eMusic Tries To Defend Price Increase... Still Seems To Be Missing The Point

from the nice-try dept

We recently posted about the incredibly poor communications job eMusic did in announcing a price increase at the same exact time as it signed up with Sony Music, its first major record deal. For many eMusic customers, the two events were (not surprisingly) seen as being connected. Even worse, some users were then apparently censored when complaining about it. There was a little mini-drama after we posted about that -- as eMusic contacted us to insist that it was absolutely not true, and that they had not deleted any comments. So we updated the post... and then more and more people demonstrated increasingly damning proof that eMusic flat out lied to us, and that they had, in fact, removed comments.

Either way, eMusic's CEO spoke with Wired earlier this week to try to explain the situation and defuse some of the controversy, and the best he could come up with was basically claiming that the price increase had nothing to do with Sony Music at all, but that it was the indie labels who had been demanding it. So why tie the announcement to the Sony announcement?

We were looking for a "catalyzing event" to do it. And really, the catalyzing event is adding catalog, adding more content. We used this as an opportunity to do it, but we didn't do it because of Sony. We did it because in order to sustain the economics for our label suppliers and their artists, we needed to do it.

While this is what I had assumed happened in my original post, it still doesn't excuse the actions of the company. It makes you wonder how eMusic could be so tone deaf to the sort of customers it has (folks who love indie music, for the most part), that they would think that people wouldn't automatically associate the inclusion of a major record label's content with the price increase. Waiting for a "catalyzing event" doesn't make much sense -- especially when that "catalyzing" might not be at all what users want.

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Sirius XM Passing Music Royalty Rates On To Subscribers, Raising Lots Of Questions

from the disparity dept

Beginning at the end of July, Sirius XM satellite radio subscribers will see an extra charge of about $2 per month on their bill, as the company will begin passing along the music royalty rates it must pay to subscribers. We've written a lot about music royalties and licenses, particularly about how they serve to stifle the very innovation the music industry needs to survive, in favor of upfront demands for cash -- money which seems to have a hard time making its way to artists. This news from Sirius XM not only is likely to raise the hackles of its subscribers, but also raises some questions about the royalty system, and how it affects consumers.

First, the royalty rate for Sirius XM was set by the CRB at 6.5% of gross revenues for 2009, increasing by half a percent per year over the following three years. So why, then, is Sirius XM charging a $1.98 fee -- or 15.2% -- on its $12.95 monthly subscription fee? That seems like much more than "passing along" the royalty rate. As part of the governmental approval for the merger of Sirius and XM, certain conditions were placed on the company, including a three-year price freeze. The company has gotten around this before by separating out services, like online listening, that used to be included in the general subscription fee, then requiring an additional charge for them. Now it looks to be getting a boost by "recovering" a significantly higher percentage of its subscription fees than it must pay out in royalties. The FCC's merger conditions allow the company to pass the royalty fee on to consumers -- but why would they let the company pass on a fee almost three times as high as the actual royalty rate? Mobile phone companies have used similar "fees" to pad their revenues for some time, and the FCC apparently doesn't mind that, either.

Second, and perhaps more importantly, this situation highlights the disparity in how the music royalty rates are applied. Terrestrial radio broadcasters, unlike satellite broadcasters, don't have to pay musicians (or, rather, their labels) royalties. Satellite radio was presumably, an easier target for the likes of the RIAA, given its relative lack of lobbying strength, so the industry cartel defined it as an "interactive" service -- industry-speak for "pay us more money." It's hard to see how satellite radio is really any different than terrestrial radio, except for a different business model, albeit one with the same end, so it's also hard to understand why the two should be treated differently from a royalty perspective. The RIAA and its cronies have been working to change this -- by trying to force terrestrial broadcasters to pay up as well. They call radio "a kind of piracy", again ignoring the fact that radio, whether it's satellite or terrestrial, promotes their products. The National Association of Broadcasters, which represents traditional broadcasters, likely doesn't really mind the fact that Sirius XM has to pay royalties, given its well-documented disdain for the company. But by standing idly by while Sirius XM gets hit with the royalty mandate, it weakens its own argument against its members having to pay royalties. The equitable solution here isn't really to force terrestrial broadcasters to pay up, to level the proverbial playing field. It's to eliminate the royalties that are hamstringing new services and promoting music. Sooner or later, the industry will figure this out -- but at this point, it looks like that realization will come only after it's run itself into the ground.

Carlo Longino is an expert at the Insight Community. To get insight and analysis from Carlo Longino and other experts on challenges your company faces, click here.

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