Copyright Is So Damn Annoying!

Posted by | Feb. 22, 2010 | 6,150 views

This week Pandora announced over $50 million in annual revenues. This was, for many, big news. Even bigger news was the announcement last month that they were profitable in the 4th quarter of 2009, and tracking full-year profitability in 2010. But the information that seemed to rub many industry critics the wrong way was the fact that Pandora paid $30 million in music royalties. Many pundits commented that this was outrageous, Pandora shouldn’t have to pay for the music, it’s all because of very inconvenient copyright laws.

Tim Westergren, Pandora’s co-founder, was gracious regarding this issue. In an interview with CNNMoney.com this week, Westergren stated, “The silver lining of our battle over royalties is that [the music industry] came to know our business, and they’re getting to understand that we’re good for them,” Westergren said. “Like terrestrial radio, we’re fundamentally a promotional device for music … but we’re an enormous, targeted promotional machine.”

A few years ago, a less-gracious Mark Lam, CEO of the internet radio service Live365, told me bluntly during a panel prep session at the NAB Conference in San Diego that “if it weren’t for royalty payments for music, Live365 would be extremely profitable.” Those pesky royalties at work again, undermining solid business models. It’s enough to make you petition Congress, Parliament and the World Court to abolish copyright. After all, does it really serve the public good?

I’ve been on all sides of this issue over the past fifteen years, it’s not one that I can come out squarely on one side or the other. Having worked for Napster in 1999-2000, EMI 2000-2006 and Limewire in 2006-2007, I find myself hopelessly conflicted, both sides made some really good points. Now that TAG, my consulting firm, advises both rights owners and music services, my internal conflict rages on.

On one hand, I do firmly believe that artists, songwriters, labels and publishers all deserve reasonable compensation for their creative efforts. It is a job, one that relies on intellect and creativity, not that different than that of a lawyer. I therefore find it interesting that so many legal minds devote their time to the argument that intellectual property doesn’t hold the same rights of ownership afforded to physical property, some even going so far as to deny it has any rights at all. Ironic that the basis for a lot of their opinions comes from Westlaw, a service that flourishes based on its copyrighted database. Many now argue give the music away for free and artists will find their real income from touring and merchandise.

As the co-manager of a very talented singer-songwriter, Sara Haze, I have to tell you it isn’t that simple. For established artists like Prince, Smashing Pumpkins, Radiohead, those who have established both a brand and a loyal following, it’s an easier path. For example, Billy Corgan announced a few months ago that the new Pumpkins release was going to being given away for free, 44 tracks released in a serialized fashion on the net, like a Saturday afternoon Flash Gordon episode. At this point in the band’s career, this will probably be a very productive digital stunt that will bring valuable attention to their next international tour.

For Sara, it’s not as easy. Her nine-state three-week club tour has her playing to a potential audience of 7500 fans. With tickets averaging $10, that’s a $75,000 gross. Let’s figure she sells out and gets 60% of the door, that’s $45,000. After band salaries, travel/hotel and meals, she will be lucky to come home with $20,000. She won’t tour again until May, so that money has to last. While she has been giving away tracks on various web outlets since her album’s release, she really isn’t financially geared to making all her music available for free, it just isn’t practical. She will continue to sell on iTunes, Amazon and other web outlets, along with selling CDs at her shows. She needs copyright.

On the other hand, services like Pandora, PlayMe, Spotify, MOG, Rhapsody and Napster need both reasonable rights and reasonable terms. New services need to be able to find a streamlined path to acquire the needed rights & terms. The current construct doesn’t work. While rights holders should be, in theory, allowed to set their market price for their assets. In practice, the pathway doesn’t work. It takes too long, the mechanics are arduous, and the outcomes are definitely not a win-win scenario.

As I’ve expressed in previous missives, all parties will inevitably have to accept some form of blanket or compulsory licensing, revenue-sharing models with complete transparency. ISPs won’t be able to continue to sit on the sidelines, they will have to come to the table.

Copyright will survive, but only if the paradigm evolves. I believe it will, I don’t relish the alternative.

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Posted by on Feb 22 2010. Filed under Business Models, Digital, featured, Labels. You can follow any responses to this entry through the RSS 2.0. You can skip to the end and leave a response. Pinging is currently not allowed.

4 Comments for “Copyright Is So Damn Annoying!”

  1. Robin Mitchell Joyce

    Hi Ted…just ran across your article and am again struck by how hard it is to include all the relevant aspects of this difficult subject at one sitting. We have to keep reminding ourselves that the artist and the songwriter are very often not the same individual and that songwriters receive no statutory or customary share of touring or merch income. The writer’s property interest in the song is nothing more than the right to control and secure income from its exploitation. Without that, songwriting may remain an art, but it’s no longer a profession.

    Further, there are many lucrative goods and services subject to highly complex sales and licensing strategies, including coma-inducing contingent compensation and net profit accounting schemes. I’ve never heard anyone, however, suggest that oil and gas should be free because it’s so wildly complicated to calculate the estimated end-of-period value of a royalty share of proved oil and gas reserves. We pay for everything, right down to our tap water, and find a workable, albeit complex, system of valuing and paying for every bit of it. It’s just a matter of education and courage.

    When it became possible to acquire music without paying for it, it also became clear that we’ve raised an entire generation with no understanding of music’s historic, cultural, and political significance, its social and functional value, or the expense and effort that goes into its creation. Music is critical, but it’s perceived as trivial and some of that perception has undoubtedly rubbed off on even its greatest and most knowledgable advocates. If people come to truly understand music, they will value it; if they value it, they will pay for it.

    As well, the industry must be brave enough to commit to making music accessible, even at prices that might in time prove to be too low. There’s no downside to supporting and nurturing new opportunities for music exploitation by agreeing to unconventional terms for limited periods.

    The smartest, most successful and personally satisfied business people I know are 75 years and older. If I had to distill all their many talents and accomplishments down into a defining philosophy, what would remain is their belief that anything is possible, their expectation that all real achievement takes hard work, and their willingness to try anything once. This is more than just a valuable lesson– it’s a practical strategy for solving 100% of the industry’s current issues.

  2. The artists deserve the royalties – I have no misgivings about that. Online radio services like Pandora and Live365 should not expect to offer the music and earn advertising revenues without paying something back to the artists. The sad thing is that these decrepit corporate entities that produce and distribute the music are (1) greedy, taking a big share of the revenues for themselves, and (2) not particularly interested in promoting small artists like Sara Haze. The artists need to have direct access to distributing their music through services like Pandora, Live365 and Rhapsody. I know the middle-men need to make a living too, but maybe they should actually find something USEFUL to do.

  3. Mike Reichert

    Very interesting article. Thanks for addressing this issue. Best of luck to Sarah Haze.

  4. Give copyright back to the authors

    Actually, copyright law itself is not that complex. The structure behind it is. Collecting societies, music publishers and record companies, who knows what they are doing? Imagine, you’re a small artist who wants to be famous. Sign here, sign here and sign here. Before you know it you don’t have any rights left, including income from gigs and merchandising. It used to be evident that we wanted to reward the creativity of people. Nowadays, it’s not that obvious anymore. My idea is that we should not discuss copyright law, but how to protect the performing, reproduction and any other rights of the music authors. Luckily I’m not the only one who is worried. It can’t be any coincidence that the Featured Artists Coalition was founded. They want the artists to have more control of their music and a much fairer share of the profits it generates in the digital age. But there is also another way. The internet is a promising marketing environment, fit for individual management of copyright and the delivery of rights on demand to users. In these circumstances the music authors are in full control of their rights. And is that not what it used to be all about? Giving the advantages of being creative to such persons? I hope the authors will be more and more aware of the fact that they have a strong legal position. VillaMusicRights facilitates
    D.I.Y music copyright.

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