“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?

For slightly more than $2/mo everybody will soon have access to all the music they can find, steal, share, rip, produce, morph or buy using iTunes Match. Is this amnesty for all the music pirates? I hope so.

As we predicted in The Future of Music, the future is about access to music rather than ownership. With Apple iCloud and iTunes Match, Apple has once again set the bar for all music distributors, while again lining up all the major record labels for yet another lunch. The twist to all of this is – does iCloud grant you immunity from prosecution for copyright infringement for sharing or downloading music however you wish to? We shall see.

Fantasize with me as we did in 2005…

It’s the year 2015 and you wake to a familiar tune playing softly. It gets you out of bed and makes you feel good. As you walk into the bathroom, your Personal Media Minder activates the video display in the mirror, and you watch a bit of personalized news while you get ready for the day. You step into the shower and your personalized music program is ready for you, cued up with a new live version of a track that you downloaded the other day. It is even better than the original recording, so while you dress, you tell your “TasteMate” program to include the new track in your playlist rotation.

You put on your new eyeglasses, which contain a networked audio headset, letting tiny earbuds slip into your ears. You switch on the power, and the mix that your friend made for you starts to play. Music pours into your consciousness. It becomes yours.

During the day, your headset and other wireless devices help you communicate across the network, with your friends, associates, network buddies, and “digital peers.” The headset also keeps you connected to that hard rock collection that you really love to listen to. Meanwhile, a variety of new songs, new versions, and remixes of tracks you truly dig, along with your old favorites, continues to come your way. Using TasteMate, you access and trade playlists, and recommend a couple of songs to your friend in Seattle, and they get added to his rotation. Music propels you throughout the day.

This is the future of music– a future in which music will be like water: ubiquitous and free flowing. In this future, music will be ubiquitous, mobile, shareable, and as pervasive and diverse as the human cultures that create it. Many of the already ill-fitting definitions of copyright and intellectual property and patent laws will be adapted to fit the “music like water” model that we propose–in a way that ensures the enjoyment and benefit of society as a whole, and that allows all involved parties to prosper.

David Bowie encapsulated the current state of affairs in a June 2002 New York Times article:
“The absolute transformation of everything that we ever thought about music will take place within ten years, and nothing is going to be able to stop it. I see absolutely no point in pretending that it’s not going to happen. I’m fully confident that copyright, for instance, will no longer exist in ten years, and authorship and intellectual property is in for such a bashing. Music itself is going to become like running water or electricity. [ . . . ] So it’s like, just take advantage of these last few years because none of this is ever going to happen again. You’d better be prepared for doing a lot of touring because that’s really the only unique situation that’s going to be left. It’s terribly exciting. But on the other hand it doesn’t matter if you think it’s exciting or not; it’s what’s going to happen . . .”

Let’s run the numbers. As I outlined in Forbes, with hundreds of millions of people connected to digital networks, the potential annual revenue stream for this is enormous. At $25 per person, if 200 million people opted in for iTunes Match, the service would gross $5 billion a year just for the ability to provide access to any song on any device, and let you pirate all the music you want to at will. Add to that the money from new songs you purchase, premium access, increased storage, exclusive concerts and the recording industry may see a bottom to its revenue decline, and could begin to rebuild from there. Seem counter intuitive? The record business will never be the same again, but maybe (just maybe) it will not go extinct.

And it remains to be seen if iTunes Match will grant you complete immunity from prosecution for copyright infringement. Kind of like AppleCare for pirates.  There are lots of moving parts to this story.

Welcome to the future.

This piece originally appeared in the Huffington Post.

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.

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.