Recently I was on a panel at Northwestern Law School with another lawyer, a musician (who happens to ba lawyer too) and an ASCAP representative. Our topic was the effect that cloud or subscription based music services will have on performers and songwriters. While I definitely had my own opinions on the topic, it was ear/eye opening to hear from my fellow panelists.
Most music lovers seem to have their own private way to listen and enjoy their music. While there is a lot of overlap amongst listeners (iPods, satellite radio, pandora, car radios, home stereos) everyone has their own unique method to purchase, stream, listen and (now most importantly )travel with their collection. In the past we would break out our record collection and play records in the family room. Then came the cassette and the walkman. Our record collections became somewhat mobile and we could grab our favorite tapes and walk around or drive while listening to our collection of music. Technology allowed for better sounding recordings to travel along with us with the invention of the CD. However, like one of my panel compatriots aptly pointed out, a music fan was a prisoner to his cd collection; still rather bulky and highly scratchable, you would have to lug a box/book of cds with you on each road trip and hope that they did not fall between the seats or get scratched on the dashboard.
Enter the MP3. A computer file that is quickly dowloaded and containes cd quality sound. The digital album revolutionized the way we consume music. As with most revolutions, the infrastructure that existed prior to the revolution (the big music label system) fell. Brilliant entrepreneurs and crafty opportunists from Apple to Napster entered the fray and came out making billions of dollars from the shift. For the everyday consumer of music, it became easier to listen to music wherever you wanted to do so. Your entire record collection can now fit into the palm of your hand, be programmed to your car’s stereo or be shared with people in your office with a click of a button.
Now that the digital age of music is over a decade old, there is yet another shift occurring. Technology again is making it easier for people to listen to their music collection regardless of where they are. The clouds have come rolling in.
Pandora has already helped put the cloud on the map with approximately 80 million users (1 new user every second per the www.digitalmusicnews.com). But services such as Spotify, Sony’s Qriocity and Google’s delayed cloud service will take it one step further. While Pandora allows you to listen to music based on bands or songs you tell it you like, the cloud subscription services allow you to pick all of your music. Essentially, you will no longer have to actually purchase a song, let alone an album. Rather, you will pay a monthly fee that will allow you to pick your favorite songs, categorize them, rank them, etc. and, most importantly, take them with you. Whether you are listening on your hand-held device (smart phone or iPod type device), on your computer, in your car or listening to your home stereo system, your music will be there waiting for you. As long as you keep paying the monthly fee, that music will be with you.
As a consumer, I think cloud based systems are the bees knees. Technology should make things easier and better. Allowing me to go from my office to my car without missing a beat of the song I was just listening to (I’m very fast) and without plugging anything in, is amazing. As a lawyer who represents musicians and songwriters, I’m worried. For interactive internet based music providers (where the user gets to select the songs he/she wants to listen to) the royalty rates are negotiated between the labels/publishers and the cloud provider. This means that the labels and big publishers negotiate pre-determined revenue shares for each stream of a song; typically a teeny tiny fraction of a dollar (in England the rate is thought to be around 0.00085 pound). A famous example of how potentially horrible these rates can be is the report that Lady Gaga who had over one million streams of Poker Face on Spotify in the UK earned $167.00 (click here for more on that).
The labels and publishers in the US are fighting for more per stream. But don’t go rooting for them quite yet. They are negotiating deals so that they actually get an equity or ownership stake in the cloud based service. So while it appears as though they are fighting for the artists (which some of them might actually be doing), they are also positioning themselves to make as much money as they can in the process. If the clouds make it unnecessary to ever download and actually own a song, how are the songwriters and artists going to recapture that lost income? As of now, the songwriter lobbyists are doing a good job of asking that question and fighting to establish fair payments for musicians.
The laws in place that cover interactive internet radio and subscription services did not imagine the day when streaming would eclipse downloads. That day has clearly arrived: “Streams of music are eclipsing everything,” Universal Music Group UK chief David Joseph recently told the Guardian. “It’s a different digital currency to downloading. You’re dealing with 175 million single tracks bought a year compared to 7 billion streams of music.” (from The Digital Music News). Just as technology has adjusted, the laws dealing with fair payments to the providers of content need to be modified.
The bottom line is that just as the cassette replaced the record, the cd replaced the tape and the mp3 replaced the cd, the cloud is going to replace the downloaded mp3. The clouds are rolling in and the artists may be left in the impending dark.
Band plus budget (The Deal Magazine). CLICK LINK FOR STORY
It is good to know that certain labels and certain industry experts understand the new model for musicians. “The 360 deal” does not have to have a negative connotation. Finding the right partners and the right team for your project has been our focus from the jump.
We at L4M have written quite a bit about 360 deals. The 360 deal has become the standard recording agreement. Gone are the days of multiple album deals. (Who records and releases full length albums these days anyway?) Artists today must be multi-faceted. Income has to be generated from a bunch of sources. The old system of paying back advances via record sales has gone the way of the DoDo bird and Eagle Eye Cherry.
The origin of the 360 stems from the steady decline in album sales over the last decade. Labels were funding artists with advances and would recoup based on record sales and royalties. All other income would go straight to the artist or her affiliate. While record sales have plummeted, concert ticket sales and merchandise sales have stayed fairly strong. The result was strong earnings for artists and pissed off labels who were not able to recoup their initial advances. Not surprisingly, the labels dropped a lot of artists and repositioned themselves (slowly) to adapt to the changing music economy. Savvy investors also came on board, sometimes replacing labels, and presented more mainstream, non-music industry, proposals that work more as a partnership rather than a label/artist venture.
While each 360 deal is different, you can pretty much bet that each will contain the following core elements: The label/investor who funds a band, either with an advance or an investment, will receive a percentage of income from:
1. Royalties (publishing/sometimes writer’s share)
2. Record Sales (all formats)
3. Tour Income
4. Merchandise Sales
5. Licensing Income
Some 360’s go even further and give the label/investor a share of personal appearance income, solo (if it is a band) performance income, dj income, book/tv/movie income etc. Basically income from anything that a band or an individual in a band may earn while under contract could theoretically be collected by a label/investor in a 360 deal. If there is any hope of a 360 deal working, you must negotiate certain removals or certain untouchable categories as well as negotiate the percentages of income shared.
As I have written before, a 360 deal is not the worst thing in the world if it is drafted and enforced in a fair manner. This may come as a surprise to my readers as I tend to be a bit slanted toward artists, but if you think about it, a 360 may just work for some bands. If you get a label or investor who is looking to share in all streams of revenue, then you must have an agreement that certain benchmarks or obligations of the label must be met. If the label plans on sharing in your tour income, they should also be spending money on tour support and promotion. If a label wants income from your personal appearances, the label should help secure such events. The principle behind the 360 is that without the investment made by the label/investor, the band would not succeed. Typical of many labels, they will sign a band to a 360, supply them with a small advance and then disappear. Then the band works its collective ass off to get gigs and sell gear and the label still collects its share. That just plain old sucks.
If however, you have a fair label that wants to share in a 360 deal, they will expect to help you earn more money by promoting all aspects of your career. Whether it is hiring a PR company, street teams, securing world wide distribution, etc., a label that works with and for the band has a much better claim that sharing in all of their artists income is fair.
So do your research, advocate for yourself and your band and make sure that if a label or an investor wants a piece of everything you do, they are helping you achieve everything you want to achieve. (FYI: 360 deals are beasts and should always be negotiated by an attorney)
Did you know that the U.S. is grouped with China and Ghana as one of the only countries that does not pay royalties to the performers of a song that is aired publicly (Radio/TV)? Weird, right? Well this odd and troubling (for some) fact may be changing soon. Here is my fellow L4M’er, Eric Malnar with his take on the Performance Rights Act and what changes may be on the horizon:
The Performance Rights Act (the “PRA”) was introduced in the U.S. Senate (S.379) and the House of Representatives (H.R. 848) in February of last year. So why are we talking about this now? Well, as most of you should now, L4M was recently in Austin, Texas for the 2010 SXSW festival and the PRA was the topic of an interesting and heated panel. Interestingly, all sides of the issue were represented, except of course the radio stations (these are the guys who are supposedly adversely affected by the bill). Perhaps invitations were sent but nobody from the radio world wanted to appear on the panel…who knows. It is a shame because it would have been nice to hear their perspective especially since it appears as though the Obama administration is supporting the PRA and it might actually become law.
As a musician or someone who makes money through music, should you care about the Performance Rights Act? Well, it depends on what you do. As many of you know, every time a song is played on terrestrial radio a royalty is supposed to be paid to the songwriter. However, there is no payday for the artist who appeared on the song (singer, guitar player, chime and etc). For example, if I wrote a song for a famous pop singer I would receive the royalty not the singer. This is currently the system for terrestrial radio. Think of Aretha Franklin singing RESPECT. Everyone in the world has probably heard that song, but every time it is played the royalties for public performance go to the writer (specifically his estate) Otis Redding.
Digital sources of music are governed under a different law. Under the Digital Performance Right in Sound Recordings Act of 1995 (“DPRSRA”) digital music providers are required to pay performance royalties for performance of the sound recordings. Many feel that the difference in the way royalties are paid for terrestrial radio versus digital providers is unfair. The PRA would remedy this scenario by requiring a royalty for the singer as well as the background musicians. So as you can imagine, the digital folks, like Pandora and LALA are excited about the passage of the PRA because they feel it will provide a level playing field.
Another often heard argument in favor of the PRA is the fact that other countries do not have the same terrestrial radio exception that we have here in the States. In other words, money is being collected overseas for American artists but it is not being paid because the U.S. does not have a reciprocal system.
Wow, so this all sounds too good to be true, what is the catch you ask? Well terrestrial radio stations are not happy about the PRA. They argue that this will drive up costs and either put them out of business or force them to change their format to talk radio. Thus the dilemma, is it worth receiving new rights under the PRA to the potential detriment of your opportunity (as an artist) to have your music played on terrestrial radio? Back in the day when my band was struggling to get exposure we would have done almost anything to get played on big radio. If the radio industry, which claims to be struggling, pulls music from most of its stations, another avenue for musicians to get exposed is closed.
Regardless of what happens it is important for every artist to understand his or her rights as a songwriter, performer or both. As recording contracts morph into more intricate deals (e.g. 360 Contracts) artists need to be versed on all avenues of revenue. It is no fun talking about music and money in the same sentence but at the end of the day, you need to pay the bills so you can live to play another day.
Stay tuned for updates on the PRA and more insight into some of the hot topic areas of music in film.
The hangover from SXSW has subsided and deals are actually getting done in the world of both music and film. There are several hot topics which are been written, blogged, tweeted and plain old talked about in the music and film industry. Over the next several entries we will try to explore several of those topics.
A new contributor to L4M, Mr. Eric Malnar will update everyone on the public performance royalties debate that is garnering attention from the House, Senate, White House and musicians all over the world. We will also explore what is a standard 360 deal these days and continue to share our experience of working with musicians (both label musicians and independents) in the ever changing industry.
On the film front; just when I thought it was safe to celebrate the passage of Section 181…President Obama seems to have lost the legislation somewhere between health care reform and his next pack of Camels. We are still waiting for his signature on H.R. 4213 and eager film makers are anticipating the one year extension that should have come on January 1, 2010. In other film news, state tax incentives are ever changing so we will try to keep you up to date on the best places to film. Plus, we will walk the newbie film maker through the process of raising funds for an independent movie by explaining all of the paper work (stupid lawyers) that is necessary before you can even accept a check from your mom.
SHAMELESS SELF PROMOTION OF THE WEEK:
One thing I take a lot of pride in is introducing talented people to other talented people. As a lawyer for creative people, I am able to make introductions to some gifted artists which then results in some pretty cool stuff. I always tell my clients to view us as a resource; whether it is introducing managers to artists, labels to artists, licensing companies to advertisers or musicians to other musicians, our clients end up with the same contacts and connections as we have.
Possibly the best example is this song. Our clients, Database, French Horn Rebellion and Hey Champ collaborated to bring you a Remix of Beaches and Friends. The song is doing great on a worldwide level. Enjoy:
Due diligence is a phrase that is thrown around the legal world on a daily basis. “Is that borrower credit worthy? We’ll have to do our due diligence.” “Do we want to purchase that gas station? We will only know after we complete our due diligence.” Does the concept of completing due diligence in the music world ever come into play?
The answer is that it should. Just like a business looking to buy out its competitor or a bank trying to figure out if it should issue a credit line to a borrower, a musician should always complete due diligence before making any decision related to his career.
In my quest to get musicians treat their music like a business, I have often compared a music career to any other type of business. However, even though being a musician is similar to being a manufacturer of tires or a having a shoe store, there are different rules and procedures in the music industry. These different rules and standards are due partially because of the slick talkers and stereotypical music industry professionals but mostly from a successful system that has been in place for decades. If it ain’t broke, don’t fix it has been the mantra of the major label music industry for years. In this system, the typical scenario played out as follows: a musician breaks onto the scene or discovered by an A&R rep, the musician blindly signs a multi-album record deal, a manager is provided by the label and the label would control the musicians career for the length of the contract and beyond. As we all know, this system is no longer the norm. Due to the failures of the record industry over the last several years, the system has changed and the process for building a career as a musician has changed along with it.
While a musician was happy to sign the first contract that came from a “reputable” label in the past, that musician now has the ability to conduct her own due diligence. For a musician his or her music is her work product. Today, when that work product gets to a level where it is ready to share with the public and the public wants to hear it, several doors may open for the musician. Behind every door, however, is another business who wants to make money off of the musician’s work product. A manager, business manager, lawyer, label, publicist, publishing company, etc. etc. are all examples of businesses who make money off of your work product. But just like a business owner who is looking to hire a new CEO, a musician must conduct diligence before making a long term committment which may direct the musicians career and check book for the next several years.
So what should you look for as a musician who is looking to sign with a third party (a label, producer, manager, etc.)? How does a musician conduct his own due diligence? First, conduct your own research: google the hell out of the company or individual that is looking to work with you; talk to people in the industry to see what their experience has been with that company or individual; and spend a lot of time talking and observing what that individual or company is really like to work with. A label might have a good reputation, but that reputation could have been built on a success 10 years ago; what have they done lately? Ask for a specific plan for you and your band. How will the label help you get tours? How will the manager deal with finances? How will the lawyer bill you? We know that Sub-Pop has been successful with many of thier artists, but how do their contracts work? Will they enter into a license deal or maybe they are only a 360 deal label? Just because a label or management company has a good name doesn’t mean that they are a good fit for you.
It is always exciting to have someone interested in working with you and in some cases offer you money to work for them. But in today’s music world, you have to ask: is it worth it? Maybe you can do it on your own. Maybe you make your own start and then go with a label. Maybe your best friend is ok to work as your manager for a regional tour. All of these things must be thought about before signing on the dotted line. In the business world if one business is looking at buying out another business, the due diligence period may take months (years even). Lawyer pour over the existing contracts, the amount of money coming in and out of the company, the people working at the company, the systems in place that are working or need to be fixed. Why should your music career be any different?
Musicians should focus on music. That is what they are inherently good at and why they have the exciting prospect of people paying them for what they create. However, saying that “I only want to make music” and ingorning the decisions that effect your career as a musician can have devastating results. Do your due diligence before you make decisions that will effect your ability to continue to make music for a living. Once you have made smart decisions on who makes up your professional team, you can go back to what you are truly meant to be doing: making music.
Recently I was asked to write an article about anything currently happening in the new music industry. Not really an exciting proposition for most, but for me, my heart went a flutter. Should I write about fair use, the death of the CD (again), the exploitation of copyrights (again) or current trends in the indie scene? I decided to write about something that is current and personal to me and my clients. A new model (which is not so new) for a band/label contract.
Using a combination of the current 360 deals and traditional investments into start-up companies, a fair, equitable and potentially lucrative partnership can be formed. Realizing that the industry is not what it used to be and that the old model is “old” for a reason, there is a potential to do something new that will benefit the artist as much as the investor or label.
The playing field has leveled to a certain degree. If a band has done much of the hard work to start out and has a competent management team and lawyer on its side, the need for the old school label is not as necessary as it once was. Using the same model that many start-up companies use, a band can attract investors and forge a partnership that will allow the band to reach new heights and the investor to realize attractive financial returns.
SHAMELESS SELF PROMOTION(S) OF THE WEEK
Check out my favorite jewelry designer at her exclusive Steven Alan Trunk Show by clicking here.
After you are done shopping for jewels, check out the latest offerings from one of Chicago’s top indie bands: Empires by checking out their latest plans by clicking here: Bang PR