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The Music Biz

The Music Biz

Sunday, September 25, 2011 • User Submitted

In the old music industry, there were only three media outlets that could cause an artist to "break" nationally: MTV, magazines like Rolling Stone, and commercial radio. Today, of these three outlets, only commercial radio is left, and the major record labels, in collusion with the station owners, control it.

Originally posted @ TUNECORE BLOG

In the old music industry, there were only three media outlets that could cause an artist to "break" nationally: MTV, magazines like Rolling Stone, and commercial radio. Today, of these three outlets, only commercial radio is left, and the major record labels, in collusion with the station owners, control it. Simply stated, if an artist is not signed to a major label the probability of getting airplay on a Top 40 or Hot AC station (or any other format that has an impact) is right up there with Congress getting along. It's just not going to happen.

There are a few important things to take away from this:

First, as of 2011, despite the still powerful (but diminishing) impact of commercial radio, and the stranglehold control on it by the major labels, the majors still have a 98% failure rate on their releases. Therefore, having access to commercial radio, or even getting played on it, does not guarantee success. Now some good news: artists no longer singularly need commercial radio to "break"- there are other way to do it, in particular, social networking via YouTube, Twitter and Facebook. Using these new outlets, many artists - such as Boyce Avenue, The Civil Wars, Lecrae, Jesus Culture, Blood On The Dance Floor, Kelly, Dave Days, Ron Pope, Chase Coy, Colt Ford, Ed Sheeran, Jon Lajoie, Rucka Rucka Ali, and tens of thousands of others - are achieving varying levels of success

Next, the potential money artists/songwriters can make from commercial radio is not limited to artist royalties from CD and other music sales. As a matter of fact, over 98% of artists signed to a major label never see an additional penny of artist royalties beyond their first advance. The additional money they can make from commercial radio play is tied into a copyright the songwriter controls, called "Public Performance."

Under U.S., and most international law, the moment a song leaves your head and becomes tangible (meaning it has been recorded and/or written down) you get six legal copyrights. One of these six copyrights is the exclusive right to "Public Performance." The right of public performance means that no other person or entity can publicly perform your song without a license from you. Radio play is a type of public performance.

All radio stations must get a "public performance" license from the entity that controls this right. The songwriter controls this right unless he or she has done a deal transferring it to another entity called a publisher or a publishing administrator. Almost all songwriters and/or publishers outsource the job of issuing public performance licenses to third party organizations called Performing Rights Organizations. These organizations deal with and license this one right on behalf of their members.

In the United States there are three performing rights organizations: BMI, ASCAP and SESAC. Radio stations get public performance licenses and pay these organizations on behalf of the songwriter and/or publisher. Each time a songwriter's song is played on the radio, the songwriter/publisher is to be paid by the performing rights organization from the money it collected from the radio station.

Until the advent of television, the largest income streams for songwriters/publishers from public performances collected and licensed by the performing rights organizations came from commercial radio play. With the introduction of TV (a song being played in a TV show is a public performance), more public performance revenue was paid and the pot got bigger. However, this just meant more money for the artists/songwriters who had their songs marketed and promoted by major labels.

As you move into the late 70's, cable TV came into existence. At first, the performing rights organizations dismissed cable TV as irrelevant in regards to generating revenue for public performances, over time this changed. With the maturity of cable TV, and the arrival of MTV, the swatch of artists making money from public performances finally began to get a little wider.

As you move through the 90's, the music labels entered their "golden years;" their control over market share and commercial radio was supreme. In addition, CD sales, revenue, and numbers of releases were at a record high and it was still the artists/songwriters, and their songs being marketed by majors, that almost exclusively made significant revenue from public performances.

Which leads me to the next point: what happens when commercial radio as we know it goes away and the last control point for the labels is gone?

The power of commercial radio is already diminishing, listenership for music-programmed stations is down. Stations that used to play music have flipped to talk radio formats (news, sports, commentary) and advertising revenue is not what it used to be. The final nail in the coffin will be when cars come with built in connectivity to the Net. At the moment, there are over 200 million cars in the U.S. with just about none of them wired to connect to Net. But that's changing. And as soon as "connectivity" becomes as common as air conditioning, commercial radio as we know it will be dead. This is not a matter of "if," it's a matter of "when."

The impact can already be seen. Oddly enough, over the past decade, as revenue and market share for the major labels and listenership for commercial radio have gone down, revenue collected for public performances has gone UP over 70%, and it's not chump change.

Currently, the three U.S. performing rights organizations ASCAP, BMI and SESAC collect over 2.3 billion dollars in public performance royalties. The increase in revenue for public performances is coming from more places paying the performing rights organizations for public performances. Connectivity combined with a proliferation of hardware devices like smart phones, iPads, the Roku, Apple TV, computers, and so on have significantly increased the volume of public performances and the entities that need to pay for them. There is just more money in the pot. In addition, the legal definition of public performance has been expanded to include a stream. Every single time a song is streamed - be it in a YouTube video, via Pandora, Slacker, LastFM, Spotify, a website etc., - money is to be paid to the songwriter/publisher for a public performance.

In the old world, songwriters made public performance money when their music was played on the radio. In the new digital world, the songwriter generates revenue each time their song is played on devices via a plethora of interactive and non-interactive music services (think Pandora, LastFM, Slacker, Spotify, Mog and so on).

Unlike commercial radio, the majors do not control the future digital streaming music industry, consumers do. This means that although there will still be some mega superstars earning a disproportionate amount of public performance revenue, for the first time there will also be hundreds of thousands of new artists/songwriters making money of some significance from public performances. Each time anyone listens to a song via a stream, the songwriter of that song is owed money.

The problem then becomes getting these artists/songwriters their money. Unfortunately, the traditional performing rights organizations are not very good at this in the digital world. There is no transparency as to what is being charged and/or collected, and there are huge gaps of time between when they collect their money and when it is paid out. In addition, as they do not have an efficient way to pay out money to songwriters that have earned below a certain threshold, they have earning minimums,

With the shift in public performances moving from terrestrial based radio to the world of digital streaming, there must be a system that gets songwriters more of their money more quickly, with transparency and an "audit" trail to assure accuracy. For example, if an artist's recording streamed ten times, the songwriter should be paid for ten public performances.

This to me is the future of the music industry, and this is why TuneCore is now spearheading this change on behalf of the new emerging music industry. It's crucial for artists to understand that, whether they like it or not/whether they want it or not, they're increasingly in control of their destiny. The motto of the new music industry is transparency. Via unethical practices like Payola (see George's article), and the inability to adopt to technological transformations, the labels and the old school systems are no longer efficient and have lost and/or abdicated much of their power. Those artists (and the members of their team) and new companies who both understand the emerging landscape and embrace its opportunities will fill the power vacuum.

Tuesday, February 8, 2011 • BSR Admin

Before the record label consolidation, an artist would get signed, an album would get recorded, the release would get set up and distributed. The artist would tour as the label promoted the artist/album building up the fan base and credibility.

 
Sometime in the 90's, "artist development" for rock and alternative bands, got turned on its head. Gone were the days of a major label aspiring to propel an artist over many years to "rock legend" with multiple releases, tour dates, interviews and in-store appearances (Led Zep, Rolling Stones, Springsteen, The Byrds etc). Instead, new artists were given six weeks from the street date of their debut album to have a radio/MTV hit. If the first single from the album failed, the artist would typically get dropped; their career effectively over before it even began.
 
This change occurred with the consolidation of the music industry under multi-national billion dollar companies (many publicly traded). Gone were the days of patience for a "return on investment". Instead, the world boiled down to revenues earned over the last 90 days. Shareholders demanded quick growth, the value of a company lived and died by what was reported and booked every quarter of the year. If the company invested $1 million dollars into a band in January, it cared only about how quickly it could see its money back and how much profit would be made.
 
This get rich quick strategy helped destroy the value of labels and the careers (and potential careers) of thousands of artists.
 
Before the record label consolidation, an artist would get signed, an album would get recorded, the release would get set up and distributed. The artist would tour as the label promoted the artist/album building up the fan base and credibility. The band would gain experience playing live, learn things in the studio and grow as musicians. About a year later, the next album would be released, this time to some anticipation by the existing fans, and the same cycle as with the first album would repeat - building, playing, learning, touring, gaining new fans - until the next album came out. It was the artist's later album, built on years of learning and credibility, that would go multi-platinum providing the final piece of the puzzle in defining them as a "legend". Once at that status, an abundance of opportunities and wealth would arrive for many years to come via gigs, merchandise sales, advances and band and publishing royalties. The label would experience a huge spike in back catalog sales from new fans discovering and buying old albums selling as many copies of a catalog album in a single week as they did over the previous year. There were no label marketing costs directly tied to these catalog sales thereby generating huge amounts of high margin money for their bottom line.
 
Or said another way, the value of a major label like EMI (or make that Citigroup due to its recent acquisition) is not from one new Beatles' album, it's from the entire Beatles' catalog. These older albums sell and sell and sell yielding huge financial returns that dwarf income made off of just one hit album.
 
In the old music industry, the true monetary value for the record label and artist was in the catalog of created and released works - each song, album, EP selling a little (or a lot) each day, week and year creating a large and steady recurring and predictable stream of income ("recurring and predictable income" is the holy grail for financial institutions). The shift to a new strategy of just six weeks to "have a hit or you're dead" flew not only in the face of artist development but also in the face of long term financial gain while radically changing the way the game was played.
 
A quick financial return strategy in the music industry could only be accomplished in one way, a mass-consumable commercial radio/video hit single. Bands began to be signed not for their current and future value, but for just the one hit they may have written. All label bets were placed on the one single as it was sent to radio and MTV with hopes of airplay, reaction and consumer sales. Radio and MTV gained massive power being the only outlets to allow this quick explosive growth, and the labels were willing to pay them whatever it took to gain the media exposure.
 
The music world went topsy turvy - debut albums became an artist's best selling album with subsequent releases selling far less (Spin Doctors, BloodHound Gang, Alanis Morissette, Hootie & The Blowfish, Third Eye Blind, Better Than Ezra, Marcy Playground etc etc etc). Gone were the days of development, catalog and box sets; in their place came the world of "one hit wonders" whose value dissipated as quickly as it arrived.
 
This is not to suggest that these bands or songs were good or bad, nor is this to suggest that the phenomenon of "one hit wonders" was not happening through the entire history of the music industry. What was different was the lack of bands being nurtured, supported and given time to grow and develop at the world's largest labels. Lawyers, calculators and quarterly profit and loss statements replaced the ears and creative passion of music executives like Seymour Stein, Ahmet Ertegun, Lenny Waronker and Mo Ostin.
 
Bloated artist contracts were an additional side effect of this new get rich quick strategy - understandably, artists, lawyers and managers were demanding larger and larger advances on future albums as a major label would only exercise the option due to the previous album being a financial hit. Percentages of these large advances went into the pockets of the managers and, in some cases, the lawyer's, incentivizing them to take the money and run. Marketing spends went through the roof as the labels tried to hit grand slam home runs. Albums selling a few hundred thousand copies that were previously seen as a success were now redefined as failures.
 
As more than 98% of the bands signed were not hits, the labels could not justify nor afford the huge advances previously negotiated and the bands were dropped, their careers stunted and ended before they even really began.
 
As this new shortsighted strategy progressed for over a decade, the labels woke one day and realized what they had done - for the past fifteen years they neglected to build up a valuable catalog of work that people would continue to buy over a long period of time. The older "legacy" catalog of Pink Floyd still sold, but there was nothing taking its place, nothing being incrementally added - even rock legends die, taking their chest of musical riches with them to grave. This left only one option, buy even more into the new vicious cycle, do even less artist development, spend more money on marketing, invest more in videos, up advances, swing like mighty Casey at bat for that elusive home run and hope to god something hit.
 
Had there been more patience, less greed, less focus on next month's bottom line the magnificence of the industry could have been perpetuated through its creativity. Not only would these media companies have been reaping far greater financial rewards, but the artists and the music fans most likely would have had a different view of the entire industry.
 
The good news is the cycle has been broken, artists no longer singularly need a label to have a career; there is now a choice. The lessons of the past combined with the technology and opportunity of today can quite possibly create a return to the true cultural and long-term financial value of music. Through new media outlets and social networking, bands and fans can connect in more personal and meaningful ways. Fans are now able to more directly and meaningfully support their favorite musicians over the long term enabling the artist to create a significant body of work through their lifetime. The control of a band's career has shifted from the label to the artist - be it the path of Vanilla Ice or Radiohead, the choice, success (or failure) is the artists to make.
 

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