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iTunes, DRM and Artist Royalties

Earlier this week, alarm bells were ringing when a quote from Apple in 2007 found its way back to the top of the news heap. That quote? That if royalties were to change to a point of being unprofitable to Apple, it would shut its iTunes store down. Now even the thought of this, among Apple and its competitors, has been brewing frightening thoughts for the consumers for a while due to the fact that virtually all the music these stores sell is DRM protected. Of course, the DRM is built into the song, so what exactly happens if the company selling the songs ends their existence? Well, it looks like the DRM for the material would expire, leaving consumers with hundreds if not thousands of “purchased” songs that will no longer play anywhere. As a music lover (and legal buyer of mp3s), this kind of news, even if it is an undeveloped thought, causes a good deal of frustration. Here the studios want consumers to pay for music, foregoing the option of downloading all the music they want illegally for free, but the copyright protection within the music means that if the retailer goes down, the files go down with it? That’s like buying a CD at Tower which is then erased when Tower goes out of business (you all do still remember Tower, don’t you?)

So what can we do about it when the very mechanism that has allowed music labels to go digital, and therefore the infrastructure that controls all of our legal downloads, is compromised by companies willing to close their DRMs? Unfortunately, not much. Short of burning all of your DRM tracks to a CD and then re-ripping them to mp3s to strip of them of their DRM (and some sound quality in the process), if a store goes down and discontinues its DRM licensing, all the tracks you’ve bought could die on your iPod. This to me seems like the ultimate Trojan horse of the music industry…we don’t want you to have mp3s, but if you do, we’ll create a way so that once they’re in your music library, should the stores you bought them from close, we’ll demolish your entire music collection from the inside.

I understand the purpose of DRM, but unfortunately its just not a viable business model if there are ways to stop the music playback at any point after the purchase. The point of buying music is that you have it forever. All the CDs I bought are still mine and will be mine for as long as I manage not to lose or damage them. The idea that you could buy a song which at some point in the future becomes unusable is, to me at least, outrageous.

The reason that all of this has come about this week is because the Copyright Royalty Board (CRB) was weighing a decision to raise the artist royalties on digital downloads from 9.1 cents per song to 15 cents a song. From what I can ascertain from the article announcing the steady royalty fees, a .99 cent iTunes song is sold like this…

1) Apple sells the song for .99. 2) Apple keeps .29. 3) Apple gives .70 to the record label. 4) Record label gives the artist 9.1 cents, keeping 60.9 cents. I don’t know about you, but even at 9 cents a song, it seems like the labels and iTunes are getting over on the artist. Are we really supposed to believe that the iTunes store deserves to keep almost three times as much money for a song it sells than the artist receives?

What this scare does do is make it painfully obvious that the record labels and online music stores need to create a way and find a method to allow consumers to legally retain their music, no matter what happens to the store you buy it from. Should royalty rights eventually be raised in favor of the artist, it would be a travesty for Apple to claim it can no longer operate iTunes profitably (with the number of sales they have per year and the fact that they’re getting money just to be a middle man, it would be very hard for me to accept the idea that they aren’t profitable), disable the DRMs and leave music consumers with a bunch of dead and unusable files. Apple needs to show a little more foresight and decency when it comes to wolf cries of lost profits with a change from 9.1 to 15 cents of royalty. This could have been Apple simply playing politics in order to protect its profit margin, but even then the greed factor, given what the artists out there are making, comes into play.

For now (the CRB’s decision lasts 5 years), it appears we can rest easy. But it makes it clear that more thorough examinations of the digital music sales industry, DRM technology and what the rules and technology mean to consumers are necessary and should not be ignored.

Upcoming: SanFran MusicTech Summit 10.20.08

The SanFran MusicTech Summit is making yet another appearance next month (Oct 20th). If you missed the first two summits (which we covered here and here) and are anywhere near the bay area, I highly suggest you get yourself a ticket. (Or at least follow the live Twitter stream if you can’t be there in person).

Photo by Samantha Murphy

In their own words, the summit strives to “bring together the best and brightest developers in the Music/Technology Space, along with the musicians, entrepreneurial business people, and organizations who work with them at the convergence of culture and commerce.” Whether you want to learn about the evolving music industry from the people who are most entrenched in it, introduce your product or business to the audience that most needs it, or just be a part of the (r)evolution that is taking place, it’s a great experience.

Between the intense panels (some of which involve heated discussions analyzing complex issues and some of which simply celebrate the exciting innovations at the intersection of music and technology), the relaxed and stimulating networking opportunities, and the insane amount of intellectual and creative juices that are flowing, there is much to look forward to. Brian Zisk continues to impress with his increasingly popular and well-run event that is more relevant now than ever before.

So, what are you waiting for? Go buy your tickets here.

The Future of Copyright Law: Moral Rights & Attribution for Music

As a musician, my biggest concern with releasing my music over the web for others to remix is not that I’ll get paid if money is made, but that I’ll be attributed for my work. This is because, as an unsigned and unknown artist, I am currently more interested in cultivating a fan base than profiting from my art. As I see it, I will find creative ways to profit from my work once I have actually formed something that resembles a fanbase.

A good way of providing artists with attribution, irrespective of the destiny of their art, is through implementing a moral rights scheme that would ensure attribution for authorship, even if ownership of the music belongs to a third party. Originally laid out in Article 6bis of the Berne Convention of Literary and Artistic Works, moral rights were extended to music in 1996 through the WIPO Performances and Phonograms Treaty. Article 5(1) of that treaty reads: “Independently of a performer’s economic rights, and even after the transfer of those rights, the performer shall, as regards his live aural performance or performance fixed in phonograms, have the right to claim to be identified as the performer of his performances…and to object to any distortion, mutilation or other modification of his performances that would be prejudicial to his reputation.”

Moral rights generally include three rights: the right of attribution, the right to have a work published anonymously or pseudonymously, and the right to the integrity of the work. These rights are separate from economic rights, and belong exclusively and perpetually to the original creators of the work, and not any third party who assumes ownership of a copyright, such as a record label.

In the music context, I don’t believe in the right to integrity, as in my mind, a piece of music is never finished, but rather constantly evolving. But, the right of attribution is paramount in the digital context. Since media can so easily be shared today, sharing should be embraced as long as the original authors are always attributed. Creative Commons has embraced this notion since its inception, and it’s time for Congress to recognize that this needs to be added to the Copyright Act to meet the necessities of the digital era. In fact, the United States Court of Appeals held, in Jacobsen v. Katzer, that Creative Commons licensors are entitled to copyright infringement relief. This means that if somebody uses a CC work that requires attribution without attributing the original author, a claim for copyright infringement exists.

With this legislative change, the US, a Berne and WIPO signatory, would seemingly be killing three birds with one stone: 1) deal with copyright law’s inadequacy in the digital age, 2) comply with Berne by adopting am adequate Moral rights scheme, and 3) comply with the WIPO treaty by extending moral rights to music. While the US became a member of the Berne Convention in 1989, the US has chosen to narrowly adopt a moral rights scheme and to apply it exclusively to visual arts under the Visual Artists Rights Act (VARA) of 1990. By omitting to do so, the US is failing to comply with the Berne convention and the 1996 WIPO Performances and Phonograms Treaty. So, maybe its time for Congress to actually got off its ass! I mean, are musicians less important that visual artists? Or is it that visual artists have more lobbying power?

An adoption of a music moral rights scheme would greatly tickle my paranoid pickle in the digital era, and it would help me feel comfortable in distributing my digital music in creative and innovative ways. Evolve, damnit!

Wait, You're Telling Me the Long Tail Is Flat?

Have you heard the news? Apparently the long tail is flat. For those of you unfamiliar with the long tail, it’s a theory coined by Chris Anderson (The Long Tail: Why the Future of Business is Selling Less of More) that describes the niche strategy of businesses that sell a large number of unique items in relatively small quantities. Because of the low overhead incurred through the selling of digital products, the long tail was supposed to help retailers of less popular items earn significant profit by selling small volumes of hard-to-find items to many customers (instead of only selling large volumes of a reduced number of popular items).

For musicians, the long tail of music was supposed to help redistribute the wealth a bit in the music industry. It was supposed to shift the industry away from having a few big artists that earn large profits to having many smaller indie/niche artists that earn moderate profits. The notion behind this was that through digitization, niche releases are more accessible to fans and thus easier to discover, purchase, and consume. Through this long tail of music, a musician’s middle class was supposed to have been formed. Well, where is this musician’s middle class that Gerd Leonhard and Dave Kusek wrote about a few years ago? Why has the long tail not proved to be commercially viable? Why aren’t niche artists profiting from their art online?

I suspect that the long tail theory is still viable for indie and unsigned artists to make money from their works. It’s undeniable that given the low overhead of making and distributing digital music, an artist could sell less and make more. Plus, there are more licensing/placement opportunities today than ever before and there are plenty of sites that help musicians leverage this. But still, why then is the long tail flat?

In my mind, there are three main reasons:

First, Creative Commons licensing has failed to help musicians monetize their works. Any notion of CC providing a viable profit mechanism for musicians is a pipe dream. The purpose of CC licensing is to expand the range of works available for others to legally share and collaborate on. It’s clear that this is the direction that Copyright Law should go in. It’s also undeniable that CC has a noble purpose that contributes to more creative works for the general public to enjoy. But, CC hasn’t actually been leveraged to make artists licensing works under it any money.

While the reason I make music is not to make money, I certainly wouldn’t mind seeing a little profit from my works. Perhaps, CC has overlooked this. With the vast number of works distributed under CC, how can their collective power be leveraged to compete against the market power of bigger acts. Isn’t this what the long tail is all about? If CC doesn’t figure this out, how can it reasonably expect to be an appropriate solution for distributing creative works? Right now, CC licenses seem like a better fit for reference works that people can use to share knowledge. But for unique works of art, the notions of sharing and monetization must be intertwined. Wouldn’t you rather your favorite artists not get a day job so that they can always be making new music for you?

Second, long tail artists haven’t been working collectively to distribute their music. It’s hard to argue against the power in numbers; simply put, the more people that work together on a common purpose, the higher the chance that purpose is achieved. This is the underlying theory that the American Revolution was built on (“Join or Die” anyone?), that collective bargaining is based on, and that a shit ton of sites on the web base their successful business models on (Craigslist is a classifieds aggregator; eBay is an auction aggregator). So, why aren’t long tail musicians taking advantage of this?

There have been some attempts to do this, and some are even successful. Magnatune, for example, aggregates CC works and sells them in an Itunes style store. But the biggest vault of CC works, ccMixter (CC’s own music sharing/collaboration community), has no monetization whatsoever, not even ads (which its artists could perhaps see a rev share on). Why hasn’t ccMixter leveraged the collective power of its community to make its members some money? Because of this, CC licensing seems to be more effective as a marketing tactic than a new rights management system — license one song under CC, have fans share and remix it, and have this exposure trickle over to other songs which are sold.

Merlin is a good example of an organization that is thinking about the collective power of long tail musicians. Merlin is the world’s first global new-media rights licensing agency that manages new-media rights for indie artists. The collective market share of Merlin artists is larger than EMI’s market share. That’s right, its market share is on par with the majors. Through this mechanism, indie acts can punch above their weight to eat like a bird and shit like an elephant. And while Merlin dropped the ball a bit on the negotiations, it wil be successful if it can find novel ways to leverage the power of its artists.

Third, long tail musicians haven’t been presented with the right ways of creatively distributing their music so that they can actually make a profit. Despite the digital boom, it’s still hard for unsigned and indie musicians to make much money form selling finished songs. While it’s easy to give fans the option of buying a song, the reality is that more music is now being distributed than ever before and musicians have to compete against other long tail musicians and the many options consumers have to get the music for free.

What seems to be happening is that long tail artists are stuck on the notion of just selling finished works. If Merlin fails, it will certainly be because of this. Instead, long tail artists need to look to aggregating as many sources of revenue as possible, and to create as many value adds for their music as they can. A finished song should only be a part of the value proposition an artist gives a fan. If these value adds are engaging and give fans a new experience, they will convert casual fans into loyal fans and will give them a reason to financially support artists. While there are tools on the web such as Topspin, ReverbNation, and AWAL that currently target indie and unsigned artists, these services need to recognize that focusing on selling finished works may not be entire answer.

So how are we to aggregate and distribute the long tail of music so that its collective power starts making an economic fuss? How do we improve music discovery so more of these artists get discovered? And if we’re not able to sell songs, what other kinds of value adds can we give fans to boost our brands and how do we monetize those value adds? The answers to these questions are at the heart of a the type of service that unsigned/indie musicians need to profit from their works in this new era of music. Soon, we will all find out.

WTF is Music Publishing?

As a law student who geeked out on Copyright law, the single most frequent question I’m asked is: “Dude, what the hell is music publishing?” This is a very loaded question that triggers a discussion about music Copyright law and the various royalties that stem from each music Copyright.

Copyright law divides the musical process into two parts: (1) the writing of the song and (2) the recording the song. This is a distinction most DIY cats don’t make because they’re doing both! But, in the “traditional” (and rapidly fading) music industry, the songwriters wrote the songs and the recording artists recorded and performed the songs (except for the singer/songwriters who did both). Most likely, you’ve never heard of the songwriters, but are overly familiar with the recording artists.

There are thus two copyrights that apply to music (both of which come with “exclusive rights“):

1. Copyright for the Song (form PA): This covers the underlying musical composition of the song (music and lyrics) and belongs to the songwriters/music publishers. It covers the writing of the song itself, as opposed to a recording of the song.

2. Copyright for the Recording of the Song (form SR). This covers the audio recording that is made of a song. It covers the actual recording of a particular composition, and belongs to recording artists/record labels.

So, music publishing is the business of creating/administering/monetizing the copyrights for the song. Record labels, on the other hand, do the same for the sound recordings (the “Masters”). While a song is only “written” once (and can only be copyrighted once), many different sound recordings can be made of the same song (and each recording would have its own sound recording copyright). Once a first recording (“first use”) is made of the song, anybody else can then “cover” the song based on the statutory royalty.

Note, I said “cover” and not “sample”. When you’re covering something you need permission from the songwriter, and not from the recording artist who recorded the famous version of the song. In the interest of creative growth, copyright law requires that the songwriters grant you permission , via a compulsory statutory royalty. If you’re covering something, you might be able to get the license here.

So, why should musicians care about this? For a moment, lets put aside the ongoing debate of where musicians earn most of their money. At least some of the money earned actually comes from the purchase or use (licensing) of the music. In an age where a successful musician must aggregate as many sources of revenue as possible (the long tail of music revenue, anyone?), musicians should be aware of the specific royalty chains that attach to each copyright.

From each of the two copyrights, a specific royalty chain ensues. Thus, there are royalties owed to the writers (the publishing side) and separate royalties owed to the recording artists (the Master side).

On the publishing/writer’s side:

1. Mechanical Royalties: Due from sale of recordings of the song through MP3s, CDs, LPs, etc. The current statutory rate is 9.1 cents or 1.75 cents per minute of playing time (whichever is greater).

2. Synchronization Licensing Fees: Due when a piece of music is “synced” or matched with a movie, tv show, commercial, video game, etc. These fees also apply to online audio-visual production.

3. Public Performance Royalties (via ASCAP, BMI, and SESAC): When a song is played/performed/streamed/broadcast publicly (on the radio, internet, on TV, etc), royalties are owed for this use. Performances are generally broken down into feature performances and background music. If there is a sync license deal, additional royalties are owed for the broadcast of the works the music is used in.

On the label/recording artist’s side (excluding tours/merchandise):

1. Money from the “exploitation” (sale) of the Masters in various formats (MP3, CD, LP, etc). For this, mechanical royalties are due on the publishing side.

2. Master Use Licensing: A sync license only covers the license for the composition of the song, and a separate license needs to be obtained for the use of the masters.

3. Digital Performance (via Sound Exchange): There is a limited public performance right in sound recordings when performed by digital transmission (generally, there is are no public performance rights in sound recordings). For most digital performances, there is a compulsory statutory license, but for some a case-by-case license fee is negotiated.

So, if you want to make as much money as you can off your music, you gotta mix and match your revenue streams. A general understanding of both publishing and sound recording law is thus pretty darn helpful!

A good reference for the issues covered in this post is, Music, Money, and Success by Jeffrey and Todd Brabec. Please note that this post attempts to provide an overview of music law, but by no means covers all the issues that arise. Please don’t take this as legal advice!