe a fatal one, for the members of A2IM.
The last.fm debacle gives A2IM a change to get out in front of another issue that is fundamental to them. Get A2IM to commit its membership to fair and equal treatment for artists under statutory royalties or direct deals and maybe there’s a reason for artists to trust an organization made up of labels, who don’t always have the interest of their artists as a paramount concern, especially when there is a division of money at stake.
Artists looking to affiliate with an established indie label are advised to ask them hard questions about their intention to seek direct deals, and how they intend to split the money that comes in.