Why Extortionate Licensing Ransoms Are Bad For The Industry & Fans
It is no secret that if you are launching a new digital music service and you want the major label music catalogues on board, your business is going to require a very large bank account. Sadly most of your bank account will probably go to the major labels, leaving you little for independent music, infrastructure and marketing your service. However, is demanding such high ransoms upfront beneficial to the music business overall or does it in fact limit the choice of services available and hence innovation in the sale of music through digital channels?
Let me be clear that TMV believes rights owners should receive some form of upfront advances because yes they are providing access to their catalogues and incur costs associated with developing artists. Yet to demand the scale of advances that have been the norm for the last decade is in our view detrimental to both the recorded music and publishing sides of the music business. One just has to see the decline and death of numerous services including IMeem, Myspace music and Beyond Oblivion amongst many others to reinforce the stupidity of excessive advances over the long-term.
The key problem is that although labels trade on their artists catalogues and state they need to make sure they do pay their roster of artists – none of these massive advances are ever paid through to said artists. I have not met one senior label executive who can explain (on or off the record) what calculation they use to pay these artists from the advances they receive from digital music services who license music from them. TMV have no doubt it is because they have no calculation because they are not paying the relevant splits to artists.
It could be argued that services such as Spotify, Rhapsody, We7 and numerous others are owed a refund on their advances now that certain large artists have insisted on their tracks being taken down from such streaming services. If labels cannot deliver all artists within their catalogues that were sold to these digital music services then surely if they sold what we now know are deficient catalogue’s then such ransom advances should not be charged?
How can labels expect new services to become viable businesses without key acts in the catalogue’s that they can make available to music fans? Will Page at PRS has already debunked Chris Anderson’s ‘Longtail Theory’ as just that – theory that does not work in practice. As such digital music businesses rely on big selling acts to ensure their own business are profitable. A label by selling a lie to digital music services affects such company’s business viability.
TMV have no issue with large artists who have strong management that can insist on their tracks being taken down from any music services. But labels clearly should not be selling what they do not properly control. We do have a very big problem with labels selling a false prospectus. If this were done in terms of a company IPO it would be regarded as fraud and prosecuted as such.
On another note it is clear that such high ransom level advances have driven away investors from digital music retail services. Yes Spotify and a tiny minority have continued to receive funding where music licensing is involved. However the great majority of music-focused services in the last couple of years that have received significant VC funding are services that do NOT require licensing from labels and/or publishers, services like; Soundcloud and Songkick, Next Big Sound and many more.
Compounding the issue is the fact that labels complain about Apple and how they want to cut iTunes dominance in the market. Yet these same labels make decisions which prevent a level playing field in licensing terms between iTunes and everyone else. This ensures margins are so tight that some of these new music services cannot function.
It could be argued new services failing is a very real intention of certain labels to ensure the iTunes status quo, which ironically just makes the labels even weaker and more dependent on one company that is a monopoly.
Obviously, if a new digital music proposition has no money left to market its service it will fail. TMV have spoken to several investor sources whom believe “it is labels intentions to ensure services fail”. When a digital music service fails the label pocket the advance and it goes straight onto their pile of ‘non-attributable’ income – TMV asks what good is a digital music service that has paid out so much in advances that it has no funding left to finance marketing? Add to this the nightmare of territory-by-territory licensing and it resembles a quagmire you want to run a million miles away from.
Labels pocketing of advances without paying through to artists on their roster rightly or wrongly provides services that pirate content with more fuel for the fire when they bring up arguments of labels ripping off artists. So why should the pirates care? The music business needs to also put its own house in order before preaching about stealing. If they did so they would command so much more respect and the majority of the population would support them instead of the sad current state of affairs.
It is also critical that new digital music retail services approach independent labels and their representative bodies at the same time as initial negotiations are occurring with major labels. Why? Because independent music makes up just under 30% of music sales on a global basis. That makes the independent music market share larger than Sony Music and miles ahead of WMG. Coming to independent labels after being rolled by the major labels is not just disrespectful it is also plain stupid, as a number of studies have outlined the higher usage and purchasing rates of indie music fans in comparison to major label music fans.
More new viable music services means more competition, which is good for both rights holders and fans alike.