Future Of Music

Last month I had the pleasure of traveling to Austin, TX and working with the fine folks there – brainstorming on the future of music and in particular, the future of the live music business.   Here is an updated version of my Global Music Business presentation that I gave at their incredible new City Hall.

“Live Music” is what Austin is all about.  Austin actually has an official Division of the City of Austin dedicated to developing the music industry in town, effectively led by “music officers” Don Pitts and David Murry.  They are devoting significant resources to seeing that the city’s future along with the future of all the musicians who live and work there are aligned with successful practices in the overall music business.

Here is my picture of their official music office “squad car”.  All they need now is a flashing light like Steve McGarrett.  I’m gonna bring them one the next time I visit. “Pull over Ma’am, is that Emo we hear…?”

How cool is that?  Does your city have an official Music Division?

My friends at the Future of Music Coalition are conducting an online survey from Sept 6 – Oct 28th to determine the variety, depth and complexity of the ways that musicians are making money these days.  Not theoretically, but actually.  We are looking for performers, songwriters, composers, band members, session players, producers, MCs and anyone else making music to join in and take the survey.

A while ago, I posted this from my friend and Berkleemusic student David Sherbow showing a pretty comprehensive list of the different ways that musicians can make money.  This might give you food for thought on taking the survey and planning your career…

The artist music business model has been in flux for years. The record deal dream that most artists sought is no longer the viable alternative that it once was.  The leveling of the music distribution playing field by the Internet is virtually complete.  Terrestrial radio is on a path towards destruction that even the major labels can’t compete with.  People now access and download music from multiple sources, usually for free.  D.I. Y solutions are everywhere, but for many artists hard to integrate into their daily lives.

Where does this leave the average independent artist? At the beginning. Every artist wants to know how they can make music, make money and survive to write and play another day. Here, in no particular order, is a list of possible income streams.

• Publishing
• Mechanical royalties
• Performance Royalties from ASCAP and BMI
• Digital Performance Royalties from Sound Exchange
• Synch rights TV, Commercials, Movies, Video Games
• Digital sales – Individual or by combination
• Music (studio & live) Album – Physical & Digital, Single – Digital, • Ringtone, Ringback, Podcasts
• Instant Post Gig Live Recording via download, mobile streaming or flash drives
• Video – Live, concept, personal,  – Physical & Digital
• Video and Internet Games featuring or about the artist
• Photographs
• Graphics and art work, screen savers, wall paper
• Lyrics
• Sheet music
• Compilations
• Merchandise – Clothes, USB packs, Posters, other things
• Live Performances
• Live Show – Gig
• Live Show – After Party
• Meet and Greet
• Personal Appearance
• Studio Session Work
• Sponsorships, and endorsements
• Advertising
• Artist newsletter emails
• Artist marketing and promotion materials
• Blog/Website
• Videos
• Music Player
• Fan Clubs
• YouTube Subscription channel for more popular artists
• Artist programmed internet radio station or specialty playlist.
• Financial Contributions of Support – Tip Jar or direct donations, Sellaband or Kickstarter
• Patronage Model – Artist Fan Exclusives – e.g. paying to sing on a song in studio or have artist write a song for you
• Mobile Apps
• Artist Specific Revenue Stream -  unique streams customized to the specific artist, e.g Amanda Palmer
• Music Teaching – Lessons and Workshops
• Music Employment – orchestras, etc, choir directors, ministers of music, etc.
• Music Production – Studio and Live
• Any job available to survive and keep making music
• Getting Help From Other Artists and Helping Them -  Whatever goes around come around. – e.g. gig swapping, songwriting, marketing and promotion

The future of the profitability of the recorded music business is unquestionably in jeopardy.  One might speculate that new “access based” services like Rdio and Spotify could re-start a failing record industry.  I hope so.

But as sales have fallen to less that 1/2 their heights at the turn of the century, artists and their managers and attorney are looking to every means possible of generating revenue both now and in the future from their recorded works.

The New York Times published a great piece on the coming battles over song rights, excerpted here.  This will be a very interesting fight to watch as it has the potential of forever driving the nail into the coffin of the traditional record labels, forcing a complete restart of the business if it is to survive at all.

“When copyright law was revised in the mid-1970s, musicians, like creators of other works of art, were granted “termination rights,” which allow them to regain control of their work after 35 years, so long as they apply at least two years in advance. Recordings from 1978 are the first to fall under the purview of the law, but in a matter of months, hits from 1979, like “The Long Run” by the Eagles and “Bad Girls” by Donna Summer, will be in the same situation — and then, as the calendar advances, every other master recording once it reaches the 35-year mark.”

“The provision also permits songwriters to reclaim ownership of qualifying songs. Bob Dylan has already filed to regain some of his compositions, as have other rock, pop and country performers like Tom Petty, Bryan Adams, Loretta Lynn, Kris Kristofferson, Tom Waits and Charlie Daniels, according to records on file at the United States Copyright Office.”

“In terms of all those big acts you name, the recording industry has made a gazillion dollars on those masters, more than the artists have,” said Don Henley, a founder both of the Eagles and the Recording Artists Coalition, which seeks to protect performers’ legal rights. “So there’s an issue of parity here, of fairness. This is a bone of contention, and it’s going to get more contentious in the next couple of years.”

“My gut feeling is that the issue could even make it to the Supreme Court,” said Lita Rosario, an entertainment lawyer specializing in soul, funk and rap artists who has filed termination claims on behalf of clients, whom she declined to name. “Some lawyers and managers see this as an opportunity to go in and renegotiate a new and better deal. But I think there are going to be some artists who feel so strongly about this that they are not going to want to settle, and will insist on getting all their rights back.”

“Given the potentially huge amounts of money at stake and the delicacy of the issues, both record companies, and recording artists and their managers have been reticent in talking about termination rights. The four major record companies either declined to discuss the issue or did not respond to requests for comment, referring the matter to the industry association.”

“But a recording industry executive involved in the issue, who spoke on condition of anonymity because he is not authorized to speak for the labels, said that significant differences of opinion exist not only between the majors and smaller independent companies, but also among the big four, which has prevented them from taking a unified position. Some of the major labels, he said, favor a court battle, no matter how long or costly it might be, while others worry that taking an unyielding position could backfire if the case is lost, since musicians and songwriters would be so deeply alienated that they would refuse to negotiate new deals and insist on total control of all their recordings.”

“Right now this is kind of like a game of chicken, but with a shot clock,” said Casey Rae-Hunter, deputy director of the Future of Music Coalition, which advocates for musicians and consumers. “Everyone is adopting a wait-and-see posture. But that can only be maintained for so long, because the clock is ticking.”

Read the entire NYTimes article here.

Here is an excerpt from a great piece from Wyndham Wallace of The Quietus on how the music industry is killing music and blaming the fans. This rather dark opinion is spot on in so many ways and raises some very difficult questions about the future of the music business that most people do not want to talk about.

“All the time the industry talks of money: money it’s lost, money it’s owed. It rarely talks about the effects upon artists, and even less about how music itself might suffer. But no one cares about the suits and their bank accounts except shareholders and bankers. People care about their own money, and the industry not only wanted too much of it but also failed to take care of those who had earned it for them: the musicians. And it’s the latter that people care about. Because People Still Want Good Music.”

“In March this year, for instance, the RIAA – the Recording Industry Association of America – and a group of thirteen record labels went to court in New York in pursuit of a case filed against Limewire in 2006 for copyright infringement. The money owed to them – the labels involved included Sony, Warner Brothers and BMG Music – could be, they argued, as much as $75 trillion. With the world’s GDP in 2011 expected to be around $65 trillion – $10 trillion less – this absurd figure was, quite rightly, laughed out of court by the judge. The RIAA finally announced in mid May that an out of court settlement for the considerably lower sum of $105 million had been agreed with Limewire’s founder.”

What is questionable about all of this is exactly how much of the settlement of $105 million will flow to the musicians, songwriters and producers whose work was the subject of the infringement to begin with. In previous settlements including Napster ($270 million), Bolt ($30 million), Kazaa ($130 million) and MP3.com ($100 million) it is unclear how much, if any, of the money received by the labels ever reached the pockets of the artists. I have yet to see an accounting of this and many managers I have spoken with have simply laughed when I asked the question if they ever received any payment from these settlements. I suppose that proceeds from litigation may be considered recoupable costs.

“But if the industry wants to talk money, let’s talk money, albeit the ways that developing musicians are encouraged to make up the loss of sales income in order to ply their trade. Someone’s got to bring this up, because it’s not a pretty picture. Consider, first, direct-to-fan marketing and social networking, said to involve fans so that they’re more inclined to attend shows, invest in ‘product’, and help market it. In practise this is a time-consuming affair that reaps rewards for only the few. Even the simple act of posting updates on Facebook, tweeting and whatever else is hip this week requires time, effort and imagination, and while any sales margins subsequently provoked might initially seem higher, the ratio of exertion to remuneration remains low for most. It’s also an illusion that such sales cut out the middlemen, thereby increasing income, except at the very lowest rung of the ladder: the moment that sales start to pick up, middlemen start to encroach upon the artist’s territory, if in new disguises. People are needed to provide the structure through which such activities can function, and few will work for free – and nor should they – even though musicians are now expected to.”

“Still, if an act can find time to do these things, or has the necessary capital to allow others to take care of them on their behalf, then they can hit the road. Touring’s where the money is, the mantra goes, and that’s the best way to sell merchandise too. But this is a similarly hollow promise. For starters, the sheer volume of artists now touring has saturated the market. Ticket prices have gone through the roof for established acts, while those starting out are competing for shows, splitting audiences spoilt for choice, driving down fees paid by promoters nervous about attendance figures. There’s also a finite amount of money that can be spent by most music fans, so if they’re coughing up huge wads of cash for stadium acts then that’s less money available to spend on developing artists. And for every extra show that a reputable artist takes on in order to make up his losses, that’s one show less that a new name might have won.”

“Touring is also expensive. That’s why record labels offered new artists financial backing, albeit in the form of a glorified loan known as ‘tour support’. Transport needs to be paid for, as do fuel, accommodation, food, equipment, tour managers and sound engineers. These costs can mount up very fast, and if each night you’re being paid a small guarantee, or in fact only a cut of the door, then losses incurred can be vast, rarely compensated for by merchandising sales. Again, financial backing of some sort is vital, but these days labels are struggling to provide it. In the past, income from record sales could be offset against these debts, but with that increasingly impossible, new artists will soon find it very hard to tour. Everyone’s a loser, baby.”

From Beck’s ‘Loser’

Forces of evil in a bozo nightmare
Banned all the music with a phony gas chamber
‘Cause one’s got a weasel and the other’s got a flag
One’s got on the pole shove the other in a bag
With the rerun shows and the cocaine nose job
The daytime crap of a folksinger slob
He hung himself with a guitar string

Soy un perdidor
I’m a loser baby, so why don’t you kill me?
(Know what I’m sayin?)

“Whether the industry likes it or not, music is now like water: it streams into homes, it pours forth in cafés, it trickles past in the street as it leaks from shops and restaurants. Unlike water, music isn’t a basic human right, but the public is now accustomed to its almost universal presence and accessibility. Yet the public is asked to pay for every track consumed, while the use of water tends to be charged at a fixed rate rather than drop by drop: exactly how much is consumed is less important than the fact that customers contribute to its provision. Telling people that profit margins are at stake doesn’t speak to the average music fan, but explaining how the quality of the music they enjoy is going to deteriorate, just as water would become muddy and undrinkable if no one invested in it, might encourage them to participate in the funding of its future. So since downloading music is now as easy as turning on a tap, charging for it in a similar fashion seems like a realistic, wide-reaching solution. And just as some people choose to invest in high-end water products, insisting on fancy packaging, better quality product and an enhanced experience, so some will continue to purchase a more enduring musical package. Others will settle for mp3s just as they settle for tap water. Calculating how rights holders should be accurately paid for such use of music is obviously complicated but far from impossible, and current accounting methods – which anyone who has been involved with record labels can tell you aren’t exactly failsafe – are clearly failing to bring in the cash.”

“The problem is, it’s not really the industry that is being cheated. It’s the artists and their fans. People get what they pay for, but – whatever the industry claims – most fans know that. They just don’t want to hear the businessmen fiddle while the musicians are being burnt. Revenues are unlikely ever again to reach the levels of the business’ formerly lucrative glory days, but in its stubborn refusal to recognise that both the playing field and the rules themselves have been irreversibly redefined without their permission, the industry is holding out for something that is no longer viable. Lower income is better than no income, and the industry has surely watched the money dwindling for long enough. Musicians, meanwhile, are being asked to make more and more compromises as they’re forced to put money ahead of their art on a previously unprecedented scale.”

Read the whole ugly story here at The Quietus.

The comments alone tell the sad story of the state of affairs in the music industry today.

If you are a recording artist or a manager and have been distributing music on iTunes under a deal with one of the big record labels, pay attention.

F.B.T. Productions in Detroit, the producers who helped Eminem achieve his success are paving the way via a lawsuit against Universal Music and others, to larger payouts for digital music sales via iTunes and other digital services both past and future. This effort could unleash literally billions of dollars in unpaid royalties for recording artists.

How much money is at stake here?

This chart from Asymco, shows the accumulated payments made to suppliers of content to the iTunes store over time. You can see that the total amounts paid to the record labels can be approximated at $12 billion dollars since the launch of iTunes through the first quarter of 2011.

Source: Asymco

That would imply that the gross amounts collected by Apple are in the neighborhood of $17 billion dollars for iTunes music downloads.

So I did a little back ‘o the ole iPad calculation and here’s what I came up with.

I want to be realistic about the potential to collect and so will assume that half the music distributed on iTunes is from catalog sales of artists with older label contracts, and the other half is from music distributed from sales of newer artists. SoundScan numbers from last year show 648.5 million downloads of “catalog” singles in the US, meaning songs more than 18 months old, compared with 523 million for current tracks, so this seems like a very safe assumption.

Using this quick and dirty math, the potential unpaid royalties to artists from just iTunes sales would be around $2.15 billion. Admittedly some of this money has already been paid to music publishers, so the number may be overstated somewhat, and could benefit from a finer accounting. But then again, catalog downloads from iTunes could be closer to 80% which would make the unpaid royalty number higher. So the amount is significant. Really significant. Are you with me?

The lawsuit boils down to a distinction between selling “copies” of physical products such as CDs or vinyl recordings versus selling a “license” to reproduce the digital song data. Record labels actually ship physical product (principally CDs) to record stores; but in the case of iTunes it gets a license to replicate and distribute digital files. When the record labels sell “copies” of music, the artist typically receives a 10-15% royalty, but when the labels “license” the music to another entity, most artists typically receives a 50% royalty.

The complaint filed by F.B.T states “Defendants have failed to comply with the terms of the March 9, 1998 agreement and the 2003 Agreement by failing to account and pay royalties equal to fifty percent (50%) of Defendants’ net receipts from the digital uses of the Eminem Masters by the Music Download Providers and Mastertone Providers. Defendants apply an incorrect formula for calculating royalties with respect to those royalties to be paid to Plaintiffs which results in the payment of approximately twelve percent (12%) of receipts instead of the fifty percent (50%) required by the terms of the agreements.”

Universal Music Group, Aftermath Records and Interscope Records appealed against a ruling in the Ninth Circuit Court in December that said they should pay 50% of royalties on digital sales. The defendants took their appeal all the way to the Supreme Court.

However, the US Supreme Court just last week rejected Universal Music’s appeal in the case letting the Ninth Circuit Court of Appeals decision stand that digital music (under this particular agreement) should be treated as a license subject to a 50% royalty payment.

Now to be fair, not all label agreements are the same, and if you signed a label deal in the last 10 years or so, you have probably been excluded from the impact of this decision by contract. Label attorneys have indicated that newer artists are unlikely to be affected by the decision because more recent recording contracts include digital distribution in the definition of “sales” for artist’s royalty calculation purposes. But if you signed prior to the early 2000′s, you may be looking at a significant payday.

That apparently is the thinking by the estate of Rick James, which just filed a class action suit in April against Universal Music, opening the door for a massive settlement involving potentially thousands of artists. The filing can be found here. This is certainly not the last suit that we will see on this issue.

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For years I have been arguing that iTunes digital music distribution was a license of music, not a sale. When Steve Jobs and his team negotiated the original iTunes deal with the major labels, the economics gave iTunes roughly 30% of each download, like a distributor/ retailer of CDs would receive and the remaining 70% would flow to the labels and presumably be split as with a traditional CD sale.

But what was rarely questioned at the time, was the way the 70% label share would be split. The labels assumed that these downloads were “sales” of copies of the songs and that artists would receive their royalties based on traditional accounting practices.

Indeed in the early days of payments from iTunes, labels often continued to deduct fees for “packaging” and “breakage” and “co-op” often when there were no actual costs being incurred. Hardly anyone questioned whether iTunes downloads were “licenses” versus “sales” – which would have swung the payments heavily in favor of the artists.

Steve Jobs himself referred to his deal with the labels as a “license” in his rare and open “Thoughts on Music” letter posted February 6, 2007. Interestingly, this letter has disappeared from and is no longer available on the apple.com web site but you can still find excerpts via Google. Hypebot reported that “Although he (Jobs) consistently referred to Apple ‘licensing’ music from ‘the big four music companies’, when deposed in this case he claimed not to know whether his company’s relationship with Universal was, in fact, a license.”

——–

This potential $2.15 billion represents approximately 12.5% of the gross revenue collected to date by Apple, and that 12.5% figure could apply to all the other digital distributors including Amazon, Napster, and others. With Apple’s iTunes music revenue running around $300 million per month, that is another $37.5 million per month up for grabs at the present rates from Apple alone.

This ruling has the potential to forever transform the very nature and structure of the recorded music business. Certainly all of the cloud-based systems like Amazon Cloud Player and those being contemplated by Google, Apple and others will be commissioned under licenses, especially when you consider that multiple instances of files will be available on a PC, mobile device or streaming. The very idea of copies just does not make any more sense in the digital age.

This is a significant development for artists and the creative community. Artists and managers joined together could make it happen and see this incredible change of fortune through. This ruling will help transform the music industry for the better and redistribute the money in a way that is more sustainable. Certainly it will continue to be a painful transition, but finally there is some light at the end of the tunnel for creative people looking to sustain a career as a musician. And an indication of a better music business model for independent artists.

What do you all think of this?

Read more from the New York Times here.