A blog for musicians and music industry people. It is a free educational resource and it is also the way I advertise my music consulting services. I am an entertainment professional with deep roots in the music industry. Throughout my music career I have been a major label A&R representative, a music supervisor, an artist manager, a reality show producer, a bass player and the head of a digital record label.
Posts Tagged ‘RIAA’
Experts talked about how music analytics are helping record labels, artists and others predict the future. And the film and music industries finally sued defunct online storage site Megaupload. Also, Forbes explored how Wu Tang Clan’s recent album release strategy is sparking sales and why replicating it might help other artists in the future.
Can Studying Music Metrics Help Build Stable Careers for Artists?
While labels, some artists and others have complained that the Internet has taken away their power, it can also help them see into the future and better predict marketing and sales strategies, reported The Guardian.
Before the Digital Age, music lovers would show support for their favorite artists by buying posters, t-shirts and physical copies of albums. But in the early years of digital downloads, before Last.fm and Spotify, fans could keep their listening habits private. While labels and artists could tell which radio station was playing specific songs or where CDs were popular, there was no real way to track information about what listeners were sharing with friends on tapes, CDs, etc.
Director of digital at Universal Music UK Paul Smernicki said, “The traditional metrics like sales told us a record or CD was sold, but nothing about what happened after that.”
Now, data from torrenting, music streaming sites and social media platforms is allowing the music industry to better understand fans and predict future superstars. Music analytics has exploded into an approximately $3 billion annually.
The music industry has always been full of talent scouts and tastemakers responsible for finding “the next big thing” before it was discovered by the rest of the world. However, now music analytics is turning finding future hits into a science.
Music analytics firm Musicmetric has been tracking thousands of artists for the past five years and can now pinpoint some signs that reveal whether or not a song or an artist will be a hit. A successful artist will have followers on Twitter, “like”s on Facebook and sales via sites like BandCamp.
Gregory Mead, chief executive of Semetric, the company behind Musicmetric stated, “It’s no different [from] a sensor in a factory that’s detecting vibrations on a machining piece, and when the vibrations start vibrating in a particular way they can detect that it’s going to fail.”
When an artist starts “buzzing in a certain way,” music industry experts can tell that artist will hit big. Mead said that in one study for an undisclosed client, they were able to predict with 90 percent accuracy who was going to hit #1 in three months.
However, making predictions means making sense of a huge amount of information coming from a variety of websites, platforms and services. Most artists have several albums and dozens of singles and music videos circulating across several platforms.
Mead admitted, “For a big artist like Katy Perry, there [are] about 19,000 different signals we have just for that artist. Each video, in each territory, on each platform, each release and each song and so on. No one’s going to be able to look at that [by hand].”
And the ultimate issue is being able to turn those “signals” into information a manager can use when choosing a tour route, or that a talent scout can use when deciding whether or not to follow up with an artist.
Spotify has also entered the metrics game. In March, the company acquired The Echo Nest, a U.S.-based music analytics company in order to improve its music discovery services. And competitor Next Big Sound was called “Moneyball for Music” by Forbes. The music industry is starting to realize that social data and big data are critical.
However, Mead stressed that the ability to scientifically predict a hit does not tell artists what music to make: “It doesn’t say this is the song you should make. It just tells you a little bit in advance that it’s going to be popular.”
He added that it also can create greater artistic diversity and see more closely into niche audiences and fan bases: “It opens up opportunities for artists to help promote themselves, rather than restrict everyone to conforming.”
Mead concluded, “It’s important to remember that it’s just a set of tools to help inform us. That data doesn’t make the decisions; that’s an un-replicable part of what we do.”
Entertainment Industry Finally Suing Megaupload
The Motion Picture Association of America (MPAA) and the Recording Industry Association of America (RIAA) filed civil suits against the out-of-commission online storage site Megaupload this past week. According to The Wire, the allegations are that the site willingly hosted pirated material and encouraged users to use the site for illegal purposes.
The site’s founder, Kim Dotcom was raided in January, 2012 when the FBI seized the Megaupload domain name and filed criminal charges.
RIAA’s complaint read, “To ensure a vast and ever-growing supply of popular copyrighted content to which they could sell premium access … defendants paid users to upload popular content to Megaupload’s servers.”
Dotcom’s lawyer, Ira Rothken responded, “The Department of Justice asserts that Megaupload cost the film and music industries more than $500 million. Online storage sites like Megaupload and video sites like YouTube that allow user accounts are normally protected against legal action for content uploaded by users. What makes this case different, according to the DOJ, is the claim that Megaupload actively encouraged copyright infringement.”
Wu-Tang Clan’s Sales Strategy: Wave of the Future?
Wu-Tang clan announced it would only be pressing one copy of the new release The Wu – Once Upon a Time In Shaolin, then put it up for auction after a museum listening tour. And music industry experts said it was just a publicity stunt. However, as Bobby Owsinski of Forbes pointed out, the “stunt” has worked, increasing the group’s visibility. And it also presents a case study for the methods behind Economic of Free, a theory concocted by economist Chris Anderson.
As Owsinski pointed out, The Economic of Free applies to modern music industry sales, because the artist has two kinds of products: infinite and scarce. “Infinite products” include digital music or videos, which are free to reproduce. “Scarce products” are custom CDs, CD box sets, signed merchandise and personal and exclusive access to musicians in the form of backstage passes, private concerts, etc.
The first principle of the theory is “Give some or all of your infinite products away for free in order to charge for the more scarce ones.” This is happening across the Internet with “freemiums.” For instance, when a user signs up for the free version of Pandora or Spotify and then likes the experience, that user can then purchase the ad-free version with better audio quality.
In the music industry, those transactions that embody the first principle involve “social currency,” such as a free download/exclusive content, traded for an email address. This type of transaction makes it possible for artists and bands to keep offering other products to fans that can be purchased later and bring in more revenue.
The second principle of the Economic of Free, said Owsinski is used less frequently, but is working well for Wu-Tang Clan: “The more scarce a product is, the more you can charge for it.”
Wu-Tang is only offering one copy of the album, so that album will be incredibly valuable to hardcore fans. The auction has yet to begun, and reports have already indicated some fans are willing to pay $5 million for the product.
Other artists offer limited-edition items like pictures, drum heads and guitars. However, the scarce items that are the most valuable to fans tend to be related to an experience rather than a product: backstage passes; entrance to a VIP room; dinner with the artist; a visit to a rehearsal or the recording studio. Britney Spears charges up to $5,000 for a “Total Experience” VIP package to her Caesar’s Palace show in Las Vegas. This package involves a backstage tour, a meet and greet, a Britney-themed gift bag and an opportunity to appear on stage with her.
Wu-Tang’s latest marketing and sales strategy is not new in the music industry. And, the physical album is only valuable as long as no material leaks. A lot of boutique record labels have used this sales model for years, issuing 1,000 copies of an album that are numbered. The superfan would pay to have a number as close to one as possible. Wu-Tang has taken this idea to an “extreme” level by only making one copy.
And Wu-Tang’s strategy could work well in an industry where physical product sales are dwindling, but not going away entirely, stated Owsinski. Knowing they will not sell a lot of physical copies of albums, artists could print a limited amount and make them collectors’ items. And this could potentially help artists and labels recoup some of the money lost on album sales.
The RIAA issued a report accusing Google of failing to make good on its promises to punish pirate websites. And a survey showed continued sales growth in the musical instruments and equipment industry. Also, Billboard announced it will start incorporating YouTube plays into its Hot 100 chart formulas.
Google Breaking Anti-Piracy Promises
Google has not been making an effort to hide pirate sites, even though it promised the music industry six months ago to downgrade the sites in search results, according to a report filed by the Recording Industry of America on Thursday. In August, 2012, Google made an announcement saying it would look at the number of valid copyright removal notices for each site and create a new search algorithm that would make sites with many copyright complaints appear lower in search results.
The RIAA’s report last week stated it sees no proof that the new policy has actually penalized music piracy sites, and during the past six months, Google has received tens of millions of copyright removal requests. Steven M. Marks, RIAA’s general counsel said, “Searches for popular music continue to yield results that emphasize illegal sites at the expense of legitimate services, which are often relegated to later pages. And Google’s auto-complete function continues to lead users to many of those same illicit sites.”
Ben Sisario of The New York Times said the problems outlined in the RIAA report point to the two-faced company Google has built. One Google features an array of entertainment services that have licensing agreements with major labels, music publishers, movie studios and other media companies, such as YouTube and Google Play. And these features are becoming an integral part of the entertainment industry.
Google’s other side is its search engine, which has become “the road map to the Internet” people follow to find all content. Some of its methods are heralded by the entertainment industry, but a lot of them are not.
Google responded to the RIAA’s claims in a statement, saying that the company is making a serious investment in anti-piracy measures and will continue to work with the entertainment industry to offer more valuable content: “We have invested heavily in copyright tools for content owners and process takedown notices faster than ever. In the last month we received more than 14 million copyright removal requests for Google Search, quickly removing more than 97 percent from search results … In addition, Google’s growing partnerships and distribution deals with the content industry benefit both creators and users, and generate hundreds of millions of dollars for the industry each year.”
Musical Instruments and Equipment Sales Increasing in 2013
Consumer demand is increasing for musical instruments and accessories, said a January survey conducted by the top financing provider for music dealers GE Capital, Commercial Distribution Finance (CDF).
The survey revealed that 38 percent of its respondents are expecting an increase of five, to ten percent in sales this year, and 43 percent expect their sales to increase more than ten percent. The results showed that fretted instruments, keyboards, percussion and amplifiers will likely be the big sellers, representing 44 percent of revenue. And professional audio equipment will come in second at 37 percent.
Many brick-and-mortar retailers also seem to be growing their online presence, as 27 percent of respondents stated online sales will be between 15 and 45 percent of their business in 2013. Still, 36 percent said that online sales make up 15 percent or less of their business, and 17 percent have still not opened up shop online.
As more consumers head to the Internet to buy instruments and musical equipment, many retailers reluctant to create an online presence are concerned, with 40 percent saying they believe that online retailer and auction site purchases will affect the music industry significantly in 2013. And 19 percent are worried that reduced budgets for school music programs will affect their sales.
Most said they are no longer concerned about overall consumer demand for their products. Dave Wilson, commercial leader of CDF’s diversified products group said, “Like others in the industry, we’re optimistic about consumer demand this year … Although wholesale purchases were soft heading into 2013, we think that will turn around now that we’re seeing positive signs in the U.S. economy. Unemployment rates are declining, consumer confidence is improving and home sales are increasing, all of which are good news for sales of instruments and related products.”
In an attempt to help grow music education in U.S. public schools, CDF has been supporting Little Kids Rock, a program begun in 2008 that offers free instruments and lessons to students in schools without music programs across the country.
GE Capital’s survey included 104 retailers, manufacturers and distributors.
YouTube Will Factor into Billboard’s Hot 100 Chart
Billboard magazine’s 55-year-old Hot 100 singles chart will not incorporate YouTube plays into its formula, The New York Times said. Baauer’s viral video song “Harlem Shake” will debut at No. 1 this week as a result of the change.
“Harlem Shake” got little attention when it was offered up as a free download in May. But by last week, over 4,000 videos featuring fans dancing along to the song were being put up on YouTube every day.
And download sales and Spotify streams of the track also exploded. While Billboard had been planning to include YouTube in its charts for two years, it was the popularity of “Harlem Shake” that pushed it to update its policies immediately, according to editorial director Bill Werde: “The notion that a song has to sell in order to be a hit feels a little two or three years ago to me … The music business today – much to its credit – has started to learn that there are lots of different ways a song can be a hit, and lots of different ways the business can benefit from it being a hit.”
Billboard has also been making other moves to modernize the Hot 100. Aside from sales and airplay, it now includes data from streaming services like Spotify. In recent years, YouTube has been critical to making songs wildly popular many months before they get picked up by radio. Songs like Psy’s “Gangnam Style” and Carly Rae Jepsen’s “Call Me Maybe” provide solid examples. And so does Gotye’s Grammy-winning hit “Somebody That I Used to Know.”
“Harlem Shake” only had 18,000 downloads since its release in May. Once the tens of thousands of YouTube videos began to go up last week, it sold 262,000 downloads.
Billboard’s charts are based on data from Nielsen SoundScan, a company that has also been trying to update. When it first started in 1991, it offered up third-party sales data that changed the way record labels, retailers and others marketed and sold their products. Now Nielson also looks at radio plays and major streaming services. Senior analyst David Bakula said, “We want to measure how much consumption is going on, in whatever form a consumer chooses to consume something.”
Experts examined the future shape of the music industry last week, as stats continued to reveal predicted sales numbers and growth areas in the music industry for next year. And leaked tax records showed that the RIAA has experienced deep financial losses in 2012. Also, Pandora spoke out against a new bill regarding music royalties.
The Near Future of Industry Growth
The rest of 2012 will continue to be full of growth and reorganization within the music industry, according to further analysis of Strategy Analytics’ latest Global Recorded Music Forecast. The Music Industry News Network presented a break-down of consumer spending through the year, and offered some positive insights about formats to watch.
Streaming revenues will likely increase by 40 percent at about five times the rate of download revenues earlier in the year, topping out at $1.1 billion. And download revenues will grow to $3.9 billion, allowing streaming services to take over the market as the highest revenue growth engine. In fact, they will generate an additional $311 million for the music business, $8 million more than downloads.
Overall digital and mobile purchases will grow to $8.6 billion, whereas there will be a 12.1 percent decline in physical product sales, meaning that digital music will build its global share of recorded music. While digital spending will continue to dominate through 2015, eventually taking over the market, some countries, like the U.S., Sweden and South Korea will transition to digital more quickly than others.
The Director of Digital Media at Strategy Analytics, Ed Barton explained, “Although downloads still account for nearly 80 percent of online music revenues, this market is maturing, and spending is flattening in all key territories. Streaming music services such as Spotify and Pandora will be the key growth drivers over the next five years as usage and spending grow rapidly.”
But why will this shift take place? According to Barton, as music fans become more comfortable with new digital formats, they are coming to value “accessibility and availability” over building huge libraries of outright-owned music. And this drives growth in instant-access streaming services like Spotify. He added, “The emergence of cloud storage of a subscriber’s existing music library for seamless streaming to a range of connectable devices improves the value proposition further.”
And what will happen specifically with U.S. music revenue? By the end of the year, streaming revenues will grow at four times the rate of downloads, bringing online streaming and downloads up to double the share of music spending in the U.S. than worldwide. And U.S. physical product sales will decrease less than the global rate, declining by 9 percent. Physical spending won’t wait until 2015 to be overtaken by digital; this shift will happen in the U.S. by the end of the year.
Barton sees the Report’s numbers as a positive sign: “Having stabilized long term revenue declines resulting from the downsizing of packaged music spending, the industry will be hoping that digital can rebuild the U.S. market to something approaching its former stature.”
Is the World Ending for the RIAA?
Leaked tax records show that the RIAA could be in serious financial trouble, partially because of the continued high salaries of top executives within the organization and its investment in piracy lawsuits, along with the decreased investment of major record label executives that serve the company. Its revenue dropped by just under 50 percent in the past year, according to information presented by TorrentFreak and Digital Trends this past week.
One of the biggest proponents of anti-piracy initiatives like the Stop Online Piracy Act, the RIAA is showing signs of falling down. Its recent tax filings reflect that the organization’s revenue for the period ending March 31, 2011 has fallen by 44 percent over the previous two years, topping out at $29.1 million, compared to the $51.35 million it garnered in 2009. The number of employees on the payroll also decreased from 117 to 72. These huge drops lead many experts to believe the numbers for 2012 will drop even further, given their increased efforts to bring down pirates and fight against the changing music industry.
The fall in revenue can be in great part attributed to a drop in dues paid by major record label employees that serve as RIAA members. In a tax filing from 2009, the RIAA reported member dues of $49.8 million, as announced by Digital Music News. The new number is $27.9 million.
Of course, the first part of 2011 was one of the best for the music industry, as Nielsen SoundScan showed. For the first time in six years, total album sales rose by one percent.
Even though there has been a drop in overall revenue and member dues within the RIAA, executives are still earning impressive salaries. Former RIAA Chairman Mitch Brainwol earned $1.75 million, more than any RIAA employee. And the Chairman and CEO Cary Sherman, who at the time was the President, earned $1.36 million. The nine other most-well-paid employees get salaries between $309,000 and $715,000.
While the amount of money the RIAA spends on lobbying the U.S. government has held steady at $2.3 million per year, the amount of money the RIAA has collected in legal fees has dropped. While it has continued to aggressively pursue major anti-piracy lawsuits, it decided to stop going after individual infringers.
Pandora Getting Louder about New Music Royalties Bill
Online music service Pandora is continuing to get riled up about Rep. Jerrold Nadler of New York’s draft legislation on music royalties, according to The Hill. Spokespeople for the company claim it will only serve to discourage technological innovation and is also discriminatory against Internet radio.
Pandora is, however, backing a draft bill designed by Rep. Jason Chaffetz of Utah. This bill is designed to lower the royalty fees Internet radio stations pay so they are on even ground with cable and satellite radio stations. Chaffetz’s legislation would force Internet radio to be held by the same standards outlined by the 801(b) section of the Copyright Act.
Tim Westergren, founder and chief strategy officer of Pandora said, “The current system for establishing royalty rates is astonishingly unfair … Fairness demands that all music related rate settings utilize the same 801(b) standard.”
Nadler’s bill is backed by most other groups and companies within the music industry, because it would help improve compensation to artists when their music is played on digital radio services and on radio stations’ live-streamed online broadcasts.
The 801(b) standard is used in order to figure out the royalties that will be paid by the industry to music publishers and songwriters. Westergren stated, it is unfair that the industry will not use the same standards it uses on all other entities to force Internet radio to be responsible for paying artists. He added, “Congressman Nadler’s discussion draft would only perpetuate this hypocrisy and worsen an already flawed legislative mistake that is discriminating against new technology and hampering innovation.”
Chaffetz’s and Nadler’s bills have both caused a battle within the music industry and digital radio services regarding music royalties. And many are unsure of Chaffetz’s bill because they believe it could take money from artists.
Nadler himself has expressed that he agrees with Pandora about the need for equal rates, but that the bill that opposes his is not the solution: “The solution is not to get to parity at the expense of artists as Rep. Chaffetz’s bill proposes … We can and should both level the playing field for Internet radio and ensure that artists are fairly compensated …”
This past week, the Future of Music Coalition released a study that revealed that DIY artists can be most profitable when they are organized, educated about business and seek out proper support. Also, digital music sales finally overtook the sale of CDs and other physical music products. Finally, an RIAA executive called Google out for its lack of commitment to helping fight digital music piracy.
Does Pure DIY Pay?
DIY artists without a support team make significantly less money than those who align themselves with competent managers, booking agents, tour managers and other music professionals, according to a recent study based on detailed interviews with musicians and the examination of actual tax filings and conducted by the Future of Music Coalition. The results revealed that those musicians who continue to do it on their own after breaking through the initial barriers of their career are likely leaving money on the table and stalling their careers.
The study results were originally delivered in April by Artist Revenue Streams co-director Kristin Thomson in a lecture “All You Need is Love … (and a manager, an accountant and a web designer). Making it as a Musician in an Increasingly Networked World.” The event was hosted by the Berkman Centerfor Internet and Society at Harvard University. The presentation not only broke down the reality of what musicians earn from three different areas – recording, composition and touring – but also revealed which team members that DIY artists hire stand to bring in the most money.
Thomson stressed that musicians must play three roles in order to reach their earnings potential. They must be composers/songwriters, recording artists and performers that actually tour and actively seek out live performance opportunities. This means they need an organized way to license their compositions, record, distribute and sell their sound recordings and a way to book shows and performances. And those that enlist the help of three essential team members – publishers, record labels (or an entity that performs the function of a record label) and booking agents – end up streamlining their business and being able to actually focus on the important task of making great music.
Composers and songwriters write music and thus need to find a way for their compositions to be licensed for use, which means they must focus on connecting meaningfully with recording artists, record labels, movie producers, cable TV shows and other places interested in recording or licensing their works. All of these connections can be made through a publisher.
And artists also need to go into the studio and record in order to tap into that essential income bucket. They can write their own songs or even cover songs written by other songwriters. And then, they have to find a way to get these recordings to their fans in order to earn money from them. Of course, as Thomson said, this has always been a record label’s job. Many savvy DIY artists have noted that record labels take a large piece of the wholesale price of their music, plus 50% of licensing deals. However, record labels have historically done more than take care of distribution, licensing and taking money from artists recordings. They also act as a source of cash to support more recordings and tours/performances and provide a built-in team to provide booking services, publicity and producers/engineers. And they can get music played on radio and organize press coverage way more powerfully than the typical pure DIY artist can alone.
And record labels give artists important legitimacy, because it tells the world these artists were of high enough quality that they were worth a significant investment. Record labels raise musicians’ profiles to attract booking agents that can bring bigger show payments, bigger tours and better management, thus often significantly impacting income lifetime income. However, many DIY artists have been reluctant to get signed, fearing they will lose control over their compositions and careers. Still, those that decide to add a record label – or individual professionals that can fulfill the many roles of a record label – to their teams end up finding more success financially in the long run.
Touring is the most cut-and-dried point of focus for an artist, because it involves connecting directly with venues and festivals. Performers and bands that hire booking agents – who take 10-15 percent of money earned from the tour – to negotiate dates and details with venues as well as ticket prices and the amount of money they will get paid find more money in their pockets. The Future of Music Coalition revealed that the booking agent actually has the most significant impact on income and often makes artists able to hire professional sound people.
As Thomson pointed out, the many functions of a high-quality support team can technically be carried out by the artists themselves if they are willing to spend significant time, make huge numbers of phone calls and send many emails to music industry people during peak office hours times. However, not many bands actually have the leverage these professionals have in the industry and also find themselves without the power to defend themselves or troubleshoot problems when the going gets tough.
Digital Music Finally on Top
Digital music service revenue finally overtook CD and record sales for the first time in Britain in the first quarter of 2012, according to figures released this past week by trade organization BPI. The amount spent on digital music was up 2.7% and was significantly impacted by tracks bought as downloads, paid-for subscriptions and ad-funded music services from streaming companies like Spotify, Napster and eMusic. The two artists that contributed the most to the rise were Lana Del Ray’s and Lady Gaga.
Digital singles have equaled huge revenue for the industry for quite some time, whereas entire digital albums have taken longer to ignite. And sales of CDs and other physical products – which were still represented the biggest revenue stream for recorded music last year have actually dropped 15 percent already. Thankfully, due to the overall sales growth in 2011, digital revenues can finally make up for this loss.
Geoff Taylor, chief executive of the BPI said, “This is a significant milestone in the evolution of the music business …the industry’s prospects for growth look brighter than for several years.” Still, he said the industry will have to see this trend continue in additional quarters in order to truly declare revolutionary change.
RIAA Leader, on Google’s Lack of Commitment to Protecting Copyright
Recording Industry Association of America EVP for Anti-Piracy Brad Buckles revealed what Google is actually doing – and not doing – to deter piracy in a blog entry posted Wednesday on the RIAA site. The entry was a response to Google’s recent publication of its “Transparency Report,” which showed how many requests the company gets from copyright holders requesting the removal of infringing material.
According to Buckles, Google affirmed its commitment to fighting piracy and eliminating search results that represent copyright-violating items. And he said, the fact that Google does continue to work to try to combat infringement – and openly share the steps they are taking to meet this end – is also positive. However, he stated, “… even more transparency is needed to fully understand the scope of the problem. Knowing the total number of links to infringing material available and the limitations Google imposes on rights owners to search for infringements reveals how meager the number of notices is relative to the vast amount of infringement.” As he noted, the fact that the first results that pop up when searching for the term “mp3” and “free download” are still copyright-infringing materials.
Buckles also pointed out that Google has continued to claim it processes huge volumes of infringement notices, yet data surrounding this is actually misleading. Also, the process of reporting is convoluted and puts a strict cap on the number of instances of violation a copyright owner can report.
Buckles presented five facts about Google’s policies:
- Copyright owners need to find infringements in order to notify Google of a problem. “But Google places artificial limits on the number of queries that can be made by a copyright owner to identify infringements.” And these limits compromise the integrity of Google’s take-down tool and neither allow Google to take down the large number of infringements, nor for copyright owners to fully protect their work.
- As long as limitations are in place, Google cannot get an accurate picture of the true scope of the piracy problem. Also, not only are piracy queries limited, but copyright holders are only allowed to ask Google to remove a certain number of links per day, despite the fact that Google has the resources that would allow it to manage large volumes of take downs.
- “The constraints Google has placed on the tools they promote to deter infringement are well below what is necessary to identify and notice infringements on the Billboard Top 10, much less the entire catalog of the American creative community.” Still, Google successfully found five million new illegal links but openly stated it only received requests to remove 1.2 million links from 1,000 people.
- The data Google actually is using to determine the percentage of a given site that is illegal does not fully capture the magnitude of the piracy problem: “… This number is misleading given the constraints imposed by Google on a copyright owner’s ability to find infringements and send notices to Google. If these constraints did not exist, how many more links on these sites might be identified?”
- Google’s data actually admits it is ineffectively measuring the problem and is often not keeping links down after they come down initially: “If ‘take down’ does not mean ‘keep down,’ then Google’s limitations merely perpetuate the fraud wrought on copyright owners by those who game the system.”
And Buckles stated he feels the solution is complex, but possible: “Google needs to take its commitment to fight piracy more seriously by removing the limits on queries and take downs, by taking down multiple files of the same recording instead of just one when a ‘representative sample’ of infringing files is provided to them, and by establishing meaningful repeat infringer policies.”
Last week, the RIAA released the final official music sales numbers for 2011, highlighting the continued strength of CDs in the marketplace as well as revenue growth sparked by streaming services. Also, the California attorney general announced she will investigate the soundness of the pending EMI sale. And early digital innovator Thomas Dolby talked about why technology has created amazing opportunities for artists but has also put up road blocks for those trying to get their music heard.
Digital Music Dominated in 2011
The Recording Industry of America (RIAA) presented the final sales figures for 2011 on March 27, and the results showed what had been suspected since tentative numbers were released in December and January: U.S. music sales grew by .2% (reaching $7 billion) from 2010, with digital revenue increasing 9.2% and physical sales dropping but still proving that CDs were still the format of choice industry wide for music fans.
Digital music represented over 50% of sales in 2011, though CDs sold over 240 million units and raked in $3.1 billion, according to a report in the San Francisco Chronicle. Even vinyl’s presence grew significantly, selling $100 million in records, 30% more than in 2010.
Additionally, the positive impact of music streaming services like Spotify and Rhapsody shone through in the RIAA’s findings. An article in VentureBeat highlighted that these two services along with Rdio and others brought in 13.5 percent more revenue than in the previous year, with paying members increased 18 percent.
2011 was certainly the year marked by artist and record label complaints that Spotify and subscription services were actually hurting rather than helping growth, as they speculated that people that used these services were less likely to feel compelled to purchase songs they could just listen to on demand. And many staged a protest of Spotify in November when over 200 indie labels took their songs away from streaming platforms.
However, the RIAA declared that its recently-released stats prove that streaming music could definitely be providing a boost: “Access models like subscription services and Internet radio (represented by digital performance royalties) have continued to grow both in popularity as well as in their revenue contribution to the industry.” The organization added that digital music is not just a niche anymore, rather a set of viable business models that the music industry needs to continue to utilize in the future.
How Will the EMI Sale Impact the Music Landscape?
California attorney general Kamala Harris revealed to two unnamed sources this past week that she would be launching an official investigation of the split of the 114-year-old EMI Group between Universal Music and Sony/ATV Music Publishing, said a report published by BloombergBusinessweek. Universal – the world’s largest record label – is attempting to buy EMI’s recorded music arm for $1.9 billion, whereas Sony/ATV hopes to buy the publishing side for $2.2 billion, which would turn it into the biggest music publisher. The probe will analyze the potential impact the sale could have on the music industry and ensure it will not violate any antitrust laws.
Members of Harris’s office have already contacted customers as well as competitors of EMI, Universal and Sony/ATV about how the $4.1-billion deal might influence future pricing. And the state began to compile information late last month about the sale and its compliance (or lack of compliance) with antitrust rules.
This sale is already under the U.S. Federal Trade Commission and European Union (EU)’s microscope. Many top executives of other labels as well as other industry experts have expressed their opposition to the EMI sale since it was announced last year, most notably Warner Music Group and CEO, turned board member Edgar Bronfman, Jr.
Universal Music would get the rights to legendary EMI arists like the Beatles whereas Sony/ATV would get the copyrights to songs and mega songwriters including Beyonce and Jay-Z. Sony/ATV has already presented a series of compromises to EU regulators, and the European Commission has pushed its deadline for final rulings on the publishing side to April 19. Its review of Universal Music’s purchase has also been extended. The concern among critics and reviewers of the EMI sale is that, when split and merged, the two resulting companies will have a hold on too many songs and too much control over music prices.
Universal has also announced its plot to raise money to help fund the EMI acquisition, according to an unnamed inside source. The company will sell three music publishing catalogs in order to raise $200 million – classical, Christian and German schlager. And Vivendi – the Universal parent company – is also raising $668 million.
Thomas Dolby, on Technology and the Music Industry
Cutting-edge technologist and musician Thomas Dolby revealed his long journey in digital music and shared his thoughts about how technology is shaping artists’ careers in a keynote address at the Design West engineering conference in San Jose, California last week. And according to the EE Times, the takeaway for engineers and tech innovators was, “Shit happens.”
Dolby – best known for the ‘80s song “She Blinded Me With Science” (which he performed as part of the speech) – stated that technology has presented some incredible opportunities for artists, but has also brought about many problems for those trying to get their music heard: “You used to have to spend millions just to get out in front of fans … When I started out at 17 … [you] had to get a cassette tape to an A&R man, then get the radio stations to play it, and all these other things had to fall in place.” But now “the music industry will be like day trading with a music manager behind a screen.” However, artists can build a very targeted fan base using social networking tools capable of finding “qualified listeners with a laser focus.”
In his speech, he explained that as one of the first electronic music artists in the 1980s, his path was difficult: “Electronic instruments were quite bulky, they didn’t stay in tune and they were quite expensive.” One of his first synthesizers was the “size of a refrigerator” and double the cost of his first home in London.
However, he pushed on, branched out and diversified, securing a one-year grant from Paul Allen’s Interval Research group in the early days of the Internet in order to research the possibilities of deeper integration between music and technology. The results of his exploration brought about the formation of Headspace, a company that created the Beatnik audio engine described by Dolby as “a SoundBlaster card in software.”
In 1994, Dolby began to work with Netscape founders Jim Clark and Marc Andreessen, whom he eventually persuaded to include audio in their browser, though they still put up resistance. Their questions about his methods pushed him to create new audio code through Headspace that eventually got the attention of Sun Microsystems, who began to use it in Java technology. And this led to a request from Nokia to use his code to introduce some of the first polyphonic ringtones for mobile devices: “By 2005, most phone makers licensed Beatnik and ringtones were a billion-dollar business” – one that was still music focused but did not require the support of big record companies.
Dolby then created Rich Media Format, which allowed song samples to be embedded into ringtones, which unfortunately led Dolby back to world of major labels, which he had hoped to escape when he initially started to explore musical concepts rooted in emerging technology: “We inadvertently brought the large recording companies into the game … They would sit down with the carriers and do deals that cut out all the cottage ringtone publishers. Within a few years the window for polyphonic ringtones ended because the wireless networks were good enough to handle the whole song.” So, in 2008, Dolby retired from technology and decided to begin his music career anew.
Dolby is currently on tour promoting his first album in 20 years, traveling with a trailer “that looks like it was designed by Jules Verne and H.G. Wells.” He has also designed a Web-based mystery game called “The Floating City,” which will become a place for 11,000 of his fans to put together clues and will be sold alongside his latest album. His trailer is also a portable studio that records 30-second video clips from fans that are added to the time capsule for The Floating City game.
Major music industry changes and progress were highlighted last week as France reported on the impact of its radical internet anti-piracy policies over the past few years, and the RIAA contested claims by experts about positive industry growth. Also, analysts said they expect protests against the EMI split to hold up the final approval of regulatory agencies at least one year.
Has France Cured Piracy?
France’s controversial experiment to end digital piracy has already brought about major results, according to reports released in The New York Times. Two years ago, France approved new laws that would harshly penalize copyright violators, even cutting some off from the Internet, and the first offenders went to court last week to face the music.
Studies have shown that the French “three-strikes law” – which, like SOPA and PIPA has been welcomed by the struggling entertainment industry and despised by those that see initiatives of this type as a form of censorship – is administered by an agency in France called Hadopi and is already having a positive effect. Piracy has dropped sharply in France, the country’s digital sales are thriving and music industry revenues have started to stabilize.
According to president of Universal Music France Pascal Nègre, “I think more and more French people understand that artists should get paid for their work … I think everybody has a friend who has received an email [warning them about the penalties for piracy]. This creates a buzz. There is an educational effect.”
Despite marked progress, many within France still oppose the law, and its advocates are concerned it will come under fire if a new president is elected. Current President Nicolas Sarkozy was responsible for implementation of the “three-strikes law.” But his opponents are starting to piggyback on the movement in the U.S. that recently brought down two U.S. congressional bills and protest against an international copyright treaty.
In the past two years, Hadopi has sent 822,000 email warnings to suspected offenders, followed by 68,000 second warnings through registered mail. Now, 165 cases are in the third stage, and offenders are facing potential fines of almost $2,000 apiece as well as loss of their Internet connections for one month. And the secretary general of Hadopi, Éric Walter claimed that the low number of three-time violators provides proof that this education-based policy works: “Our work is to explain to people why piracy is a bad thing and why they should stop … When the people understand that, they stop. Of course, some people don’t want to understand. Then we have to transfer their dossiers to the justice system.”
A recently-released Hadopi report showed file sharing had dropped significantly in France during the past two years. And another study commissioned by Wellesley College and Carnegie Mellon university showed that France’s policies could actually be responsible for the rise in legal downloads from the Apple iTunes store. iTunes sales were significantly stronger in France than in any other European country from the spring of 2009 to mid 2011. The study further made its case by noting that musical genres considered to have very high piracy rates, like hip hop, rose far beyond those of low-piracy genres like Christian and classical. Researchers concluded that Hadopi brought about an additional €13.8 million a year worth of iTunes music sales in France: “We suggest that with regard to mitigation of sales displacement by piracy, a national anti-piracy policy combined with educational efforts is much more effective in the longer term than a small number of high-profile lawsuits.”
And even those not in agreement with Hadopi’s policies admit that the law has reshaped the way people behave online. Jérémie Zimmermann, co-founder of La Quadrature du Net, a proponent of an open Internet, said he feels the law has increased the use of virtual private network software and other anonymity tools: “Apparently some of its intimidation is having a psychological effect … The political costs of creating an institution like this are tremendous.”
And some analysts have said that because hackers can log into others’ accounts, instances of false accusations could be a major problem. Renaud Veeckman, co-founder of SOS Hadopi, which provides legal support to those that have received anti-piracy warnings said, “It’s like when someone steals your bank card number … Are you responsible, or are you the victim?” SOS Hadopi has already worked with five people in the third stage, and all five have been cleared before their cases hit court.
The first cases against suspected pirates may go to court in France before the first round of the presidential election, slated for April 22, and many question whether or not this was planned because the other candidates are against the law. Sarkozy stated last week that if re-elected, he would actually try to give Hadopi more power, giving it the authority to go after unauthorized streaming and other new technologies. Walter insists politics are not to blame for pushing the cases to court as soon as possible: “I’m proud to work on one of the only initiatives in the world to say, ‘O.K., we have just been speaking for 10 years, we need to try something … The point was not to know if it was a good idea or a bad idea; the point was to try something and then to say, ‘What have we learned? What do we know now?”’
The Music Industry is Collapsing, According to the RIAA
This past week, the RIAA continued to insist that the music industry is not going through a growth spurt, despite official reports published in Forbes and other reputable business publications that claim the contrary. Reacting to the “Sky is Rising” report presented by technology and music industry expert Mike Masnick at the midem music conference in late January, Joshua P. Friedlander, the Vice President of Strategic Data Analysis at the RIAA called for “a little less spin” on official numbers in a piece published on the organization’s blog last week.
While Friedlander stated he and everyone else wants to have a positive outlook about the future of the music industry, what Masnick said about the “bright spots” of the changing industry is based on misleading, incomplete information: “Who doesn’t love an optimistic view about the future of the music business? We’re as bullish about it as anyone and will never pass up a chance to tout the unprecedented variety of legal music choices today’s fans enjoy. The one problem? The study is highly misleading and doesn’t present an accurate or complete view of what has been really occurring in the United States in recent years … Instead of looking at actual sales data that is widely available, the paper looks at a global sales metric that includes a much wider range of industries outside of music. Moreover, we see real world examples that consistently show the importance of the ‘traditional’ metrics for working artists.”
And Masnick retaliated against the criticism in the TechDirt blog, stating the RIAA is only disputing facts because its own outdated business model is collapsing: “People should read the full report for themselves, where they’ll see that we looked at a variety of different data sources to see what the data said, and noted the various caveats with each of them. Oh, and that ‘global sales metric’ that the RIAA complains about? That’s directly from the IFPI – the sister organization of the RIAA, who basically represents the RIAA’s views around the world. If the RIAA does not like the IFPI’s own numbers, perhaps it should have a talk within its own organization.” Masnick added, “… The real story of the report is that the market is thriving for artists and consumers, but is much more challenging for big, lumbering legacy players. That would basically be the RIAA’s membership.”
And Masnick also pointed out that another part of the reason the RIAA is not fully understanding the full shape of progress within the industry is because many of the numbers are based on fact that technology has opened up new opportunities for artists that, in the old system, were not available and thus were not tracked as part of the “old system.” The modern music industry has created an entirely new environment, and legacy companies are resisting the new look of growth: “The real problem here is that the RIAA ignores the zeros. In the past, under the old system, if you weren’t some hugely successful label musician, you generally weren’t a musician at all. You made zero and you dropped out of the market entirely. So you didn’t count. But thanks to the new opportunities, many more people can make music, release music and make money from music. But that means a lot more competition. So, sure, if you don’t compete with that wider base of competition, perhaps you’re going to make less. But that’s not a sign indicating a decline in health of the overall market. It’s exactly the opposite.”
And as Masnick concluded, many of artists and labels he talked to at Midem were very excited about the opportunities that are opening up for them to make a living doing what they love, and “It’s just too bad the RIAA is looking backwards, rather than forward.”
You can also read more about the “Sky is Rising” report here.
EMI Split Opposition Likely to Hold Up Final Merger Approval
Despite the official dissolution of EMI brought about by its sale to two separate labels, the music industry is still expected to fight over what many perceive as unjust corporate consolidation, according to an article in The New York Times. And this battle could go on for at least the next year.
There have been some major changes regarding major labels beyond just the split of EMI in the past year: Warner Music Group (WMG) was sold to Access Industries – a conglomerate run by Russian billionaire – in May, 2011. And of course, in November, Citigroup split EMI, sending half of its operations to Sony and the other half to Universal Music Group (UMG).
The EMI sale seems to be a done deal. But, it still has to be approved by regulatory agencies in the U.S., Europe and around the world. The Federal Trade Commission has been investigating the mergers for the past few months, and UMG just filed its merger application with the European commission on February 17. Sony will soon follow suit.
The controversy in the industry has of course been that if the sales go through, the number of major labels will go down from four to three and also give UMG and Sony some significant advantages over WMG in the marketplace. As a result, WMG and many independent labels continue to lobby to block the deals, which also have consumer groups worried that the deals might have a negative impact on competition and innovation within the music space.
Helen Smith, executive chairwoman of Impala, a collective of small music companies said, “Turning music into a two-horse race is not good for artists, not good for consumers and certainly not good for the development of the online market.” Other critics have agreed with her, adding that an imbalance within the industry where UMG would control 40% of the global market for recordings and Sony 32% of music publishing would have an extremely negative impact. In some European countries, UMG would control as much as 50% of the market.
Edgar M. Bronfman Jr., former CEO for Warner and current board member said that the UMG-EMI marriage would be a destructive “supermajor,” and that Warner has already hired law firms in Washington to fight the deal.
The Federal Trade Commission’s investigation of the merger is already in its “second request stage,” which is expected to last through the summer of 2012. Experts believe that UMG will have a harder time gaining approval because it will be more powerful than Sony once the merger is finalized. (Sony only owns half of its current music publishing, Sony/ATV, with Michael Jackson’s estate owning the other half, and thus will only get a 38-percent stake in EMI’s publishing arm.)
What will Universal’s argument be? It will likely say that a larger company will have better control over prices and will be able to keep them down to discourage piracy. However, it may have to fight against its reputation for doing the opposite. When the company took over BMG Music Publishing, the European Commission actually noted that big labels had managed to impose higher licensing rates for recording rights than smaller, independent labels.
Music executives and analysts agree that the review process will likely result in a negotiation process. Universal might have to sell chunks of its holdings, particularly overseas. The company has already agreed to sell $680 million in “noncore assets” to help with the purchase.
Smaller labels have additional concerns about Universal using its power to gain more control over online music services, giving them the ability to dictate terms to technology companies, including Apple, and inhibit development within the space.
Last week, Vevo’s real benefit to artists and the music industry was called into question by music publisher Matt Pincus amidst news of its revenue boom in 2011. And Noel Gallagher and music industry experts weighed in on the factors that lead some popular bands to quickly fade into obscurity. Also, the president of the Recording Industry Association of America (RIAA) criticized Wikipedia and Google for their part in taking down SOPA and PIPA.
2011: A Boom for Vevo and Major Labels, a Bane for Indie Artists and Publishers
The thriving online video service Vevo – which provides about 40% of the content streamed on YouTube — earned $150-million in revenue in 2011, causing many to be hopeful about the future of music video monetization and another potential area that could rebound in the music industry. However, according to a piece written by Matt Pincus, the founder and CEO of the independent publishing firm Songs Music Publishing and published on The Wrap, independent artists and publishers have yet to see a dime, and it is time for everyone to rethink what is fair.
As Pincus pointed out, what isn’t being said about Vevo’s boom is that despite this $150-million gain, most independent publishers and their songwriters have not ever been paid by Vevo. He says this is because major record labels have stated they have the right to license songs to Vevo on publishers’ behalf, stating that if they are paid, they will take on the responsibility of passing money onto publishers in the same way they do with revenue from tracks on iTunes. But in the case of Vevo money, they have failed to actually come through on that promise.
According to Pincus, record companies are able to get away with this because of the “Controlled Composition Clause” that is within their artists’ recording contracts that usually features unclear language and applies to songs that are written specifically for artists’ records and “controlled” by the artist as well as producers, co-writers, etc. This clause claims to give labels a free sync license that allows them to use music videos that feature the “controlled” songs for promotional uses (uses that don’t bring the labels direct payments). The language was originally added in order to cover videos shown on MTV, but now labels are able to use it to avoid paying indie publishers for videos aired on streaming music sites like Vevo.
Pincus’ article noted that the purpose of videos has changed significantly since the early MTV days, when labels were not paid by broadcasters. Now, videos represent a very real source of revenue for labels, which calls into question the idea of giving labels the right to manage licenses with Vevo for controlled songs. (Incidentally, Songs Music Publishing represents over 300 songwriters, many of which are recording artists. And none of the Controlled Composition Clauses these Songs songwriters have grant a free license to labels for Vevo videos.)
Pincus concluded that labels are not actually legally sanctioned to issue a gratis license for videos featuring songs that are not controlled, whether to Vevo and other streaming sites or to any other entity. When there is no contract between a label and a songwriter, music video rights cannot be granted to the label. And while the case settled between the National Music Publishers Association and YouTube last year finally gave independent publishers some much-deserved net ad revenue from YouTube, Vevo was somehow left out of this decision.
So, as Pincus asked, “Are record companies to blame for relying on shoddy language to withhold royalties, or is it Vevo’s responsibility to insure that the songwriters that helped it pull in $150 million this year share in their success?”
Noel Gallagher and the Industry, on Adele and Why Artists “Fall off Cliffs”
Singer/songwriter Noel Gallagher recently told the Mail that, despite Adele’s huge success the past few years, he predicts she – like so many other female artists before her – will have a short shelf life: “I feel sorry for girls in the music industry. They do have a very short shelf life. For instance, Duffy: who? Gone. She was massive. And I don’t doubt for a second that the same thing will happen to Adele.”
While Gallagher expressed his belief that female artists have a shorter career trajectory than male artists, a music industry lawyer interviewed by The Guardian stated the situation is not unique to women; wildly popular artists on both side of the gender line often fizzle out, and often with good reason: “Duffy is an interesting case … because her story applies to a lot of artists. Buoyed by success, they immediately think, ‘Why am I giving 6% of record royalties, a third of my publishing and a 20% management commission to other people? I am a genius! I will do it myself!’” And this thinking is what led Duffy to leave her record label, manager and her producer, who had co-written and performed on a majority of her platinum-selling album. As the lawyer pointed out, artists that fall out of the spotlight often go on to make “a bad record without any guidance from professionals. And then they wonder why it’s all gone wrong.”
The article “When bands fall off cliffs,” written by Rob Fitzpatrick in October, 2011 explored the many reasons for the “band collapse syndrome” and pointed out that a lot of bands and artists that have exploded onto the scene and received critical acclaim have faded away in the 2000s, citing examples including the Kaiser Chiefs, MGMT and Glasvegas.
Interestingly enough, when approached by The Guardian to discuss how it feels for record sales to drop, none of the bands discussed in the article would comment, likely, as the Fitzpatrick speculated, because “admitting a failure is tantamount in the eyes of the music industry to condemning yourself for ever,” but also possibly because the artist is typically the last one to realize it’s over. However, an unnamed A&R rep for a label put it this way: “Well, I’ll tell you precisely what it feels like … It feels shit. But the second album by every single band I’ve ever signed has flopped miserably, and no one really understands why. When you sign a band, everyone at the label is very excited, but as soon as it starts going wrong every bastard runs to the hills and the A&R man is the only one left.”
Wikipedia and Google Targeted by RIAA President
Wikipedia and Google are in charge of the future of how copyrights, infringement and anti-piracy legislation is handled, according to an op-ed piece written by RIAA president Cary Sherman in The New York Times on February 7. In his critique, Sherman called out the guilty parties and blamed them for sinking SOPA and PIPA, each of which he sees as a solid and well-balanced piece of legislation.
As Sherman stated – and what became the center of his argument, “Misinformation may be a dirty trick, but it works …Wikipedia, Google, and others manufactured controversy by unfairly equating SOPA with censorship.”
He added that policy makers were not going into the process of working out this new legislation without considering all sides of the argument or with the intent of promoting censorship or anti-constitutional values, or to further cripple the already ailing music industry: “Policy makers had recognized a constitutional (and economic) imperative to protect American property from theft, to shield consumers from counterfeit products and fraud, and to combat foreign criminals who exploit technology to steal American ingenuity and jobs. They knew that music sales in the United States are less than half of what they were in 1999, when the file-sharing site Napster emerged, and that direct employment in the industry had fallen by more than half since then, to less than 10,000. They studied the problem in all its dimensions, through multiple hearings.”
Sherman pointed the finger at Wikipedia founder Jimmy Wales for riling up the under-informed masses to protest, creating a “digital tsunami” that stopped legislation that on many levels could have been a positive step towards bringing more money to artists and creators and taking it away from undeserving parties. He asked, about the “11th hour” shutdown of the legislation, “Was this the result of democracy, or demagoguery?”
And Sherman continued his argument by pointing out that Wikipedia and Google’s rallying – “as two of the world’s most popular Web sites” – was an “abuse of trust and a misuse of power:” “When Wikipedia and Google purport to be neutral sources of information, but then exploit their stature to present information that is not only not neutral but affirmatively incomplete and misleading, they are duping their users into accepting as truth what are merely self-serving political declarations.”
And finally, Sherman presented a rallying cry/call to action of his own: “Perhaps this is naïve, but I’d like to believe that the companies that opposed SOPA and PIPA will now feel some responsibility to help come up with constructive alternatives. Virtually every opponent acknowledged that the problem of counterfeiting and piracy is real and damaging. It is no longer acceptable just to say no …We all share the goal of a safe and legal Internet. We need reason, not rhetoric, in discussing how to achieve it.”
Alex Jacob is the Senior Communications Executive at the International Federation of the Phonographic Industry (IFPI) in London, UK. He has worked at the IFPI for over five years as a member of the communications team. He is responsible for reaching out to stakeholders and working with the media to explain developments in the music industry and the steps required to develop a sustainable digital music sector in the future. IFPI is headquartered in London, but has offices worldwide in cities including Miami, Hong Kong and Brussels. The organization also works with 45 affiliated groups, such as the British Recorded Music Industry (BPI) in the UK, the Australian Recording Industry Association (ARIA) and the Recording Industry Association of America (RIAA) in the U.S.
Recently I got to sit down with Alex and discuss the latest developments in the worldwide anti-piracy movement, the future of recorded digital and streaming music and steps artists can take to protect their music online.
Thanks so much for taking some time out to talk to me, Alex. Tell me a little bit about IFPI.
IFPI is the international trade body for the record labels, both the four internationals and also many hundreds of independent labels throughout the world. We exist to try and persuade governments and policy makers of the importance of strengthening intellectual property laws in the Digital Age so that our members can continue to invest in artists and produce great new music. We also work to extend the rights of our members in areas of Public Performance Rights. For example, you might know that the U.S. is one of the few countries that doesn’t have broadcast rights for producers or artists. So that means unlike in the UK or in France, every time a radio station plays a track, it does pay the songwriter, but it doesn’t pay the producer or artist. And obviously when you have an up to $20 billion corporate radio industry, that’s potentially a lot of money that the music industry is losing out on in comparison to other countries. It also means that when American artists are played – as they very often are – on radio stations overseas, that money doesn’t float back to them because there is no reciprocal arrangement for when overseas artists are played in the U.S. Those are the kinds of campaigns we work on.
Just to clarify, that would be like SoundExchange if it covered the non-digital broadcasts.
That’s absolutely right. And then you have sister organizations of SoundExchange such as Phonographic Performance, Ltd. (PPL) in the UK that collect income from radio stations and TV stations that use recorded music. These music licensing companies work very closely with IFPI and our performance rights committees to try and ensure that the best practice is copied around the world and that the rights of producers and artists are extended around the world so that everyone enjoys a level playing field.
I had not heard of IFPI prior to internet piracy becoming such a household word. Would you say the primary function at this point is to protect digital copyright? Is that where a lot of your efforts are focused?
Yes. IFPI has been around for a long time. It was founded back in 1933 and has always fulfilled a range of functions. But piracy has always been right up there on IFPI’s agenda. And piracy has a physical world too – the CD world. At one point, one in three CDs sold worldwide roughly was a counterfeit and had no money going back to the artists and record producers, so it was obviously a major issue. In the digital world, we estimate that 95% of music downloads online are unlicensed and illegal, with no money going back to the producers and artists. There’s a quantum leap in the level of piracy from the physical/CD world into the digital world. When you’re laboring under that burden of an industry, it has to be one of your major priorities.
Do you think there is any going back at this point? Do you ever foresee a time where Pandora’s Box will close?
I think we’re very keen to embrace the legitimate use of technology. Our members have licensed more than 30 million tracks through over 470 legal services worldwide. So, there’s no objection to making music available to consumers and music fans online. We’re very keen to do that. The problem is obviously the illegal downloading and streaming – the piracy problem. And as I said, 95% of music downloads are unlicensed and illegal. That’s one hell of a figure. We do think that we can actually improve on that. We’re starting to see countries worldwide introduce legislation to tackle the problem – in France, South Korea, New Zealand, the UK. Governments are starting to put laws on the books that actually require some cooperation from internet service providers (ISP)s, who are effectively the gatekeepers of the internet. In tackling online piracy – not just of music, but also of books, films, software, games – President Sarkozy has convened this huge conference in Paris in which he’s brought together the content industries and the tech industries to talk about how we can create what he calls a “civilized internet” – an internet where privacy laws are respected, that can’t be abused for criminal use and one where intellectual copyright is respected and creators can actually get some remuneration for their work. And that doesn’t just mean in the music industry or with iTunes or other services. There are many different business models out there. There are streaming services that are free for people to use and enjoy, such as Spotify, which is available in many European countries, YouTube is of course extremely popular as a free-to-use video streaming service. And alongside that there are subscription services and download stores.
But it’s that help from government that we feel can help us move the needle in terms of piracy. We’re doing our bit in terms of licensing all these range of services. And now government and ISPs need to do their bit to establish the rule of law online and stop it from being, as Prime Minister John Key of New Zealand said, a “wild west.”
Where do the negotiations in the U.S. and the UK – which are two of the biggest music markets on the planet – stand?
In the UK, the Digital Economy Act was passed last year. It still has to be fully implemented. There as a judicial review of the Act brought by two ISPs that was rejected, although they are now considering whether or not to appeal that. But under the terms of the new Digital Economy Act, ISPs have to send noticed to individual users that are uploading copyright infringing files and say, “We know what you’re doing, please stop and start using the good legal services that are out there.” And if a system of notifications alone doesn’t work in the UK, then ISPs will be mandated to bring in sanctions.
That’s for uploading only?
That’s for uploading copyright infringing material to the internet. Of course as you know, with most online file sharing systems, you are uploading an downloading at the same time, with the nature of the way they work.
It’s interesting that they would catch it on the one way but not both ways. What about in the U.S.? Have you made any headway with government stepping in and protecting these rights?
We certainly have a lot of political support from people like New York Governor Cuomo, Vice President Biden and from other politicians. I know the film industry as well as the music industry has been trying to reach out to ISPs. There is no response at the moment, but we’re hoping the U.S. will look and see what’s happening in other countries like France and the UK and see the success story from those countries that may move things forward.
There’s absolutely no doubt that year after year, digital is accounting for an increasing share of the market. In the U.S., which is probably the most developed music market in the world, you’re seeing a 50/50 split between the digital and physical as revenue channels. It’s not quite that in most of Western Europe, but it’s heading that way. Globally, we’re looking at about a third of record companies’ income coming through these channels. We don’t predict the death of the CD. Vinyl hasn’t even died, which you might expect it to purely on technology grounds. People still seem to enjoy having a physical collection. The gifting market particularly is very strong for CDs. You can’t really buy your mom an iTunes voucher for Mothers Day. It doesn’t have the same impact. We expect the digital share of revenues will go up, but that the CD will still be around for a long time to come.
What about the ratio of purchase to piracy? Has piracy planed at this 95-percent rate?
The ratio of pirated music to legally-purchased music has been pretty constant. But what we’re seeing is that as broadband networks roll out across the world, both the legal and illegal consumption of music increases in tandem with that rollout. So, the 95-percent rate has remained constant, but that percentage reflects both rising piracy and also rising legal sales. iTunes for example, earlier this year marked its 10-billionth music file sold. Legal services are popular, but at the moment they are still dwarfed by piracy. We very much hope that all the work we’re doing in terms of working with our governments to try to get a modernized set of copyright laws along the lines you see in countries like France and South Korea will help shift the needle on the 95 percent. The first graduated response systems have only started running in the last few months, so it’s still very early days. But we have to be optimistic that both the new services that are coming on stream and these kinds of actions that are backed by government will have an effect.
The streaming services have come under fire because the compensation rates are not acceptable to a lot of artists. I don’t have an opinion one way or another, frankly, because I just don’t know enough about it. Have you noticed that when a popular streaming service gets introduced into a market that sales decline or increase?
Funnily enough, I believe it was Glenn Peoples of Billboard that recently noted that the markets in which Spotify – which is the largest streaming service in Europe – operates have seen much stronger digital growth than the ones where it doesn’t operate. So it seems in countries such as Sweden – where Spotify was developed – that it doesn’t seem to be eroding the download store model. It seems to be complementing it. Physical sales are of course falling in all markets, so it’s hard to say whether streaming services affect that or not. We can say that the overwhelming cause of the overall revenue decline has to be the mass availability of free music to download. Study after study has shown that the net impact of illegal fire sharing is negative on music sales.
In terms of the streaming services, we think they’re a great complement to the download stores, and we’re excited about some of the streaming services that are being developed in Scandinavia at the moment. We’re seeing ISPs bundle music services into monthly broadband fees. They are either partnering with existing services like Spotify, or they’re selling their own. Scandinavia is the lab for these services, but you’re starting to see them come out in other markets now. It could be good for a family to make the decision put the music on their broadband, particularly in tandem with tougher online copyright systems in places like France. If you are Mom or Dad running the family computer, you might think, “Actually, I’ll pay the ten euro every month to get the subscription service and not fall afoul of the tougher online copyright laws.”
I was told by Eric Garland of Big Champagne at one point that the biggest predictor of how likely your music was to be illegally traded online was how active you were on the internet; the more active you were on the internet, the more likely your music was to be stolen. Is there anything copyright /content holders can do that lessens the amount of piracy?
Absolutely there is. We run an internet anti-piracy team here, and our international groups do as well. If record labels register their content with us, then we can put out content protection guys to work to try to curb the amount of illegal distribution of their work online. Last year for example, the internet anti-piracy group here in London secured the take-down of seven million infringing links worldwide. They can also help record labels talk through their whole protection procedure, ensuring that they have the best systems in place to minimize the damage from leaks. It’s very difficult to avoid all leaks, particularly once the CD has been shipped out from the factory to the stores ahead of sale. But they can help you reduce the leaks during the period before the official release. And the average leak a couple years ago used to be several weeks before an album was released; now it tends to be just several days. That is at least mitigating some of the impact. And of course subsequent to the leak are take-down notices put out against the blogs and forums that are posting links to the illegal content. That kind of action can really make a difference and can make all the difference to an artist’s initial chart position that , as you know is so important when they’re trying to market the album further and get on. The difference between getting into the Top 20 and not getting there is huge.
So, it certainly is worth any record label, small thought they may be, talking to their IFPI-affiliated national group and registering their content so we can help them.
So, quite literally, someone would go to the IFPI directly – or the RIAA in this country – and just register with you. Does the size of the label matter? Do you have to have a certain number of copyrights?
No. The actual official IFPI statute talks about making sound recordings available in “reasonable numbers.” We have many small independent members that have a fairly limited repertoire. But our internet anti-piracy guys are out there working on the big Taylor Swift releases and also classical indie labels like Hyperion on their piano concerto series. There’s a full range of work they undertake. Definitely the advice I’d give to any record label is to go speak to your local industry association and register your repertoire.
About half my readers are industry and half are DIY musicians. So, if you’re a single artist that started a record label to release your own album, and then you went to any of the direct distributors – ReverbNation, TuneCore, CDBaby – would you be eligible for the types of services IFPI and its affiliate organizations offer, or not necessarily?
Off the top of my head, I think you would be. If you’re making sound recordings available, even through a partner, and at a reasonable level trying to commercially sell them, you’re certainly someone we’d be interested in talking to. The systems are here and set up and working. We recently had a conference organized by the Association of Independent Music (AIM) – which is the indie body in the UK – to try to set up small, indies. And they are often artists that are self releasing and forming their own label.
If you’re in the UK and interested in becoming a member and registering your repertoire with the anti-piracy team, you can email firstname.lastname@example.org. U.S.-based indie record labels should call RIAA about membership at 202-775-0101. To read more about Alex Jacob, the anti-piracy movement and his organization, please visit the IFPI website.