Recording Industry Calls Radio 'A Kind Of Piracy'

from the and-mocks-broadcasters dept

It would appear that the recording industry now likes to call any sort of business model it doesn't like "piracy." At least that's the only explanation I can come up with in its latest battle, where it has referred to traditional radio as "a form of piracy." It's almost too bizarre to be true, and that's before we even explain how this involves a (literal) can of herring.

It's difficult to pick a side to cheer for in a dispute between the RIAA and the NAB -- as we're talking about two organizations with a history of saying the most outrageously incorrect things in misguided attempts to "protect" the industries they represent (which almost always ends up backfiring and hurting the industry). However, in the latest battle between the two, it seems pretty clear that it's the RIAA that's being more ridiculous. This is the latest skirmish in the battle that the RIAA started last year, in trying to get radio stations to pay royalties to musicians. If you're not familiar with the details, as it stands now, radio stations have to pay royalties only to songwriters and publishers for the music they play. The musicians themselves don't get royalties, with the (very reasonable) explanation that having songs on the radio acts as a strong promotion for the musicians. This explanation is supported by the history of radio, in which "payola" has almost always played a large role. The record labels have always paid the radio stations to play their bands -- a rather overt admission that radio helps promote new artists.

But with the recording industry confused and struggling to adopt new business models, it wants to force radio stations to pay it, rather than the other way around. What's funny is that, normally, it's the party that has more leverage that gets to demand payment. Yet, here we have a case where it's the weakest party demanding payment because it's so weak. Despite all those years of payola as proof that radio is a promotional vehicle, the RIAA actually tried to put out a totally bogus study claiming that radio play decreased the demand for recorded music. Apparently, that wasn't convincing enough, so now it's claiming that radio is actually a "form of piracy."

To make this even more ridiculous, this group called musicFirst, representing the recording industry, sent the NAB a can of herring (yes, an actual can of herring), a dictionary and some free songs in an attempt to mock the group. The herring was supposed to suggest that the radio stations' argument is a "red herring" (very clever, guys). The dictionary was so that the NAB could supposedly understand the difference between "fees" and "taxes" -- since the NAB refers to the move to get radio stations to pay musicians as a "tax," while the RIAA would prefer to think of it as a "fee." As for the digital songs, they were all mocking titles: "Take the Money and Run" by the Steve Miller Band; "Pay me My Money Down" by Bruce Springsteen; "Back In the U.S.S.R" by Paul McCartney and "A Change Would Do You Good" by Sheryl Crow.

Of course, the recording industry is wrong on just about all of this. The idea that radio is a form of piracy is simply laughable. We've already pointed to the industry's own proof (payola) that radio helps promote artists. As for the definitional difference between fees and taxes, fees are agreed upon between two parties. A tax is a fee required by the government. Since the recording industry is asking the government to set this new rule, it would seem that the NAB is correct again that this would represent a tax, rather than a fee.

Filed Under: fees, publicity, radio, recording industry, royalties, taxes
Companies: musicfirst, nab, riaa

GTA IV Actor Complains About His Salary After Game's Success; So Why Did He Take The Job?

from the jealousy-isn't-a-business-model dept

We've already written about the rather ridiculous campaign by actors to make sure they get a cut of every time their work is used. As we pointed out, the various entertainment companies have no one to blame but themselves for this state of affairs -- as they're the ones who have made the same claim in pushing to get paid for every use of their content. However, the more people all demanding their slice of the pie, the more difficult it gets for these companies to really embrace new business models. Now, we have the NY Times playing along with the actors claims, presenting an absolutely ridiculous and extreme "example." It takes on the cause of the voice talent performing as the lead character in Grand Theft Auto IV, Niko. The actor in question made $100,000 for his voice work and motion capture work, which took parts of 15 months. That seems like a rather reasonable fee -- and, clearly, it was reasonable to Michael Hollick, or else he wouldn't have taken the job. And, of course, if he demanded more, it's likely that Rockstar would have moved on and found another perfectly capable and willing actor to do the work for $100,000.

Yet, thanks to news reports that note that the game has raked in $600 million, Hollick is being put forth as an example of those poor actors not getting "their cut" of work they do in video games. This is after-the-fact arguing. Hollick had a deal that was worthwhile. It's only after the fact, based on the lofty sales numbers being bandied about that it makes for a good "story" to suggest that he was somehow underpaid. It's surprising that the NY Times would even play up that side of the story when even Hollick himself admits that the $1,050 per day fee he received was 50% higher than the union's negotiated rate. In other words, he was paid a premium for the work, making over $1,000/day (hardly a pauper's salary), got a ton of publicity for his work in the role... and only after the fact complains about the salary based on the overall revenue the game brought in, and the NY Times puts out an article with a headline suggesting he was underpaid.

Filed Under: grand theft auto, jealousy, royalties, video games, voice talent
Companies: rockstar, take two interactive

Do Songwriters Deserve A Cut Of Yahoo Search Revenue?

from the highway-robbery dept

You may recall a couple weeks ago that a judge set new rates to be paid to ASCAP by AOL, Yahoo and RealNetworks. ASCAP represents the songwriters, and those three companies and ASCAP could not agree on licensing terms for music streamed online. While ASCAP ran around touting the (somewhat made up) $100 million owed, there was plenty more in the decision that deserved discussion. At last week's San Francisco Music Tech Summit, I got into an interesting discussion with a few folks who had read through the 153 page decision thoroughly, and noticed a variety of problems. You can read the whole decision (pdf) yourself, if you want, but there are a few key points that are extremely disturbing, and could spell a lot of trouble. Basically, there's a meaningless "formula" that's applied to a very large segment of these companies' revenue, taking a huge chunk of money that seems beyond reasonable.

The judge seems to consider what AOL and Yahoo do somewhat equivalent to the way TV stations use music, and refers back to the rate agreements set up with various TV networks, despite vast differences in the way these websites operate. It suggests a misunderstanding between the difference between broadcast and interactive content. But what's really troublesome, is when you look at the overall formula for how the royalties are set. It clearly overvalues the music, and undervalues just about every other part of these three companies' businesses. The formula is, basically, the total revenue made by any business unit (minus a few specific costs) multiplied by a bizarre fraction (called the music-adjustment fraction): total number of hours that music is streamed, divided by total number of hours used on the website. Then, you take the result of that and multiply it by the "rate fee" of 2.5%.

This formula is applied to revenue coming in from any business unit that is considered to have used music. This includes things like Yahoo's search engine. That's because Yahoo (smartly, from a consumer perspective) allowed users who searched on a musician or song to stream that song directly from the search results. But, in making that so user friendly, the company has now opened up its cash cow search revenue to this formula, despite the fact that it's incredibly difficult to think that music has anything to do with nearly all of the revenue Yahoo makes from this site. Similarly, RealNetworks has almost its entire consumer division revenue included in this formula, despite the fact that it makes a ton of revenue from its gaming business. Wondering why RealNetworks decided to spin off the gaming business a week after this decision was announced? Maybe because a rate court judge just chopped off a huge chunk of revenue from it and handed it over to songwriters who have nothing to do with these games.

As for the formula itself, it makes little sense. The "music-adjustment fraction" is a totally meaningless number. The number of hours music is streamed is hardly an indicator of how much of a site's revenue is actually music based. If I have music streaming in the background all day, but am still using the site for other purposes, it seems ridiculous to include all of that as music-based revenue. The denominator of the fraction is "total number of hours on the website" which is also a totally meaningless and unrelated number. Even worse, since the court notes that none of these sites actually track that information, the judge ruled that everyone should just use Comscore's numbers instead -- the same Comscore that most people admit is not particularly accurate. So, basically, you're dividing a meaningless number by an even more meaningless number and multiplying it by the total revenue of units who often have very little to do with music, and then taking 2.5% of that. If anything, this ruling should make any site think twice before including any streaming audio from any ASCAP-affiliated songwriters.

Filed Under: ascap, copyright, rate court, royalties, songwriters
Companies: aol, ascap, realnetworks, yahoo

Actors Now Fighting For Royalties That Will Make It Harder For Big Studios To Compete

from the short-sighted dept

After the TV writers' strike from earlier this year, we noted that the final settlement actually was not in the best interest of the writers, even though they got much of what they wanted in demanding royalties from online usage of their content. The actors unions are now gearing up for that same battle, as well, as they, too, are demanding rights over online usage, including royalties and the right to demand permission before any of the works they appear in can be used online. It's difficult to feel sorry for Hollywood producers here -- as they very much brought this on themselves, convincing lots of people that they should get paid every single time any of their content was used. Thus, it's no surprise that the writers and the actors are now demanding the same rights.

However, just as it was wrong for the producers to be demanding a fee for every usage, so is it wrong for the writers and the actors to be demanding such a fee. All it will do is make it much more difficult, time consuming and expensive for any of that content to go online. And that will open up much wider opportunities for other content to go online instead, decreasing the overall value of the content made under these agreements. It's hard to fault the actors (like the writers) for looking out for their short-term interests and demanding the same sorts of things that the producers have demanded of everyone else -- but it's setting up a bad situation over the long-term, where the studios under these agreements won't be able to adapt to the changing media landscape.

Filed Under: actors, entertainment industry, hollywood, online, producers, royalties, streaming, strike

District Court Tells Yahoo, AOL To Pay Millions To Songwriters

from the watch-for-the-appeal dept

In the latest of many arguments about the various rights and payments companies need to pay for streaming music online, a district court has ruled that AOL, Yahoo and RealNetworks most likely owe millions to ASCAP for songs that they streamed to users between 2002 and today (and continuing on to 2009). This has nothing to do with the record labels -- ASCAP represents the songwriters -- but is yet another extraneous "license" where the terms are hardly clear, but basically serve to make it more difficult for anyone to play music. It was never in question that these sites would need to pay some kind of royalty -- the question was how much. The odd part of this ruling, though, is that the rate set by the judge is likely to be higher than the rate that traditional terrestrial radio pays. If there ever were a formula for making companies less interested in streaming music online -- this might be it. Of course, it's quite likely that this ruling will be appealed, so it's far from over.

Filed Under: ascap, compulsory licensing, royalties, songwriters
Companies: aol, realnetworks, yahoo

Prediction: The LTE Patent Bundle Won't Prevent LTE Patent Lawsuits

from the just-wait-and-see dept

I've been seeing a few folks take the news that a bunch of big telco firms looking to get into the LTE (Long Term Evolution) market have agreed to form a patent pool. Some are even suggesting that this is exactly how the patent system should work. That's wishful thinking at best. LTE is the next generation of wireless technology that many telcos around the world are adopting as their choice for "4G" technology -- and it will be important. However, don't think that just because some companies have agreed to pool patents that it's a good thing. There have been plenty of patent pools in the past, and you can bet that one of two things is likely to happen. First, some other company (or a few other companies, and almost definitely some individual patent holders) will spring up at some point with yet another patent, claiming that LTE technology infringes on that patent and all these firms owe a ton of money. And, given how so many patent holders don't believe in apportioning damages, they'll even claim to want more than all the money being spread around in the pool itself.

But, much more to the point, the fact that so many patents need to be "pooled" just to offer this technology should be a pretty clear warning sign that the patent system isn't working as intended. Basically, what you have here is a patent thicket. Many of the patents in question are overlapping patents that never should have been issued. However, given all the uncertainty around patent litigation (and how the courts will be treating patent issues), most of these firms realize it's better to agree to split the pie rather than sue. That's still not a good result, because it only encourages more companies to suddenly push for these sorts of marginal and totally unnecessary patents just to get included in future patent pools -- even if their "invention" really adds nothing to the technology. Furthermore, this patent pool will automatically increase the price of all LTE technology, making sure that adoption is slowed down. So, yes, it's better to see a patent pool created than to see everyone just jump to lawsuits, but the history of patent pools is littered with additional lawsuits and companies having to pay for patents that they shouldn't be paying for. This is hardly a "good" solution -- it just encourages the bad system to get worse.

Filed Under: licensing, lte, patent pools, patents, royalties

It's Not Exploitation If You Chose To Take Part

from the repeat-after-me dept

Well, the buzz of the weekend seems to be around a New York Times op-ed by musician Billy Bragg upset about the sale of Bebo to AOL earlier this month. Bragg's complaint is an old one that we've heard before: Because musicians chose to put their music on Bebo and that helped attract users, don't they deserve some of the $850 million that Bebo got from AOL. Not surprisingly, Nick Carr, who has been pushing this obviously false notion that "user-generated content" is exploitation, comes to Bragg's defense with his usual technique: sound smart, make some interesting points, and then wrap it up with a conclusion that is in absolutely no way supported by the facts.

Let's break this down. The first complaint is that somehow Bebo was "using" this music for "free." This is false. There was a fair trade in an open marketplace that made this happen. Bebo offered musicians a chance to promote themselves (for free) to its community. Musicians accepted this offer, and in exchange, provided their music for free. No one was forced into it. No one was compelled to do it. If either party felt the other was unfair they could choose not to engage in the trade -- and they could also vocally complain. In fact, Bragg did just that when he felt MySpace's terms were unfair, and they changed them. So by choosing to accept Bebo's terms, clearly they were perfectly acceptable. It was a fair trade.

Bragg goes on to assert: "The musicians who posted their work on Bebo.com are no different from investors in a start-up enterprise. Their investment is the content provided for free while the site has no liquid assets. Now that the business has reaped huge benefits, surely they deserve a dividend." Actually, they're very different from investors. Investors made a very different trade. They traded money for equity. Again, it was the fair and open market that allowed that. If Bragg had wanted to trade music for equity, he should have discussed it before... not after. You can be sure that any investors in Bebo didn't ask to change the terms of the deal after the buyout went through.

Complaining after the fact about what happened is like selling a bunch of wood to a builder for a few thousand dollars, and then complaining when he turns that into a million dollar house. Was the wood seller exploited? No. He made the fair trade, and the builder was then free to do what he wanted.

Nick Carr's response to all of this is especially wrong. He writes: "When challenged in this way, the plantation owners counter that they are doing musicians a favor by providing them with a place to promote their work." That is incorrect in so many ways it would take another whole post to get through them all. But let's take the simple point: no one is saying they are doing musicians "a favor." They are saying that there's a fair trade. You give music, we give promotion. No favors at all.

Carr and Bragg go on to use radio as an example, noting that it pays royalties, so why shouldn't social networking sites. This is incorrect for a variety of reasons. First, in the US at least, radios do not pay musicians royalties. This was a decision made by the government that since musicians benefit from airplay, no royalties are needed for the musicians (other royalties are paid for composers and publishers). However, much more to the point was that for most of the history of popular music, those royalties have been meaningless -- as record labels went through all sorts of contortions to have the money go in the other direction. What's sometimes called "payola" has gone on for years, with the record labels effectively bribing radio stations to get music on the air -- recognizing that the promotional value greatly outweighed the royalties coming in.

In other words, a free market will let the benefits to both sides balance out. If payment needs to even up one side, then the market will determine that. But, many musicians made a fair trade decision to take up the offer that Bebo made. It's their own fault if they feel they got the short end of the stick, but they clearly were happy to go along with the deal originally. Buyer's remorse and sour grapes are no excuse. If anything, this sounds quite similar to Doug Morris' ridiculous belief that no one else can make money.

To understand this most simply, it goes back to the psychological explanation we discussed earlier this year, where relevancies matter. People dislike seeing someone else made much better off, even if they are better off themselves. These musicians felt they were better off by using Bebo, but they're now upset that Bebo's founders are relatively better off than they are at the end of the deal. It's a weird world when someone would prefer to be worse off, rather than seeing someone else be even better off. In the meantime, if you'd like to read an ongoing debate between Billy Bragg, myself, Tim Lee and Joe Weisenthal, check out the post on Joe's blog where we all discuss this in the comments.

Filed Under: billy bragg, copyright, music, nicholas carr, royalties, social networks
Companies: bebo

TV Writers Settle; Will Make It More Difficult For Hollywood To Adapt

from the bad-long-term-strategy dept

I've already explained why I think the TV writers were striking over the wrong issue. Even though it's easy to feel sympathy for the writers (and to dislike the studios who certainly have a long history of not playing fair), the unintended consequences coming from the now completed deal will cause harm to the industry over the long term. By trying to get a cut of internet usage on top of existing deals, the writers have just made it more expensive for the entertainment industry to adapt to the internet and more difficult for them to experiment with different business models -- even if the deal terms aren't as complete as the writers were originally demanding. Part of the reason the recording industry is having so much trouble adjusting to the modern era is that there are so many different royalties, making it nearly impossible to do anything new or innovative -- even if the end result would be more content and more money available for participants. There's a reason why most businesses work with pay-for-hire arrangements rather than royalties. It makes the process much more efficient and allows the company producing the product to have more flexibility in trying to sell the product. While it may seem like a victory for the writers, by limiting what mainstream content producers can do to adapt to the internet, it merely opens up more opportunity for others to route around this deal and do something more innovative, leaving the big studios that employ these writers in the dust.

Filed Under: royalties, writers' strike

Royalty Agreements Holding Up Necessary Change In The Music Industry

from the need-a-clean-break dept

Eliot Van Buskirk over at Wired's Listening Post has an interesting article about the latest music royalty battle: focused on royalties for songwriters and music publishers. He likens it to the TV writer's strike issue, and sides with the songwriters, noting that the recording industry needs to encourage songwriters to write good songs, and stiffing them won't help. However, I disagree that the best way to do this is to agree to what the songwriters are asking for -- which is a larger defined cut of any use of their songs. Just as the TV writers are wrong in pushing for an extra cut of internet revenue, the same is true in this situation. Yes, in both cases, it's totally understandable and reasonable to feel sympathy for the writers -- who are often squeezed out of money and treated unfairly by the big entertainment companies. I'm not denying that at all. However, it's the very structure of this compensation that's going to cause more harm than good in the long term. It will limit the options for the entertainment companies, and allow others, not tied to those legacy agreements, to run rings around them. It provides a crutch for the songwriters, allowing them to lean on that, rather than embrace important new business models. These types of agreements will only slow down the adoption of new models and will only make it less likely that people can earn a living from writing either TV shows or music.

Why? Well, with regards to music, the trend is clear that the music world itself is increasingly moving towards free music. That's just basic economics at work. Yet, by tacking on a defined royalty on each download or streamed song, it makes it much harder for anyone tied into that royalty system to actually embrace the opportunities that free music provides. And if you recognize that those opportunities are likely to be even larger than the existing market, then by agreeing to these royalty payments, the songwriters are actually limiting their own market potential. In the end, all it does is artificially inflate prices, leaving more efficient and innovative solutions to route around the existing songwriters, rather than rewarding them. Just like everyone else, songwriters will need to learn to change the way they're compensated. Trying to inflate the old, obsolete system won't help things. It will only make it that much more difficult for the entire industry to change.

One other aside on all of this. In the comments, more than a few times, we've had discussions where people have suggested that the models we've discussed wouldn't work for songwriters, specifically, claiming that the old system is fine, but any new system would never work -- ignoring the many ways it could work (using a straightforward pay-for-hire setup, for example). However, it's interesting to see that relying on the supposedly "successful" old model is starting to come under stress from everyone else in the industry. It highlights, once again, that when we talk about these models, it's silly to compare the "old way" and any "new way." It's more important to recognize that the old way just isn't sustainable. You need to compare the new models to what the old models are trending towards.

Filed Under: royalties, songwriters, strikes

Sony Stops Licensing Of Digital Streams As It Allows DRM-Free Music

from the interesting-timing dept

The timing on this one may be something of a coincidence, but it's worth noting that at just about the same time that Sony is getting a ton of press for finally realizing that DRM doesn't make sense, the company has also told the Harry Fox Agency to stop licensing its music for digital streaming (via Mathew Ingram). As Ingram points out, this decision is really about the rather arcane details of copyright law and two (of the many) different license requirements that are out there. The RIAA labels have all been pushing (not surprisingly) for whatever combination of licenses that will bring them the most money. This isn't new, of course. We saw it in the battle over what licenses satellite radio had to pay. The same battle is now happening with digital streaming services. The Digital Media Association has asked the copyright board for a ruling saying that an audio stream should only be required to pay a performance license (as it's a performance) rather than a reproduction license (like for a product that's actually being distributed). Because of that, Sony has basically said it won't be distributing any more music for streaming until this is settled. It's likely the other labels will follow as well. It's hard to see how they can really argue that an audio stream isn't simply a performance, since the whole point of a stream is for it to be fleeting, like radio, rather than a fully stored download. Yet, when you're unwilling to look at new business models, it's no surprise that you look for any opportunity to use whatever laws and government subsidies you can to your advantage.

Filed Under: drm, royalties, streaming
Companies: sony