Pete Townshend Makes Required Annual 'Blame iTunes' Appearance, Global Deathclock Reset

from the last-unicorn-in-captivity-given-stay-of-execution dept

It must be fall again. The temperature is dipping low at night. The leaves are changing color and attracting gawking, mouthy tourists (Northeastern US only). Football (the American version) is all over the tube almost all week long. (The non-American version has no season as far as I can tell -- it simply is, existing without beginning or end.) The kids have gone back to school. The lawnmower has been garaged. And Who guitarist Pete Townshend is back to his regularly scheduled programming, (re)asking the age-old rhetorical question: "Why isn't iTunes also the recording industry?"

To be sure, it's a loaded (and damn near incomprehensible) question. You may remember last year (November 2nd, 2011, to be exact) when Townshend broached this very same subject during his long, rambling "John Peel Lecture." At that point, Mr. Townshend called iTunes a "digital vampire" and suggested that Apple should do such incredible things as hire "20 A&R people from the dying record business," provide free computers and music software to 500 artists per year (as recommended by the previously hired A&R reps) and license "best selling artists" to other organizations like "record companies" [?], "bookshops," etc. Despite the solid round of mockery that greeted his inaugural proclamation, Townshend apparently feels a yearly appearance is needed, possibly in the interest of the "greater good."

Mistaking iTunes/Apple for a "publisher" is Townshend's most egregious and most repeatable mistake. iTunes doesn't publish. iTunes is a storefront. Yet, despite the fact that iTunes is simply the point of purchase, Townshend still believes that Apple/iTunes should behave more like a record label and less like the best digital Point-of-Sale most labels have.

Townshend said that his issues with the company stem from the fact that "they don't put any of their profit back into music."

No, Pete, "they" sure don't. But neither did a multitude of other music retailers over the years. However, iTunes does something that Tower Records and Musicland never did: put about 70 cents of every dollar back in the artists' pockets.

It's such an easy target, though. Easy enough that one, if so inclined, could take an annual roundhouse swing at its oversized chin. First of all, there's the skynormous market cap. ("Apple Now Officially Bigger Than Microsoft, The Beatles & Jesus Combined!") The headlines make it seem as though Apple is using $20 bills for memo pads and $100 bills for shims to even out that one slightly off leg on the desk. (No matter how finely appointed the desk, there's always one leg that just won't keep up with the rest.)

Secondly, there's the popular argument that without all this content created by others, iTunes would cease to exist. The same could be said about every successful music retail chain but, oh lord, no one will ever make that claim because that was The Golden Age of the Recording Industry. Only now, when the barriers are gone and the playing field is level and "evil" entities are willing to throw 70% of every sale right back, is it suddenly "exploitation."

But still... huge market cap... dying recording industry... other stuff... Townshend's conclusion from this mess of nostalgia and conflation is: Apple could be doing more. The level playing field and massively popular (and powerful) distribution point just make it worse:

[A]rtists have to fend for themselves a lot more these days, he said, noting that the old record companies "paid advances they nurtured young bands, and they let you make a couple of bad albums in the hopes that you might make a good one." Townshend argued that while the internet has allowed for greater distribution, and there's a lot more talent out there, but "people have to do it on their own, completely, without any help."

Pete. The labels are still around. They're not nearly as dead as the very vivid and very public pantomime performances aimed at legislators would seem to indicate. They stopped this "nurturing" well before iTunes sprung up. They may have been more willing to throw good money after bad, but they never just "let" anyone make a couple of bad albums. They may have tolerated a couple of bad albums from certain top tier artists but they were never happy and they certainly weren't interested in "nurturing." If they spent more time with the underachievers, it's because they were hoping to prevent the band's shite lightning from striking twice.

But even if the labels were as benevolent and caring as you picture them, Pete, and even if iTunes was the lousiest deal ever to hit recording artists, the fact remains that trying to hold a storefront, a freaking point-of-sale, responsible for the future of recording artists is asinine. It's even more ridiculous to claim that not only should iTunes save recording artists, but that it should save them by doing everything the old way.

Of course, this isn't just Townshend's annual delusion. Various spokespersons for various flailing industries have suggested that Google save journalism, that the government save writers and that ISPs save pretty much all of the above, as well as the movie and recording industries. Despite being provided with a number of technological advancements and new markets, the legacy players still cling to the belief that the tech world owes them a living. These claims will continue to surface periodically, held out like talismans in a futile attempt to ward off the future by clinging to the past.

Filed Under: itunes, music industry, pete townshend
Companies: apple

Myth Dispensing: The Whole 'Spotify Barely Pays Artists' Story Is Bunk

from the can-we-stop-spreading-the-myth? dept

One of the key talking points that we've heard from the "haters" of the new music business models is the claim that Spotify pays next-to-nothing to artists. This is really based on a few stories, taken totally out of context, concerning a few artists who received relatively small checks from Spotify. David Lowery actually used this as a key point in his screed against young music fans and their supposedly "unethical" behavior: to him, even if you are listening to a legal, licensed service like Spotify, you're "unethical" because he's heard rumors that Spotify doesn't pay enough.

However, the more you look, the more you realize that Spotify actually pays out quite a lot. A few months ago, someone at one of the music collection societies told me about an analysis they had done concerning the amount of money paid per listen -- comparing Spotify to radio, iTunes and lots of other things. When you knock it down to a per listen basis, it turns out that Spotify pays a hell of a lot more than any of those other sources. It's just that it's incremental so it looks smaller. With iTunes, people pay per download, not per listen, so you basically upfront a certain amount of money and then no more money is ever paid for listening to those songs. With radio, there is (effectively) a per listen rate (outside the US if we're talking performances), but it's aggregated because it's effectively spread among all the listeners. So, Spotify makes it incremental, and it seems small. but when measured on a per listen basis, the amount is significantly higher (as in an order of magnitude) than other things. The other bit of confusion about this is that Spotify is still new, and it's growing. But start from a small base, and it's easy to be confused by small numbers.

However, the info is starting to get out. Evolver.fm has some interesting details, starting with a leaked report showing that the payouts from Spotify to labels (including indies) have been increasing massively. They also have an interview with Merlin's CEO (Merlin represents a bunch of indie labels, giving it a lot of clout in negotiations). And Merlin says the claims of Spotify not paying out are bogus:

Spotify’s payouts to Merlin’s 10,000-plus indie labels rose 250 percent from the year ending March 2011 to the year ending March 2012. More importantly, the revenue per user (RPU) “has grown significantly alongside the overall revenue growth and is currently the highest it has been since the launch of the service,” said Caldas. “We see consistent, ongoing growth on revenue per user, revenue per stream, and the total revenue the service brings.”

So what's the real issue? Well, as Merlin's CEO says, Spotify pays labels, not artists. And labels aren't always great about paying artists. That's not Spotify's fault. It's what you get when you sign up for a major label that demands your copyrights (you know, the kind of system that David Lowery insists is better). There's also the issue with the growth of the service. Again, Merlin's CEO points out that Spotify has been growing a lot (helped along by its adoption in the US), but payments do take some time, first from Spotify to labels and then from labels to artists (if the labels ever do pay). So what artists are seeing is payments from quite some time ago, not what's actually happening today.

Meanwhile, Hypebot has a great interview with D.A. Wallach, who is both half of the very successful band Chester French (who we've written about for their amazing ability to connect with fans and their cool ideas like encouraging fans to share their music), and also the "artist in residence" at Spotify -- where he helps present the artist's viewpoint, and act as a liaison with other artists. In the interview, he points out that about 70% of Spotify's revenue is being paid out to copyright holders at this point:

Anyone who doesn’t think we’re paying a fair cut hasn’t seen the numbers we pay out. By far the vast majority of the money we’re making goes back to the owners of the music – about 70%. When compared to iTunes, the average listener spends $60 dollars a year into the creative community, whereas Spotify Premium users spend $120 per year. As “the pie gets bigger” so to speak, so do the royalty payments. The growth of the platform is proportional to the royalty pay out and since inception we’ve already doubled the effective per play rate.

Of course, once again, the money is going to the labels, and it's the label's job to disperse it to the artists. But to use those small payments as evidence against the "new" system is wrong, since it's still the "old" labels hanging onto the money.

There are, still, some legitimate concerns about how Spotify splits up its proceeds between major labels and indies, since the majors have an equity stake. So there is a reasonable concern about fairness. But the claim that Spotify just doesn't pay very much to artists is simply unfounded.

Filed Under: chester french, d.a. wallach, david lowery, itunes
Companies: merlin, spotify

How Sony Got Off Easy With Its 'Settlement' In Class Action Lawsuit By Underpaid Artists

from the class-actions-in-action dept

While Eminem's producers got a ton of attention and a big ruling noting that the labels had incorrectly accounted for iTunes sales -- leading to some back of the envelope calculations that artists might be owed around $2 billion in unpaid royalties from the major labels -- the very first of these cases (which actually predates the Eminem case) has reached the "settlement" stage, with Sony Music offering all qualified artists a relatively tiny pool of money to split.

The case was originally brought back in 2006 by the Allman Brothers and Cheap Trick -- which we wrote about at the time. Both of those bands eventually settled, but by then the case had turned into a class action lawsuit for other Sony Music artists, with the Youngbloods and Elmo Shropshire (who has been involved in some other bizarre copyright lawsuits) taking the place as the named artists in the case. At issue, of course, is whether or not an iTunes transaction is a sale (tiny royalty payment) or a license (much bigger royalty payment). However, the settlement seems pretty paltry. Sony pays out $7.95 million, but as is so often the case in class action lawsuits, the lawyers get $2.65 million of that, leaving $5.3 million for all of the remaining qualified artists. As Digital Music News explains:

Of that $5.3 million, $5 million is reserved for artists who sold at least 28,500 total downloads on iTunes between the inception of iTunes on January 9, 2001 and December 31, 2010 including current class members Youngbloods and Shropshire. Qualifying members would split that $5.3 million pro rata to the number of downloads of their records. However, these two artists may ultimately receive a lot less than splitting the $5 million between themselves because any artist who was signed to Epic, Columbia or Arista Records who sold more than 28,500 is eligible to join the class if they entered into agreements dated between January 1, 1976 and December 31, 2001.

According to a trusted source there may well be over 100 artists would qualify for membership. The balance of the money, only $300,000, is reserved for all Sony artists with fewer than 28,500 total downloads on iTunes.

The proposed settlement also provides for a prospective 3 percent bump in artists' royalty rates with respect to permanent digital downloads and ringtones sold in the US after January 1, 2011. The 3 percent is against Sony Music Entertainment's gross receipts. This amounts to 3 percent of 70 cents (the amount Sony received for 99 cent downloads) and that is only 2.1 cents.

It's... something. But considering how much was being dangled in previous estimates, it sure sounds like Sony may end up getting off on the cheap end if this settlement is completed. Oh, and in case you were wondering, Sony probably won't even have to pay out a chunk of this money because if any of the artists haven't recouped yet, this money will merely be "credited" towards their accounts. And considering how the labels aren't exactly known for keeping the best records as to who's actually recouped, there's plenty of room for Sony to keep the money and just claim it's crediting an account that will never surpass the red line.

Filed Under: class action, copyright, elmo shropshire, itunes, licenses, royalties, sales, youngbloods
Companies: sony music

Recording Industry Can't Wait To Start Kicking People Offline In France For Listening To Their Favorite Songs

from the yeah-that'll-work dept

As we reported last week, the French agency in charge of scaring internet users with the threat of potentially losing their internet connections based on accusations (not convictions) of copyright infringement has finally started passing on "third strike" notices to prosecutors, to see if they choose to start kicking people offline. The NY Times has an article discussing this latest step in a manner that repeats a bunch of the record labels' favorite talking points, and seems to accept a number of the industry's claims without question (a practice that is becoming way too common in the pages of the NY Times lately).

Studies show that the appeal of piracy has waned in France since the so-called three-strikes law, hailed by the music and movie industries and hated by advocates of an open Internet, went into effect. Digital sales, which were slow to get started in France, are growing. Music industry revenues are starting to stabilize.

These are all stated as if it's clear that the three things are connected, even though the evidence there is lacking.

“I think more and more French people understand that artists should get paid for their work,” said Pascal Negre, president of Universal Music France. “I think everybody has a friend who has received an e-mail. This creates a buzz. There is an educational effect.”

This is wishful thinking on the part of Negre. Multiple studies have shown that piracy is almost never an educational issue. It's not about people needing to "understand that artists should get paid for their work." As we've seen time and time again, if you give fans a good reason to buy, fans have no problem spending (and spending big) on artists. As for "the buzz" created by Hadopi emails, from what the various reports we've heard out of France are saying, much of that "buzz" is around how to make use of VPNs and other tools... as well as how to use cyberlockers and such tools that are not (yet) covered by Hadopi.

Eric Walter, the secretary general of Hadopi, said that the relatively low number of third-stage offenders showed that the system had succeeded.

“Our work is to explain to people why piracy is a bad thing and why they should stop,” he said during an interview in the agency’s nondescript headquarters behind the Montparnasse train station in Paris. “When the people understand that, they stop. Of course, some people don’t want to understand. Then we have to transfer their dossiers to the justice system.”

Again, this assumes that piracy is merely an educational issue, and people would just stop infringing if they only knew that it was illegal. Yet there's little evidence to support that claim. Most kids understand that it's illegal, but it doesn't make a difference to them.

A report commissioned by Hadopi, which has a budget of €11 million and employs 70 people, showed a sharp decline in file-sharing since the system was put in place.

A separate study by researchers at Wellesley College in Massachusetts and Carnegie Mellon University in Pittsburgh suggests that Hadopi has given a lift to legal downloads via the Apple iTunes music store. Since the spring of 2009, when the debate over the measure was raging, through mid-2011, iTunes sales rose much more strongly in France than in other European countries.

Oddly, the NY Times fails to name the study or its authors, or link to the actual study. But we will. It's The Effect of Graduated Response Anti-Piracy Laws on Music Sales: Evidence from an Event Study in France, by Brett Danaher, Michael D. Smith, Rahul Telang and Siwen Chen. If this study sounds familiar, it's because it's the one the IFPI has been hyping in support of similar laws. It's also the report that isn't nearly as strong as the IFPI (or the NY Times) insists and has been pretty thoroughly debunked for anyone who uses it to claim that Hadopi's notice system educated people into buying from iTunes. As some have pointed out, the actual data shows the "change" in sales behavior (relative to other countries) happened way before Hadopi came into effect. And... when Hadopi actually started sending out its notices? No noticeable impact.

That kind of takes the wind out of the sales of the two folks quoted above who insist that it's the educational nature of the notices that leads to the increase in sales. And, as we reported last month, when Le Monde took the same data and plotted it against announcements about new iPhones or Christmas, it found a much stronger connection, suggesting the increase in sales had little to do with Hadopi and much more to do with more people having iPhones.

These are the kinds of things that you would think the NY Times might note. But it does not.

There is other evidence in Europe that tougher online copyright enforcement can lift media industry revenues, at least briefly. Music sales rose 10 percent in Sweden in 2009, for example, after the country tightened up its copyright laws, bringing previously lax standards into line with E.U. norms.

Mr. Negre, at Universal Music, said it was probably no coincidence that Sweden and France had produced the two big European success stories in the legitimate digital music market: the streaming services Spotify and Deezer. These companies — the former was founded in Sweden, the latter in France — resemble pirate sites in that they give users access to millions of songs free, at least for their basic services.

This may be the most ridiculous claim of all. First off, Deezer, in France, launched back in 2007, or about four years before Hadopi went into effect. Similarly, Spotify launched in Sweden in 2008. The IPRED law in Sweden? Went into effect in 2009. In other words, both of these services pre-dated the laws, rather than post-dated them as Negre from Universal Music implies. And, perhaps that also has a lot more to do with the rebound of some parts of the recording business in both of those countries. After finally allowing services to offer fans what they wanted, should it be any surprise that they actually are happy with that? Oh, as for the claim that IPRED reduced file sharing in Sweden? Reports had the amount of sharing traffic surprassing pre-IPRED numbers within months. It may have suppressed infringement briefly, but not for long. Of course, it's worth noting that much of the effort has been focused on movies. With music, thanks to Spotify, the reasons to infringe are almost gone.

And, really, that should be the key lesson we're talking about here. If the industry stops meddling and starts letting companies treat their customers right and provide them with more and better ways to consume, they will do so. Playing wac-a-mole, kicking people offline and scaring them is no way to build a long term business.

There are two other really interesting bits later down in the article. The first is that Sarkozy's opponents in the upcoming election all seem to want to dump Hadopi, demonstrating just how unpopular the law really is in France. Then there's the fact that Hadopi appears to have been caught sending notices to the wrong people:

Mr. Thollot argued that someone had pirated his log-on to a nationwide Wi-Fi network and downloaded the material while he was in class. After interviewing him, Hadopi dropped his case.

“It’s like when someone steals your bank card number,” said Renaud Veeckman, co-founder of SOS Hadopi, an organization that offers legal help to people who have received warnings from the anti-piracy agency. “Are you responsible, or are you the victim?”

SOS Hadopi has worked with five people whose dossiers have reached the third stage, including Mr. Thollot; all five have been cleared before going to court. This suggests that the actual number of cases that have been forwarded to the justice system may be considerably lower than the 165 third-strike offenders cited by Hadopi. Mr. Walter at Hadopi declined to provide a specific figure.

This part especially should raise significant questions about the quality of the information being used. Because, so far, it sounds like a big joke... other than the fact that some people might lose their internet connections over it.

Filed Under: france, hadopi, itunes, nicolas sarkozy, sales, statistics
Companies: universal music

If You're Going To Compare The Old Music Biz Model With The New Music Biz Model, At Least Make Some Sense

from the just-saying... dept

David Lowery, from the bands Cracker and Camper van Beethoven (which I actually like), appeared at last week's SF Music Tech to talk about how things have never been worse for musicians. I unfortunately missed his session, but it's been getting some attention. Thankfully, it turns out that he had posted many of the details to his Facebook page, which lets us dig in... and raise some pretty serious questions about his claims.

However, before we get into the details, I will say that I do think that things may be worse for a specific segment of musicians -- and it's a segment that Lowery may fall into. Things are almost certainly worse if you were just sorta marginally successful under the old model and you have no interest in putting in much effort. Superstars are superstars no matter what -- and thanks to the nature of viral culture, that still gets them propelled to superstardom these days. But lower down in the market things have changed. The folks who used to completely fail out of the music world now have lots of interesting new ways to make money. And that means that there's more competition from below for the moderately successful acts -- who were neither superstars nor failures under the old system. Acts like Cracker and Camper van Beethoven. Suddenly, folks like David Lowery have a lot more competition for attention, and if he does nothing to leverage the new tools that are available, it wouldn't surprise me if he's worse off today than in the past. But that's for him. It's likely that for the vast majority of other musicians, the situation is quite different.

Of course, that's not even the argument he's making. The argument he does make actually makes so little sense that I'm surprised he chose this argument to make his point. First off, he's comparing totally different things:

We know this empirically. The facts and evidence are in. Let's start with the best case scenario. Let's just look at the division of gross revenues and expenses. The scenario where the artist puts out the record themselves on their own label.

First of all, I'm not sure that the "best case scenario" is when an artist puts out the record themselves on their own label. That certainly works quite well for some artists -- but it's not for everyone. So I think it's a little weird to call that the "best case" scenario.

Okay the vast majority of sales take place on iTunes and Amazon. How much does the artist get paid? Well if you are independent you get 61% of gross. cause you need either a distributor or an aggregator to get on iTunes. iTunes itself keeps more than 30% for simply hosting the songs on their servers. They do absolutely nothing else. This is why steve jobs was a genius. He was not afraid to be greedy. So now an old style record deal might have netted the artist 20-35% of gross (most reports of artists deals are wrong and low because they don't include the mechanical royalties).

Okay, what?!? Apple gets 30% for simply hosting the songs on their servers? At this point, Lowery loses all credibility. First of all, Apple does a hell of a lot more than that. It sets up a store, brings in customers, manages transactions, handles the distribution, and (on top of all that) sells the music playing devices that many people use to listen to the songs. To assume that's just "hosting the songs on a server" is just crazy.

But, here, I'll prove it: if Apple is really getting 30% for "absolutely nothing else" other than "hosting the songs on their servers," then that's a really easy problem to solve: just host the music yourself and take your songs off of iTunes. I actually don't use iTunes, but asked a friend who said that, indeed, Camper van Beethoven has 7 albums available for download on iTunes. Cracker has 10 albums. On Amazon, you get the exact same numbers. So, clearly, someone finds value beyond just having them hosted. Of course, if you look at the websites for Camper van Beethoven and Cracker, you'll see that, not only are they hideously designed (using ColdFusion?!?), but they don't really have a way for people to buy most of their albums. Hidden behind a "downloads" link on both sites, they have a very limited offering for sale. Hmm... perhaps someone finds something useful about iTunes and Amazon after all. Otherwise, why use them if they're doing "absolutely nothing else" other than hosting the music and taking a 30% cut? There also doesn't seem to be any way to buy any merchandise or any other way to support the band if people want to. Perhaps the reason Lowery is doing so much worse today is because he's not actually enabling any of the parts of the new business model that might help him succeed.

Also, as for the distributor or the aggregator, Lowery might want to check out something like TuneCore. While it does have a yearly fee, I'm pretty sure it actually lets artists keep all the royalties they make from iTunes.

As for the 20 to 35% gross number and how lower numbers are "wrong," that's sorta true, but not entirely. The lower numbers are correct for what your standard royalty is in a record contract. Those who are songwriters (as Lowery is) get an additional publishing royalty based on mechanicals, which are compulsory rates. So there's that.

The old deals weren't great on first glance but then if you start digging into it they weren't as bad as people think. And as i will show you were in most cases a better deal for the artists then the New model. 61% of gross is a lot better than 20-35% of gross until you consider the fact that under the new model the artist is responsible for all aspects of the records production, marketing and distribution.

Again, this assumes that there is one "New Model" and that it is being your own label and posting your stuff to iTunes. Since I don't think either of those things is accurate, it seems pointless to go much deeper on this point.

The Artist pays for the recording, the artist pays for all publicity, promotion and advertising. and here is the key thing. The artist absorbs the costs of touring.

Um. I hate to bring this up, but for the most part, that's true under the old model too. There is one difference: the labels will often front the money for those things, but they definitely want to get that back, and until they do, the money that you're getting from "royalties" (outside of the publishing royalties) is pretty much nothing because you haven't recouped. Obviously, for many artists, having that kind of money fronted is helpful, so I'm not negating that part. But there are alternatives these days -- including other "New" models (which Lowery ignores) like Kickstarter to help raise funds. Also, the cost of doing a recording has dropped tremendously over the years. As for publicity, promotion and advertising -- he's right. But again, under the old system, only a very small number of bands really would get the labels to do anything about publicity, promotion and advertising -- and these days, it's a lot easier for bands to do much of that on their own.

You know only a handful of artists make a living touring right? most artists need another job to go back to or they get tour support from the record label. Touring usually only pays enough to pay the crew and expenses. Touring only makes sense if it increases your sales. Artists often go on tour for free in hopes that the tour pays off in increased sales.

I recognize that Lowery's been in the music world for a long time -- which gives him some credibility -- but it also means he's kinda locked into the way things used to work, and not so much on how they can work. With new services like Eventful, bands are increasingly discovering that they can tour more efficiently, and figure out ways to make the tours themselves profitable, rather than having the tours support album sales.

Plus the new model makes the artist absorb ALL THE RISK. The risk of making a recording that doesn't recoup. The risk of going on tours that don't increase sales enough and become a loss.

This is definitely true. The labels do absorb the risk. Which is why we've said time and time again that there's still room for new labels that understand the new business models and can work within that framework. But, the "price" that the major labels charge for absorbing that risk is kinda crazy. Not only do you give up your copyrights for the risk, you also give up the vast majority of the income from your sales. Compare that to the startup world. There, venture capitalists will often invest in companies, and put up the "risk capital" on hugely risky bets (much riskier than an album). But rather than taking over all IP rights, all revenue and then paying back a mere pittance to the entrepreneurs, venture capital takes an equity stake, gets no rights to revenue and owns the percentage of the IP that they get via equity. Something's out of whack -- and it's the terrible deals the labels give.

Either way, again, there are other ways to absorb that risk. I've already mentioned two: crowdfunding platforms like Kickstarter, or more modern indie labels that understand new business models and leave more power to the aritsts.

Now consider iTunes and Amazon who are now the biggest music companies of all. They put up ZERO CAPITAL and ZERO RISK and they get 30% of the gross in return. At least the old record label system shared some of the risk! Wow the old labels were not so evil compared to the new labels.

Wait, what?!? Again, we're back to something that makes no sense at all. iTunes and Amazon are the retailers, not the "labels." It makes no sense to compare them. If we're going to actually compare apples to apples, then you would compare iTunes and Amazon to traditional retail outlets. And when did Tower Records ever put up the capital for musicians to record an album? What about Walmart? Seems like they're a lot like Amazon and Apple... and it looks like the amount of money they took may have been even higher. I'll let Jeff Price from Tunecore (someone who knows quite a bit about this) summarize how things used to work:

The financial food chain of the music industry used to be as follows. A distributor sells a CD to a retail store for a wholesale price (let's say $10). The retail store marks the CD up to $16.98 and make $6.98. The distributor takes a “distribution fee” of 20% of the wholesale price (in this case $2) and passes the remaining $8 back to the label.

A band signed to a major label could expect to earn a band royalty rate of $1.40 – $1.70 per full length CD sold. This band royalty was paid through to the artist if they had “recouped” the band royalty fronted to them by the label (i.e. an “advance”) – most do not recoup.

Ok. So, in that scenario, the retailer is making $6.98 on a $16.98 CD. That's... wait for it... 41%. Yeah, that's more than what Amazon and iTunes charge. I'm kinda shocked Lowery would make this comparison since it makes no sense and sorta takes away his credibility here.

So essentially THE NEW BOSS in the new model is iTunes and Amazon (also indirectly Google). And THE NEW BOSS is actually more greedy than the old boss.

Um. No. First off, we're still comparing apples to oranges. Also, I have no idea where Google comes in, as I don't see where they're charging 30% in this transaction. But, as noted above, it seems like these new retailers are actually charging less than the old retailers.

Now of course the independent artist can still sell so many albums that the higher percentage of gross 61% overwhelms the higher initial costs. But I bet this is not the case for most of your favorite artists. The increased costs and responsibilities make THE NEW MODEL a worse deal. The artists that do better under the new model are few and far between. That's why so many artists that seemingly could go independent do not. They still use record labels. Look carefully at your favorite artists latest record. Is it still on a standard record label? A lot of smart well managed bands still on labels. Why? Because the NEW MODEL is actually worse.

Again, this is just ridiculous. He's making two assumptions that are just crazy. The first is that the new model means no record labels at all (it doesn't). And, secondly, that the only revenue source is sales (it's not).

I guess you can prove anything you want when you're setting up the straw men.

In the new model you have these parasitic entities (itunes etc) that take 30% of gross and provide no added value. As screwed up as the old business was there was this giant parasitic entity sucking out 30% of gross for nothing. This should suggest to any intelligent person that there is something seriously wrong with the NEW MODEL

Again, if they do nothing, then don't use them. But clearly they do plenty, because he is using them. And part of what they do is they have the audience, which is tremendously valuable. Second, they appear to charge less than old brick and mortar retailers, so his entire argument is... um... wrong.

Now I'm as surprised as you that we would evolve a worse system than the old record label system. But facts are facts. We have. And I'm not happy about either.

Facts are facts, but his interpretation is ridiculous.

And finally please don't be an idiot arguing with me if you can't point to real evidence. or you don't know the actual percentages or costs. You can't just drop hearsay, urban myths, fairytales and pretend they are facts. If you do I reserve the right to flame your ass for talking out of your ass.

This is someone who doesn't want to hear he's wrong -- shutting off anyone who disagrees with him. Of course, that shouldn't stop people from responding and pointing out his errors. The only point on percentages I made came from Jeff Price -- who I'd argue knows a hell of a lot more about this than David Lowery does. Not only is Price probably responsible for getting more artists on iTunes than anyone short of Steve Jobs, but he also founded and ran a successful indie record label for years. On the other points, they've got nothing to do with percentages, they have to do with reality.

Hey, perhaps it's true that musicians are worse off today than in the past. The evidence we've seen suggests something entirely different -- and Lowery's own argument is about as nonsensical as any we've seen to date. So forgive me for being less than convinced.

Filed Under: business models, camper van beethoven, cracker, david lowery, economics, itunes, labels, music
Companies: amazon, apple, google

Pete Townshend Calls iTunes A Digital Vampire; Talkin' 'Bout His Generation...

from the talkin'-bout-my-generation dept

When he was 20 years old, Pete Townshend of The Who wrote the classic line "hope I die before I get old," as part of the anthem Talkin' 'bout my generation. As a Townshend fan, I'm certainly happy to know that he didn't die before he got old... but it does seem rather ironic that he's now acting just like the "old folks" that he once mocked. At an event earlier this week, he claimed that the internet is destroying copyright, and declared that iTunes is a "digital vampire." His complaint there is that it takes an "enormous commission." Um. Ok. So, according to most reports, iTunes' commission on music is approximately $0.30 on the dollar. While some may claim that's high, compare that to how much a record label takes on each sale, where artists often get perhaps 10 to 15% royalties, with the label taking the rest. Which one seems more like a vampire?

He says that iTunes should employ A&R people, but why is that Apple's business? That's like saying Tower Records should have had A&R people to guide musicians a decade ago. It appears his complaint is that new musicians are allowed into iTunes even if they suck. But that's an issue for filters and mentors to deal with, and the internet seems to be taking care of that. Is there bad music on iTunes? Sure, but you can get around that by not listening to it, and those musicians can get guidance from all sorts of people. He also talks about why Apple should give away computers to 500 musicians they like. But... why? What is focusing on just a few musicians going to do? The power of the internet is that it empowers tons of new musicians. Having Apple give free computers to the musician it likes kinda misses the point of the democratization of the market. It will leave out all sorts of wonderful artists that niche groups in the public might like.

He then goes on to complain that Apple won't stream full albums. Why is that Apple's job? Has no one shown Pete Spotify or any of the many other streaming players out there these days?

Of course, he won't listen to me on this, because he talks about the "vilest" parts of "blogland" where people are "drunk, or just nuts."

And, of course, he goes on a bit of a rant about file sharing. Beyond just the internet "destroying copyright," he compares someone downloading one of his songs to someone coming into his house and stealing his kid's bike (interesting comparison). Of course, as anyone who's ever thought about this for more than a second knows, making a copy doesn't remove anything. Making comparisons to stolen physical goods just makes it look like you're... well... not talking about our generation. So, as a retort, I'll just "infringe" on Mr. Townshend's own words:

People try to put us d-down (Talkin' 'bout my generation)
Just because we get around (Talkin' 'bout my generation)
Things they do look awful c-c-cold (Talkin' 'bout my generation)
I hope I die before I get old (Talkin' 'bout my generation)

This is my generation
This is my generation, baby

Why don't you all f-fade away (Talkin' 'bout my generation)
And don't try to dig what we all s-s-say (Talkin' 'bout my generation)
I'm not trying to cause a big s-s-sensation (Talkin' 'bout my generation)
I'm just talkin' 'bout my g-g-g-generation (Talkin' 'bout my generation)

Filed Under: a&r, copyright, digital, internet, itunes, pete towhshend
Companies: apple

Music Exec Says Too Many Silly Things To Put In This Headline

from the 34%-of-statistics-are-made-up dept

If anything, Apple's announcement of iTunes MusicMatch has made opposing sides equally uncomfortable (a sign of disruption?). Whereas some are concerned about its possible use as a tool to identify infringers, others are more concerned about it 'legitimizing piracy' and are not afraid to pull numbers out of thin air to back up their claims.

One of these people is PRS for Music's chief executive Robert Ashcroft. Ashcroft claims collection societies like PRS for Music could experience an 80% drop in online licensing revenue if unauthorized downloads were to be admitted in locker services and then legitimized. It seems very unlikely that collection societies would even exist if one innovation would cut 80% of their business, but I'm very curious to see evidence to back up this claim.

I've been trying to come up with a scenario that would warrant this 80%, but most would be too far-fetched for a non-fiction blog like Techdirt. The existence of these locker services would have to lead to governments deciding there is no reason to keep downloading illegal. Then either new 'pirate' platforms would have to start outcompeting already existing platforms or most legitimate platforms would have to decide there is no value in having good relations with the artists and labels their users adore. Then most users must stop spending money on music. Why is this not realistic? Despite the increasing convenience of unauthorized downloads, authorized platforms such as Netflix are beating piracy in terms of traffic. If the suggested 80% decline would be realistic, it would have already happened. It didn't.

He further stated that:

“We are at a turning point. Either the internet becomes an economically viable replacement to CDs or else there is an admission you can’t get fair value from the internet, which would lead to lasting damage to the music industry.”

No, just no. Either the internet becomes an economically viable replacement to CDs or else? The internet is a revolution in computer networking and communication - it was never intended to be a replacement to CDs. The internet is a disruptive technology which among many great things has helped thousands (if not millions) of artists and musicians reach global audiences they would otherwise not have reached. It has helped artists gain exposure and popularity to generate the licensing revenue which helps pay for the salary of collection societies' staff. For this reason the new generation doesn't blame the internet (although sometimes they forget where they came from). Just recently I interviewed Para One, a successful French electro producer, who said:

“I personally see the internet as a blessing. It would be unfair to hate it, since it pretty much kickstarted our careers through forums, then MySpace, etc, a while ago.”

Let's just label the part where he says that the internet should be a CD replacement "or else" as the FUD that it is and move on. Actual research into this suggests there's actually money to be made for the music industry. Of course that remains to be seen and depends on a few factors such as how good consumers are at predicting their own behaviour. It's also dependent on the moves of other competing platforms such as Spotify and Google Music.

However, these are intelligent platforms, built in a reality where they have to compete with free and in which they must convert 'free users' into paying users. This is why I cringe when I hear people from a less reality-based side of the business say "piracy" needs to be stopped in order for these startups to succeed. A piracy-free internet would have to be so restricted (three strikes is not enough) that it would devastate these startups and most other future innovation along with human rights.

Filed Under: copyright, icloud, itunes, music match, stats