What They'll Never Tell You About the Music Business

by Peter M Thall

  First among the responsibilities for podcast distributors is the mechanical royalty. The Harry Fox Agency has been approached by innumerable podcast producers who want to take responsibility for the mechanical royalties due each time a podcast is downloaded/streamed. The problem is that the producer has no idea how many people will access any particular podcast. The result is that the producer risks bankruptcy if the public finds any particular podcast of his irresistible. If ten thousand podcasts are streamed, and the podcast contains only one copyrighted musical composition, then $0.091 will be due for each stream, for a total of $910. This is something a producer can build into his budget. Then again, anything can go viral. What if one million podcasts are streamed? In that event, the producer will be stuck with a bill for $91,000, most likely far more than the podcast cost to produce—and this sum represents the cost of only one song. So the producers try to make a deal with the copyright owners to cap their liability in the “unfortunate” circumstance of a hit podcast. The net result is that thousands of podcasts are not made available at all because the producers are afraid of the consequences of success. When a classical show is offered to be broadcast over a classical music radio station, and podcasts are a suggested supplement to the live broadcast, the radio station will demand that the producer indemnify the radio station for any liability arising out of claims from copyright owners. No producer in his right mind would do this given the ramifications of success as noted above. So the opportunities presented by the live broadcast are dead on arrival.

  INSTANTANEOUS DISSEMINATION OF LIVE PERFORMANCES

  There are plenty of new opportunities for live performers to expand their audiences via simultaneous webcasting and making CDs of concerts instantaneously available (with photos!). All of this costs money, but if managed carefully, it can generate money as well. Internet service providers such as AOL will often finance such ventures. The opportunities are enormous, and it will not be long before live performances that you attended will be available on your cell phones—before you have left the venue! It will, of course, be easier for independent artists to disseminate their performances in this way than it will be for artists signed to record labels.

  CREATING A WEBSITE

  Domain Names

  If you launch a business on your own, you will need a website. You can create your own site, or you can enlist the aid of any one of a number of services that exist for that purpose. Obviously, your want the name of your site to be one that people looking for your music on the Internet will be most likely to type in on the search line and/or the name that the various search engines will display at the top of their hit lists.

  Pursuant to the rules of the Internet’s domain name system, each website is identified both by a long IP (Internet protocol) address and also by a more-or-less easy to remember domain name, which consists of several parts. (Note: The initials URL [universal resource locator) are not synonymous with “domain name”; the latter does not include http://.]

  The top-level domain (TLD) is one of a short list of generic names—for example, .org, .com, .info, .biz, .net, .pro, etc.—or a territory extension—for example, .au (Australia), .us (United States), .eu (European Union). TLD assignments are regulated by the Internet Corporation for Assigned Names and Numbers (ICANN) and the government of the country in which the site originates. The creators of websites do not have free choice when it comes to choosing top-level domain extensions. For example, .pro is restricted to credentialed professionals. The fact that your company does business in a particular country does not automatically entitle you to use the territory extension of that country; the rules governing which entities qualify vary from country to country.

  Within a given top-level domain extension, users are free to select any unallocated domain name on a first-come, first-served basis. You can obtain a domain name from one of several companies; register.​com and networ​ksolut​ions.​com are two of the largest. These companies will guide you through the name-choosing and registration process; sell you the name for a period of time, renewable from year to year or from multiyear period to multiyear period; and offer support services once your website has been set up.

  If the domain name you want is already in use, you can sign up for a service whereby you essentially sit quietly behind the registrar waiting for the name you want to become available again. This can happen if the original owner fails to renew registration, and when it does, your application is ready to slip through the back door, so to speak, making you the new owner.

  Cybersquatters

  Cybersquatting refers to a practice whereby people deliberately register domain names connected with known celebrities, companies, or groups—for example, an up-and-coming band—with the purpose of reselling them at inflated prices. In late 1999, the Anti-cybersquatting Consumer Protection Act became law, giving trademark and service mark owners legal remedies against those who have registered a domain name with a “bad faith” intention to profit from use of the mark. For example, someone may register a name that is similar to the name used by a well-known musical group with the intention of diverting consumers from the legitimate website. The courts will almost always rule against a cybersquatter who has at any time attempted to sell the name. However, all court cases are costly and time consuming, and an alternative to bringing a lawsuit against a cybersquatter is to appeal on the grounds that ICANN’s Uniform Domain Name Dispute Resolution Policy rules—which must be followed by any party registering a .com, .net, or .org name—have been violated. Here again, the concept of “bad faith” use is crucial. For example, ICANN will determine whether the company claiming ownership of your band’s domain name has a legitimate business purpose justifying their use of the name (such as a fan club), or, alternatively, whether its sole or most significant reason for claiming rights in the name is to hold you up. Another example of a bad-faith use of a domain name is when the name is confusingly similar to a trademark or service mark that your band may have registered for commercial use, such as for sale of tour-related merchandise.

  The bottom line here is that you should actively establish your trademark rights wherever they exist, building up what amounts to an entitlement to the name, however used. Trademark status is not like copyright; it is not automatically granted on creation, and your legal right to use your registered trademark(s) as a domain name is established through usage of your trademark in the various areas (recording, performing, merchandising) you pursue. For more information on trademarks, see chapter 11, this page.

  WHICH PEOPLE SHOULD DO IT THEMSELVES?

  There are four kinds of artists who, I think, have the best chance to become successful do-it-yourselfers in the world of e-commerce: urban and reggae artists, classical artists, jazz artists, and currently and formerly successful pop and rock artists. The ways in which urban and reggae artists and classical artists can benefit from the Internet are covered in chapters 18 and 19, respectively. Following is a brief discussion of how formerly successful artists might go about doing it themselves.

  As to currently, or quite recently, successful artists, creating one’s own label is definitely becoming quite popular. Joss Stone (Stoned Records), Jack Johnson (Brushfire Records) and the pioneers Ani de Franco (Righteous Babe Records) and Aimee Mann (Super Ego Records) have all gone this route successfully—at least for the artists who established them for their own recordings. The Delgados’ Chemikal Underground, Jack White’s Third Man Records, and other indie bands’ efforts to create a home for their community of like-minded artists have also succeeded. The successes (among a bunch of attempts that have failed utterly—for example, Mariah Carey’s Crave label and George Michael’s Aegean label. I guess that it’s not as easy as it seems.)

  And, of course, there is Nettwerk Records which had the brilliant idea of reversing the policy of seventy-five years earlier by becoming the record company of the artists it was managing. They gave up on the majors a long time ago and now have a much better handle on their artists’ re
cords than they could have had via a “major.” Similarly, Emily White’s and Brendan Benson’s Readymade Records perfectly aligns the needs of artists for their records—first, to see the light, and, second, to be “managed” and supported by attentive, commission-based employees (they call them “participants”) in publishing, distribution, digital marketing, synchronization licensing, and promotion and public relations. This time, “sounds like” a record company, is one.

  An artist who has had a great deal of success almost invariably still has hundreds of thousands, if not millions, of fans who recall their feelings years earlier when they were first introduced to the artist’s music. Record companies that tried to specialize in such artists have, for the most part, failed. Assuming that an artist from the 1970s or 1980s (or earlier) has something left to say, that artist can record a CD fairly inexpensively and make it available via the Internet—either as a hard-copy CD or via download or streaming technology—for $10 or so if not for free and sell a few hundred thousand copies.1 Not bad for a minor investment. Like Tori Amos and Foreigner there are a large number of formerly successful artists whose appeal is broad, but apparently not broad enough to warrant the majors granting them an exclusive recording relationship. The appeal of Internet distribution will resonate with these artists especially, and there is no reason why such artists cannot “do it themselves.”

  There is a fifth kind of artist who can do it him- or herself. This is the artist who already has a grassroots following and is original and creative enough to continue growing musically and relevantly. For example, Aimee Mann, late of ‘Til Tuesday, or Ani Di Franco, or especially Amanda Palmer who discarded her record label in favor of a totally populist approach to her fans. When her record label called a 25,000 unit sale of her album a failure, she collected well over a million dollars through Kickstarter—from—yes, 25,000 fans. These artists’ appeal to their fan base is not concocted or manufactured using new technological methods. They are not fake, and uniquely, they effectively replace traditional methods of distribution and marketing. The Grateful Dead may have been the best exemplar of this type of artist. A word of warning though: an obscure act such as Hollywood Undead “did it” themselves, but did not really succeed in any real terms until it obtained major label distribution. A&M/Octane, James Diener’s label, funded with Wall Street money, does it backward: it acts like an indie until a certain success level is attained, at which point the awesome power of the Universal Music Group takes over. Maroon 5 was a notable beneficiary of this approach.

  A WORD OF WARNING—AND ENCOURAGEMENT

  As profits and market share of the majors diminish, the owners and distributors of “content” (read: the traditional record companies) are finding ever new ways to diminish, or at least keep under (their) control, the percentage of income they wish to share with the creators. So I suggest that you and your representatives review royalty provisions ever more carefully to ensure that they cover new and untested forms of exploitation. It used to be that hard sales, performances—and maybe licenses—were the entire universe of exploitation. Today, although that universe is expanding rapidly, the record companies are clinging to old models of royalty computation. For example, most traditional record companies maintain that the digital download of a recorded song should bear the same royalty as if the sale were made over the counter at a record store.

  As we saw in chapter 4, a $16.98 “record” royalty base in the United States is customarily subject to a 10% or 15% breakage deduction, a 25% new technology deduction, a 25% packaging deduction, another 10% to 15% to make up for so-called “free goods,” and perhaps even an additional 10% to 15% reduction just for the hell of it. A download is viewed in precisely the same way. Instead of sharing in the traditional 50/50 split of income from what are essentially licenses (via Napster—formerly Pressplay—or Musicnet, iTunes, etc. for example), record companies have figured out how to glom as much as 92+% of receipts from downloads. Streaming presents even more challenges to the recording artist. Many lawyers and business managers rue the day they receive “statements” from the principal streaming sites.

  The record companies argue that their investment risks are the same whether the music is on a CD or downloaded. The costs for production, promotion, radio promotion, advertising, touring, video exploitation, etc., are justification enough to the record companies to exact precisely the same royalty reductions as they do for actual hard-copy sales. While there is some justification for this rationale, there are equally strong arguments for a more equitable sharing of the income.

  This brings us back to doing it yourself. If you can find a way to reach your audience—even a substantially diminished audience compared to what a traditional record company can reach—you can profit enormously. Precisely because you do not have to reach mega-levels of buyers, you can present your art in an economically feasible way without having to learn all of the tricks of the trade discussed in earlier chapters of this book.

  Finally, here is another top 10 list with which Kathleen Marsh, CEO of Musicnotes.​com, recently closed her lecture on music entrepreneurism at the Neilson School of Management at the University of Wisconsin:

  • Recognize opportunity and act on it.

  • Be careful who you partner with in both business and finance.

  • Don’t underestimate the power of inertia.

  • Don’t underestimate the resistance from those who are threatened by your business.

  • Make allies in your industry.

  • Use experts, including legal and business experts.

  • Decision-making is not always logical…it is emotional. Get people excited about your idea or product.

  • Be brave. Getting started is scary.

  • Never give up. Tenacity is your greatest weapon.

  • Pray for luck.

  * * *

  1. It is not out of the question to create a workable studio with 36-track recording capabilities for a cost of under $40,000. Further, the usually outlandish costs of mixing and mastering can be achieved via the Internet. A record recorded in Los Angeles can be sent via FTP (file transfer protocol) to New York or London for mixing, and sent back again via FTP, all in a day’s time. Customs delays, air courier charges, shipping time, and lost time are all absent in this fast-moving—and cheap—electronic world. There are, of course, huge security issues, but by the time you have learned the tricks of this particular trade, hopefully you will have learned methods of encryption that will protect your music.

  17 • LOST, MISPLACED, NEGLECTED, AND ABANDONED

  Royalty Opportunities You Were Never Told About

  What is a cynic? A man who knows the price of everything, and the value of nothing.

  —OSCAR WILDE

  In a previous edition of this book, the topics included here were incorporated into the chapter on royalties. In part, I did this because at the time I wrote the book, some of the royalty opportunities now available either did not exist or the means of collecting them were nonexistent or in their early stages of development. Things have changed.

  AN INTRODUCTION TO NEIGHBORING RIGHTS

  First, an explanation of the somewhat mysterious island of intellectual property protection known as neighboring rights is in order. These rights apply only to performers, record companies, and record producers. Its universe encompasses only the sound recording—not the underlying musical composition. Frank Sinatra’s heirs receive nothing from the multitude of “New York, New York” performances presented at Yankee Stadium—many of which are televised; Bing Crosby’s heirs receive nothing from the incessant play of “White Christmas” during the Christmas season. Nor do Ringo Starr and Paul McCartney receive anything from the innumerable performances in the United States of The Beatles’ recordings broadcast on radio or television. Nor do Coldplay, Garth Brooks, or Josh Groban. Nor do their record companies or producers. Nor do the musicians or singers who performed on their recordings. Why not? Because the United States has never recognized ne
ighboring rights—rights not actually conferred by existing copyright law but, rather, rights that are “neighbors” of traditional rights conferred by copyright laws. Most other industrialized nations do recognize such rights. But because the United States does not recognize their citizens’ neighboring rights, they refuse to recognize ours. Some neighbors!

  The following is a brief introduction to neighboring rights—which generate a type of music income that is practically unknown to Americans, one which the US House and Senate have systematically refused to acknowledge, effectively preventing our artists, record companies, producers, musicians, singers, and writers from sharing in that income. In fact, almost all European countries, as well as many Eastern European countries, South American countries, and China and Japan have their own versions of neighboring rights laws. For example, in Russia and in some other countries, the performance that is the subject of the neighboring law may include a dramatic production, and need not be recorded on a “record”; if a live dramatic production is broadcast, a neighboring right has been exercised. Japanese record companies, alone in the world, are permitted to rent sound recordings to consumers as long as they pay performers as if the CDs were in fact sold.

  The fee structures and payment processes established by the organizations set up to license neighboring rights are not dissimilar to those established by the performing rights and mechanical rights societies around the world. Customarily, fees are negotiated separately from negotiations between performing rights societies and broadcasters. Of course, all of these organizations are champing at the bit now that the term “broadcasting” has taken on new meaning due to audio transmissions via the Internet. Some dot-coms are attempting to dismiss the expansion of neighboring rights to the Internet because there is no actual “wire transmission.” Or is there? Stay tuned.