This is certainly not my area of expertise, and I am not sure if Michael Masnick had antitrust laws in mind when he blogged, but I do think that an intent of US antitrust law was to prevent entities from becoming so big that they would drag down the larger economy with their failure
I think these original laws need to be reinforced and/or enforced to prevent future crises
The increased consolidation that has resulted from bailouts and other government meddling may have strengthened the economy in the short term, but it puts the economy at greater risk in the long term. I think Robert Reich said it best when he said something like "If an entity is 'too big to fail,' it's just too big!" (Hope I am not misquoting.)
I try to disclose my professional bias via my "Auditrix" username and links. However, when I mention in posts that I am a royalty auditor, I am often accused of plugging my services, so it is difficult to strike the right balance between disclosure and self-promotion.
In general, I usually disagree with Techdirt, but I like to read and discuss anyway.
Although I completely disagree with Mr. Masnick on this matter, I thought he would be interested to know some of the back story, according to an insider I know:
Live Universe endeavored to license the lyrics from publishers. It went to the expense and trouble of executing most of the licenses, ran out of money and never paid the advances. Live Universe's goal was to have legal sites and work with the publishers to shut down unlicensed competing sites (the sites that Mr. Masnick supports).
So, Live Universe didn't want to be an unlicensed site, but it became one.
Not only did Live Universe fail to live up to its deals with publishers, but it also failed to make the advances and payments it was required to make to the original owners of the lyrics sites it acquired. Therefore, Live Universe may no longer own or control the sites in question because the original webmaters might have taken back back the ownership, and some of these webmasters are outside the USA, so they will avoid the current litigation.
I don't assume artists must sell records to be successful. It is a metric, but not the only one. The majors know this, hence their insistence on 360 deals, although those haven't been very successful for the record companies, so far.
Incidentally, since it is somewhat relevant to the topic Masnick raised, 360 deals do turn the record company/artist relationship inside out in some instances. For example, sometimes the artist must account to the record company.
Surely less than one percent of artists get major label deals and only one in ten major label artists makes a profit for the label.
I would agree that if an unknown artist can't get a record deal in the first place, hiring a PR service might be an improvement, except... I know more independent artists who have lost money by hiring a PR service than those who have increased profits this way. That's just anecdotal, though.
Yes, copyright owners can sell their copyrights if there is a market for such copyrights. I think I am missing your point.
I disagree with you that the status quo is generous to "large" artists. Artists that are hugely successful pay for the other 90% of artists who are unprofitable. Successful artists are also the ones who get cheated out of tens of millions of dollars (I know because it's my job to find all that hidden money).
I agree that the majors' physical distribution systems are less of an advantage than in the past, but major record companies offer much more than distribution: financing for records, videos, touring, not to mention a level of marketing that few independents can offer.
I don't evaluate success based on selling a million downloads, but I am asking the question, how many artists have gone from unknown to superstars without being party to the old system at some point? Reznor is a poor example of this for several reasons, including that he became famous under the old system. As I pointed out in my intial post, the new models work for artists like Reznor who are already profitable and famous. But what about getting the next big thing to listeners around the world? What new artists broke out big time without help from a major label? It seems like the few who have are flukes.
As an artist advocate, I am interested in emerging business models. However, there are downsides to artists retaining ownership in their masters and hiring record companies to help with marketing. First and foremost, Blue Scholars' model requires artists to assume most of the financial risk.
I think this is in the artist's best interest less than ten percent of the time (i.e., only in cases where the artist is already or becomes profitable). The other 90+% of the time, the artist will lose money.
If I were an unestablished artist looking to break through, I would want the financial backing of a major label to increase my chances of success and minimize my losses. If I became wildly successful, then I would be interested in an arrangement like the Blue Scholars'.
I don't know about you, but I can't name even five artists who have *sold* more than 1 million downloads or physical records without a major label partnership. Can you? If so, let me know - they probably need to audit their licensees at this point!
The SoundExchange monopoly was improperly strengthened by the US Copyright Royalty Board, which doesn't incentivize the parties to reach fair market rates. See my blog today.
However, the 2009 SoundExchange rates are not as "ridiculously high" as Mr. Masnick suggests. Moreover, record companies are desperate to monetize digital uses, so if the rates put too many webcasters out of business, SoundExchange may be agreeable to a reduction.
In my view, the United States is long overdue to require master and video performance royalties, like the rest of the world before it.
Do you know that other countries worldwide refuse to pay US artists and record companies performance royalties solely due to the fact that we in the USA do not reciprocate?
Considering the international stardom of so many US artists, the US has forgone a significant stream of income for a long time. When the US begins paying out such master performance royalties to foreign entertainers, it stands to collect untold millions of dollars from foreign collection societies.
Music is valuable. If the webcaster business model doesn't account for that, then it needs to change. Owners and creators are entitled to their fair share of the revenue pie.
I just think all of this would work better if SoundExchange had competitors and artists could designate their own affiliations, including agents with lower rates.
Speaking of Youtube profits...When Google acquired YouTube, The New York Times reported that YouTube gave each record company an equity stake that just hours later was valued at up to $50 million from the Google acquisition.
But the record companies haven't shared a penny of it with artists, including my client who had the #1 Youtube video during the month leading up to his record company's "investment" with Youtube (really, it was a settlement agreement). My client drove millions of users to Youtube to see the video, which is what gave his record company the leverage it needed to negotiate its sweet "investment" deal with Youtube. That's why he and other artists like him deserve a chunk of his record company's profit on the deal.
Regrettably, so far, none of my clients' lawyers have had the gumption to hold the record companies' feet to the fire on this issue.
For those of you who think that Artists are lucky to have the exposure on Youtube, that may be true for unknown artists, but for artists like my client, what good is increased popularity when it cannibalizes your income? Youtube and the record companies have piggybacked artists' brand equity and my client has reduced income as a result, even though he may be more popular than ever (people don't want to buy his record when they can watch his videos for free on Youtube).
Beyond the measley share of ad revenue that the record companies finally began to report in late 2008, entertainment companies should be held accountable to share Youtube and other hidden profits with the content creators.
I just need a client with a lot of leverage who is willing to fight for this!!!
You hit the nail on the head when you pointed out that it isn't in the record companies' interest to account correctly.
Not only would the record companies have to hire enough competent staff and fix their royalty systems to accomplish this, but they would end up paying much more than they do under the current system, where the burden is on the artist to hire an auditor - and sometimes go to court - to get paid just some of what he is due. When you consider that probably less than 5% of artists ever conduct an audit, it is amazing to think of all of the money the record companies improperly pocket, unchallenged.
There really just isn't any incentive for the record companies to do the right thing.
You are correct that it is challenging to get affiliates in every country of the world to comply with reporting procedures and this does cause errors in the data that management uses to make decisions and on royalty statements. However, I do think that most of the record companies have reasonably reliable information regarding weekly sales figures.
I don't agree with you regarding most lawsuits relating to smaller markets. As an auditor who provides expert witness testimony and litigation support, I focus on the big markets because otherwise I will waste my client's money. Therefore, I know that most (if not all) of the lawsuits are for big money in major territorries.
The trend is to use recordings to drive other sources of revenue, but given the failure rate of 360 deals, the jury is still out on whether this is a viable model. I can assure you that at least some artists (including my clients) are still making money from record sales.
For physical sales of CDs, the record company recognizes a sale on the wholesale level, when it ships the CDs. However, CDs are returnable, so instead of reporting 100% of shipments to artists, record companies hold back some of the units as a "reserve" against returns and liquidate the reserve over time. (As a royalty auditor, sometimes I claim royalties for unreasonable reserves.)
For digital sales, the record company must receive a statement from the DSP (e.g., iTunes) before it knows how many units to report, so that is on a "retail" level. This is one of the reasons I disagree with the record companies' contention that digital downloads are sales and not licensing. (If they were sales, the record company would know how many it sold.)
I hope you are correct that the record companies won't keep obscuring records forever, but I am doubtful. I have been waiting for the public outcry for decades and it hasn't happened yet, despite congressional hearings, etc.
You are correct to suspect charges by affiliates of a record company. As a royalty auditor, I have made many claims for such improper charges, particularly if the arrangement was not at "arm's length."
However, now that WMG is no longer part of Time Warner and UMG is not part of NBC Universal, etc., it turns out that many of the charges against artist royalty accounts are legitimate costs charged by third parties, not affiliates (...although I am always looking for evidence that the third parties give the record companies kickbacks or phony invoices, which does happen but can be hard to prove). The bigger problem with affiliates are the intercompany fees they take off the top of the revenue, not so much the marketing costs.
However, regarding marketing costs charged to artists, a trend that I have noted over the past five years is that recording contracts provide for the deduction of additional types of costs, including wardrobe and third party marketing, not just 50% of independent (radio) promotion charges, which was the standard for decades. If you are negotiating an agreement like this, at least require the artist's approval, so that your auditor can claim any unapproved charges upon audit.
With respect to your statement that "Artists get money out of the profit that their music makes," I just wanted to point out that major recording artists receive sizable royalty advances, and many such artists' records never become profitable for the record company. So, even though I am a strong artist advocate, I still think there are many artists out there who have received more money than they have earned. Bottom line: Most artists who complain about never receiving any money did receive enormous advance payments and are simply unrecouped. Whether the record company is correctly calculating and applying the artist's earnings to his unrecouped account(s) is a separate issue, but it is only relevant if the artist has the potential to recoup.
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Video Game Insurance (as Auditrix)
I know a great video game insurance broker if you need one, which you may if you are a developer or publisher.
Re: Re: Hey, wait a minute (as Auditrix)
This is certainly not my area of expertise, and I am not sure if Michael Masnick had antitrust laws in mind when he blogged, but I do think that an intent of US antitrust law was to prevent entities from becoming so big that they would drag down the larger economy with their failure
I think these original laws need to be reinforced and/or enforced to prevent future crises
The increased consolidation that has resulted from bailouts and other government meddling may have strengthened the economy in the short term, but it puts the economy at greater risk in the long term. I think Robert Reich said it best when he said something like "If an entity is 'too big to fail,' it's just too big!" (Hope I am not misquoting.)
Re: Re: Additional Information (as Auditrix)
Hi Marcus,
I try to disclose my professional bias via my "Auditrix" username and links. However, when I mention in posts that I am a royalty auditor, I am often accused of plugging my services, so it is difficult to strike the right balance between disclosure and self-promotion.
In general, I usually disagree with Techdirt, but I like to read and discuss anyway.
Additional Information (as Auditrix)
Although I completely disagree with Mr. Masnick on this matter, I thought he would be interested to know some of the back story, according to an insider I know:
Live Universe endeavored to license the lyrics from publishers. It went to the expense and trouble of executing most of the licenses, ran out of money and never paid the advances. Live Universe's goal was to have legal sites and work with the publishers to shut down unlicensed competing sites (the sites that Mr. Masnick supports).
So, Live Universe didn't want to be an unlicensed site, but it became one.
Not only did Live Universe fail to live up to its deals with publishers, but it also failed to make the advances and payments it was required to make to the original owners of the lyrics sites it acquired. Therefore, Live Universe may no longer own or control the sites in question because the original webmaters might have taken back back the ownership, and some of these webmasters are outside the USA, so they will avoid the current litigation.
Re: Re: Risk (as Auditrix)
Hi Coward,
I don't assume artists must sell records to be successful. It is a metric, but not the only one. The majors know this, hence their insistence on 360 deals, although those haven't been very successful for the record companies, so far.
Incidentally, since it is somewhat relevant to the topic Masnick raised, 360 deals do turn the record company/artist relationship inside out in some instances. For example, sometimes the artist must account to the record company.
Surely less than one percent of artists get major label deals and only one in ten major label artists makes a profit for the label.
I would agree that if an unknown artist can't get a record deal in the first place, hiring a PR service might be an improvement, except... I know more independent artists who have lost money by hiring a PR service than those who have increased profits this way. That's just anecdotal, though.
Thanks for your reply.
Re: Re: Risk (as Auditrix)
Hi Ryan,
Yes, copyright owners can sell their copyrights if there is a market for such copyrights. I think I am missing your point.
I disagree with you that the status quo is generous to "large" artists. Artists that are hugely successful pay for the other 90% of artists who are unprofitable. Successful artists are also the ones who get cheated out of tens of millions of dollars (I know because it's my job to find all that hidden money).
I agree that the majors' physical distribution systems are less of an advantage than in the past, but major record companies offer much more than distribution: financing for records, videos, touring, not to mention a level of marketing that few independents can offer.
I don't evaluate success based on selling a million downloads, but I am asking the question, how many artists have gone from unknown to superstars without being party to the old system at some point? Reznor is a poor example of this for several reasons, including that he became famous under the old system. As I pointed out in my intial post, the new models work for artists like Reznor who are already profitable and famous. But what about getting the next big thing to listeners around the world? What new artists broke out big time without help from a major label? It seems like the few who have are flukes.
Risk (as Auditrix)
As an artist advocate, I am interested in emerging business models. However, there are downsides to artists retaining ownership in their masters and hiring record companies to help with marketing. First and foremost, Blue Scholars' model requires artists to assume most of the financial risk.
I think this is in the artist's best interest less than ten percent of the time (i.e., only in cases where the artist is already or becomes profitable). The other 90+% of the time, the artist will lose money.
If I were an unestablished artist looking to break through, I would want the financial backing of a major label to increase my chances of success and minimize my losses. If I became wildly successful, then I would be interested in an arrangement like the Blue Scholars'.
I don't know about you, but I can't name even five artists who have *sold* more than 1 million downloads or physical records without a major label partnership. Can you? If so, let me know - they probably need to audit their licensees at this point!
Streaming is the Future (as Auditrix)
Why would you download if you didn't have to?
SoundExchange Monopoly (as Auditrix)
The SoundExchange monopoly was improperly strengthened by the US Copyright Royalty Board, which doesn't incentivize the parties to reach fair market rates. See my blog today.
However, the 2009 SoundExchange rates are not as "ridiculously high" as Mr. Masnick suggests. Moreover, record companies are desperate to monetize digital uses, so if the rates put too many webcasters out of business, SoundExchange may be agreeable to a reduction.
In my view, the United States is long overdue to require master and video performance royalties, like the rest of the world before it.
Do you know that other countries worldwide refuse to pay US artists and record companies performance royalties solely due to the fact that we in the USA do not reciprocate?
Considering the international stardom of so many US artists, the US has forgone a significant stream of income for a long time. When the US begins paying out such master performance royalties to foreign entertainers, it stands to collect untold millions of dollars from foreign collection societies.
Music is valuable. If the webcaster business model doesn't account for that, then it needs to change. Owners and creators are entitled to their fair share of the revenue pie.
I just think all of this would work better if SoundExchange had competitors and artists could designate their own affiliations, including agents with lower rates.
The Secret Youtube Profits of *Record Companies* (as Auditrix)
Speaking of Youtube profits...When Google acquired YouTube, The New York Times reported that YouTube gave each record company an equity stake that just hours later was valued at up to $50 million from the Google acquisition.
But the record companies haven't shared a penny of it with artists, including my client who had the #1 Youtube video during the month leading up to his record company's "investment" with Youtube (really, it was a settlement agreement). My client drove millions of users to Youtube to see the video, which is what gave his record company the leverage it needed to negotiate its sweet "investment" deal with Youtube. That's why he and other artists like him deserve a chunk of his record company's profit on the deal.
Regrettably, so far, none of my clients' lawyers have had the gumption to hold the record companies' feet to the fire on this issue.
If you are remotely interested in this issue, I encourage you to read Marc Cuban's 2006 re-post of a report from an anonymous source that is at least mostly true: http://blogmaverick.com/2006/10/30/some-intimate-details-on-the-google-youtube-deal/
For those of you who think that Artists are lucky to have the exposure on Youtube, that may be true for unknown artists, but for artists like my client, what good is increased popularity when it cannibalizes your income? Youtube and the record companies have piggybacked artists' brand equity and my client has reduced income as a result, even though he may be more popular than ever (people don't want to buy his record when they can watch his videos for free on Youtube).
Beyond the measley share of ad revenue that the record companies finally began to report in late 2008, entertainment companies should be held accountable to share Youtube and other hidden profits with the content creators.
I just need a client with a lot of leverage who is willing to fight for this!!!
Re: Sarbanes Oxley (as Auditrix)
A monkey can do SOX.
Re: (as Auditrix)
It depends on what the agreement says!
Re: Er... (as Auditrix)
Dark Helmet,
You hit the nail on the head when you pointed out that it isn't in the record companies' interest to account correctly.
Not only would the record companies have to hire enough competent staff and fix their royalty systems to accomplish this, but they would end up paying much more than they do under the current system, where the burden is on the artist to hire an auditor - and sometimes go to court - to get paid just some of what he is due. When you consider that probably less than 5% of artists ever conduct an audit, it is amazing to think of all of the money the record companies improperly pocket, unchallenged.
There really just isn't any incentive for the record companies to do the right thing.
Re: (as Auditrix)
Hi Anonymous Coward,
You are correct that it is challenging to get affiliates in every country of the world to comply with reporting procedures and this does cause errors in the data that management uses to make decisions and on royalty statements. However, I do think that most of the record companies have reasonably reliable information regarding weekly sales figures.
I don't agree with you regarding most lawsuits relating to smaller markets. As an auditor who provides expert witness testimony and litigation support, I focus on the big markets because otherwise I will waste my client's money. Therefore, I know that most (if not all) of the lawsuits are for big money in major territorries.
Re: Re: few reasons (as Auditrix)
The trend is to use recordings to drive other sources of revenue, but given the failure rate of 360 deals, the jury is still out on whether this is a viable model. I can assure you that at least some artists (including my clients) are still making money from record sales.
Re: Wholesale vs. Retail Sales (as Auditrix)
For physical sales of CDs, the record company recognizes a sale on the wholesale level, when it ships the CDs. However, CDs are returnable, so instead of reporting 100% of shipments to artists, record companies hold back some of the units as a "reserve" against returns and liquidate the reserve over time. (As a royalty auditor, sometimes I claim royalties for unreasonable reserves.)
For digital sales, the record company must receive a statement from the DSP (e.g., iTunes) before it knows how many units to report, so that is on a "retail" level. This is one of the reasons I disagree with the record companies' contention that digital downloads are sales and not licensing. (If they were sales, the record company would know how many it sold.)
Re: Along for the ride (as Auditrix)
I hope you are correct that the record companies won't keep obscuring records forever, but I am doubtful. I have been waiting for the public outcry for decades and it hasn't happened yet, despite congressional hearings, etc.
Re: Marketing Costs (as Auditrix)
Hi Anonymous Coward:
You are correct to suspect charges by affiliates of a record company. As a royalty auditor, I have made many claims for such improper charges, particularly if the arrangement was not at "arm's length."
However, now that WMG is no longer part of Time Warner and UMG is not part of NBC Universal, etc., it turns out that many of the charges against artist royalty accounts are legitimate costs charged by third parties, not affiliates (...although I am always looking for evidence that the third parties give the record companies kickbacks or phony invoices, which does happen but can be hard to prove). The bigger problem with affiliates are the intercompany fees they take off the top of the revenue, not so much the marketing costs.
However, regarding marketing costs charged to artists, a trend that I have noted over the past five years is that recording contracts provide for the deduction of additional types of costs, including wardrobe and third party marketing, not just 50% of independent (radio) promotion charges, which was the standard for decades. If you are negotiating an agreement like this, at least require the artist's approval, so that your auditor can claim any unapproved charges upon audit.
With respect to your statement that "Artists get money out of the profit that their music makes," I just wanted to point out that major recording artists receive sizable royalty advances, and many such artists' records never become profitable for the record company. So, even though I am a strong artist advocate, I still think there are many artists out there who have received more money than they have earned. Bottom line: Most artists who complain about never receiving any money did receive enormous advance payments and are simply unrecouped. Whether the record company is correctly calculating and applying the artist's earnings to his unrecouped account(s) is a separate issue, but it is only relevant if the artist has the potential to recoup.