Usually the way these disputes work out is that the licensor will want to receive royalties on this and perhaps other technology in the future from Microsoft, therefore it will often agree to a licensing agreement for a per unit rate of *less than* $98/unit. Of course, it may not work out that way in this case.
Whether the patent is worth $98/unit or not, I commend the system for holding accountable a big business that appears to have profited from stealing the little guy's IP. It is a step in the right direction towards making it less profitable to steal and more profitable to create new and innovative technology, or at least license it from those who do so.
Typical artist royalty rates for permanent downloads + dynamic pricing
Mike is correct that most recording agreements provide for artist royalties for permanent downloads to be based on a sales price in the USA - either the wholesale, consumer or suggested retail price, depending on the contract (i.e., the "royalty base price"). Therefore, increased prices should translate into both greater unit royalty rates for artists and greater revenue for the record companies.
However, lower prices may impact more than the royalty base price, since most artist agreements provide for a reduced percentage royalty rate on midprice and budget records. So, if your normal rate is 20% of wholesale and your download becomes a "budget" release, you may receive only 15% of the low "budget" royalty base price. (I won't get into discounts because that is too complicated.)
What may not change regardless of price are mechanical royalties for permanent audio downloads which are payable to song publishers. For example, the statutory mechanical royalty reportable for many songs is currently $0.091 per permanent download, regardless of the price. This is why many record companies do not license music to eMusic or other "all you can eat" services (because the liability to publishers could theoretically exceed the record company's revenue).
But I digress...
While I can see why it is in the best interest of many artists to make their music to be available at the lowest possible consumer price, one size does not fit all. Dynamic pricing for permanent audio downloads is an opportunity to increase profits for all parties, except maybe publishers and songwriters.
Other products are dynamically priced, so why not music?
This is a small example of incorrect charges that my clients recover as a result of my audits, if their attorneys were smart enough to ask for a provision disallowing recoupment of costs in connection with record company personnel. (Normally record companies agree to this provision without much haggling, so if it isn't in your agreement, you may want to consider getting a new attorney.)
Often these costs are much greater than beer and nachos, LOL!
I don't think Warner is admitting to SOX violations, but I do recall that its financial auditors found material errors with its royalty systems that were mentioned in a few WMG SEC filings earlier in the decade.
WMG's royalty system may be broken and the most outdated of all the majors (it still uses an AS400 system), but it's not fair to single out just WMG; As a royalty auditor, I think ALL of the major labels have insufficient royalty accounting systems and practices...and it's not just that the labels improperly account to unrecouped artists; labels similarly underreport royalties to recouped artists and publishers. (In fact, in some instances, unrecouped artists get a better shake than recouped artists. For example, record companies have been known to under-allocate blanket license income to recouped accounts and over-allocate blanket license income to unrecouped accounts because the companies know they won't have to pay out royalties on the unrecouped accounts.)
Not only do labels lack the technology and qualified staff required to account correctly, but part of their business model seems to be based on the fact that very few artists will audit and even fewer artists will sue. As a result, there is little incentive (besides a new 1.5% late fee for statutory mechanical publishing royalties under Section 115) for the labels to change their practices. In the meantime, the only way you will get even some of what you are due as an artist or publisher is to hire a good auditor and attorney, both of which can be too costly for unrecouped artists.
Incidentally, I don't see how the issue of underreported record royalties has much bearing on damages in connection with separate cases of copyright infringement, which if I understood correctly was Mr. Masnick's point in his last paragraph.
This is certainly not my area of expertise, and I am not sure if Michael Masnick had antitrust laws in mind when he blogged, but I do think that an intent of US antitrust law was to prevent entities from becoming so big that they would drag down the larger economy with their failure
I think these original laws need to be reinforced and/or enforced to prevent future crises
The increased consolidation that has resulted from bailouts and other government meddling may have strengthened the economy in the short term, but it puts the economy at greater risk in the long term. I think Robert Reich said it best when he said something like "If an entity is 'too big to fail,' it's just too big!" (Hope I am not misquoting.)
I try to disclose my professional bias via my "Auditrix" username and links. However, when I mention in posts that I am a royalty auditor, I am often accused of plugging my services, so it is difficult to strike the right balance between disclosure and self-promotion.
In general, I usually disagree with Techdirt, but I like to read and discuss anyway.
Although I completely disagree with Mr. Masnick on this matter, I thought he would be interested to know some of the back story, according to an insider I know:
Live Universe endeavored to license the lyrics from publishers. It went to the expense and trouble of executing most of the licenses, ran out of money and never paid the advances. Live Universe's goal was to have legal sites and work with the publishers to shut down unlicensed competing sites (the sites that Mr. Masnick supports).
So, Live Universe didn't want to be an unlicensed site, but it became one.
Not only did Live Universe fail to live up to its deals with publishers, but it also failed to make the advances and payments it was required to make to the original owners of the lyrics sites it acquired. Therefore, Live Universe may no longer own or control the sites in question because the original webmaters might have taken back back the ownership, and some of these webmasters are outside the USA, so they will avoid the current litigation.
I don't assume artists must sell records to be successful. It is a metric, but not the only one. The majors know this, hence their insistence on 360 deals, although those haven't been very successful for the record companies, so far.
Incidentally, since it is somewhat relevant to the topic Masnick raised, 360 deals do turn the record company/artist relationship inside out in some instances. For example, sometimes the artist must account to the record company.
Surely less than one percent of artists get major label deals and only one in ten major label artists makes a profit for the label.
I would agree that if an unknown artist can't get a record deal in the first place, hiring a PR service might be an improvement, except... I know more independent artists who have lost money by hiring a PR service than those who have increased profits this way. That's just anecdotal, though.
Yes, copyright owners can sell their copyrights if there is a market for such copyrights. I think I am missing your point.
I disagree with you that the status quo is generous to "large" artists. Artists that are hugely successful pay for the other 90% of artists who are unprofitable. Successful artists are also the ones who get cheated out of tens of millions of dollars (I know because it's my job to find all that hidden money).
I agree that the majors' physical distribution systems are less of an advantage than in the past, but major record companies offer much more than distribution: financing for records, videos, touring, not to mention a level of marketing that few independents can offer.
I don't evaluate success based on selling a million downloads, but I am asking the question, how many artists have gone from unknown to superstars without being party to the old system at some point? Reznor is a poor example of this for several reasons, including that he became famous under the old system. As I pointed out in my intial post, the new models work for artists like Reznor who are already profitable and famous. But what about getting the next big thing to listeners around the world? What new artists broke out big time without help from a major label? It seems like the few who have are flukes.
As an artist advocate, I am interested in emerging business models. However, there are downsides to artists retaining ownership in their masters and hiring record companies to help with marketing. First and foremost, Blue Scholars' model requires artists to assume most of the financial risk.
I think this is in the artist's best interest less than ten percent of the time (i.e., only in cases where the artist is already or becomes profitable). The other 90+% of the time, the artist will lose money.
If I were an unestablished artist looking to break through, I would want the financial backing of a major label to increase my chances of success and minimize my losses. If I became wildly successful, then I would be interested in an arrangement like the Blue Scholars'.
I don't know about you, but I can't name even five artists who have *sold* more than 1 million downloads or physical records without a major label partnership. Can you? If so, let me know - they probably need to audit their licensees at this point!
The SoundExchange monopoly was improperly strengthened by the US Copyright Royalty Board, which doesn't incentivize the parties to reach fair market rates. See my blog today.
However, the 2009 SoundExchange rates are not as "ridiculously high" as Mr. Masnick suggests. Moreover, record companies are desperate to monetize digital uses, so if the rates put too many webcasters out of business, SoundExchange may be agreeable to a reduction.
In my view, the United States is long overdue to require master and video performance royalties, like the rest of the world before it.
Do you know that other countries worldwide refuse to pay US artists and record companies performance royalties solely due to the fact that we in the USA do not reciprocate?
Considering the international stardom of so many US artists, the US has forgone a significant stream of income for a long time. When the US begins paying out such master performance royalties to foreign entertainers, it stands to collect untold millions of dollars from foreign collection societies.
Music is valuable. If the webcaster business model doesn't account for that, then it needs to change. Owners and creators are entitled to their fair share of the revenue pie.
I just think all of this would work better if SoundExchange had competitors and artists could designate their own affiliations, including agents with lower rates.
Speaking of Youtube profits...When Google acquired YouTube, The New York Times reported that YouTube gave each record company an equity stake that just hours later was valued at up to $50 million from the Google acquisition.
But the record companies haven't shared a penny of it with artists, including my client who had the #1 Youtube video during the month leading up to his record company's "investment" with Youtube (really, it was a settlement agreement). My client drove millions of users to Youtube to see the video, which is what gave his record company the leverage it needed to negotiate its sweet "investment" deal with Youtube. That's why he and other artists like him deserve a chunk of his record company's profit on the deal.
Regrettably, so far, none of my clients' lawyers have had the gumption to hold the record companies' feet to the fire on this issue.
For those of you who think that Artists are lucky to have the exposure on Youtube, that may be true for unknown artists, but for artists like my client, what good is increased popularity when it cannibalizes your income? Youtube and the record companies have piggybacked artists' brand equity and my client has reduced income as a result, even though he may be more popular than ever (people don't want to buy his record when they can watch his videos for free on Youtube).
Beyond the measley share of ad revenue that the record companies finally began to report in late 2008, entertainment companies should be held accountable to share Youtube and other hidden profits with the content creators.
I just need a client with a lot of leverage who is willing to fight for this!!!
On the post: Commerce Dept. Supports RIAA Bailout Radio Tax
This ismn
On the post: CAFC Upholds Huge Fine; Injunction Against Selling Microsoft Word
Whether the patent is worth $98/unit or not, I commend the system for holding accountable a big business that appears to have profited from stealing the little guy's IP. It is a step in the right direction towards making it less profitable to steal and more profitable to create new and innovative technology, or at least license it from those who do so.
On the post: Higher iTunes Prices? How Much Goes To The Artists?
Re: Re: Typical artist royalty rates for permanent downloads + dynamic pricing
Record companies get about 70% of the iTunes retail price.
On the post: Higher iTunes Prices? How Much Goes To The Artists?
Typical artist royalty rates for permanent downloads + dynamic pricing
However, lower prices may impact more than the royalty base price, since most artist agreements provide for a reduced percentage royalty rate on midprice and budget records. So, if your normal rate is 20% of wholesale and your download becomes a "budget" release, you may receive only 15% of the low "budget" royalty base price. (I won't get into discounts because that is too complicated.)
What may not change regardless of price are mechanical royalties for permanent audio downloads which are payable to song publishers. For example, the statutory mechanical royalty reportable for many songs is currently $0.091 per permanent download, regardless of the price. This is why many record companies do not license music to eMusic or other "all you can eat" services (because the liability to publishers could theoretically exceed the record company's revenue).
But I digress...
While I can see why it is in the best interest of many artists to make their music to be available at the lowest possible consumer price, one size does not fit all. Dynamic pricing for permanent audio downloads is an opportunity to increase profits for all parties, except maybe publishers and songwriters.
Other products are dynamically priced, so why not music?
On the post: Warner Music's Royalty Statements: Works Of Fiction
Re: Those advances
Often these costs are much greater than beer and nachos, LOL!
On the post: Warner Music's Royalty Statements: Works Of Fiction
Re: SOX Violations
On the post: Warner Music's Royalty Statements: Works Of Fiction
Re: Copyright
On the post: Warner Music's Royalty Statements: Works Of Fiction
Label Accounting
Not only do labels lack the technology and qualified staff required to account correctly, but part of their business model seems to be based on the fact that very few artists will audit and even fewer artists will sue. As a result, there is little incentive (besides a new 1.5% late fee for statutory mechanical publishing royalties under Section 115) for the labels to change their practices. In the meantime, the only way you will get even some of what you are due as an artist or publisher is to hire a good auditor and attorney, both of which can be too costly for unrecouped artists.
Incidentally, I don't see how the issue of underreported record royalties has much bearing on damages in connection with separate cases of copyright infringement, which if I understood correctly was Mr. Masnick's point in his last paragraph.
On the post: Hot Coffee Finally History? Take-Two Pays $20 Million To Investors
Video Game Insurance
On the post: The Good And Bad Of Banks Too Big To Fail Getting Bigger...
Re: Re: Hey, wait a minute
I think these original laws need to be reinforced and/or enforced to prevent future crises
The increased consolidation that has resulted from bailouts and other government meddling may have strengthened the economy in the short term, but it puts the economy at greater risk in the long term. I think Robert Reich said it best when he said something like "If an entity is 'too big to fail,' it's just too big!" (Hope I am not misquoting.)
On the post: Music Publishers Now Suing Lyrics Sites And Their Execs
Re: Re: Additional Information
I try to disclose my professional bias via my "Auditrix" username and links. However, when I mention in posts that I am a royalty auditor, I am often accused of plugging my services, so it is difficult to strike the right balance between disclosure and self-promotion.
In general, I usually disagree with Techdirt, but I like to read and discuss anyway.
On the post: Music Publishers Now Suing Lyrics Sites And Their Execs
Additional Information
Live Universe endeavored to license the lyrics from publishers. It went to the expense and trouble of executing most of the licenses, ran out of money and never paid the advances. Live Universe's goal was to have legal sites and work with the publishers to shut down unlicensed competing sites (the sites that Mr. Masnick supports).
So, Live Universe didn't want to be an unlicensed site, but it became one.
Not only did Live Universe fail to live up to its deals with publishers, but it also failed to make the advances and payments it was required to make to the original owners of the lyrics sites it acquired. Therefore, Live Universe may no longer own or control the sites in question because the original webmaters might have taken back back the ownership, and some of these webmasters are outside the USA, so they will avoid the current litigation.
On the post: Yet Another Music Business Model: Label Signs With A Band
Re: Re: Risk
I don't assume artists must sell records to be successful. It is a metric, but not the only one. The majors know this, hence their insistence on 360 deals, although those haven't been very successful for the record companies, so far.
Incidentally, since it is somewhat relevant to the topic Masnick raised, 360 deals do turn the record company/artist relationship inside out in some instances. For example, sometimes the artist must account to the record company.
Surely less than one percent of artists get major label deals and only one in ten major label artists makes a profit for the label.
I would agree that if an unknown artist can't get a record deal in the first place, hiring a PR service might be an improvement, except... I know more independent artists who have lost money by hiring a PR service than those who have increased profits this way. That's just anecdotal, though.
Thanks for your reply.
On the post: Yet Another Music Business Model: Label Signs With A Band
Re: Re: Risk
Yes, copyright owners can sell their copyrights if there is a market for such copyrights. I think I am missing your point.
I disagree with you that the status quo is generous to "large" artists. Artists that are hugely successful pay for the other 90% of artists who are unprofitable. Successful artists are also the ones who get cheated out of tens of millions of dollars (I know because it's my job to find all that hidden money).
I agree that the majors' physical distribution systems are less of an advantage than in the past, but major record companies offer much more than distribution: financing for records, videos, touring, not to mention a level of marketing that few independents can offer.
I don't evaluate success based on selling a million downloads, but I am asking the question, how many artists have gone from unknown to superstars without being party to the old system at some point? Reznor is a poor example of this for several reasons, including that he became famous under the old system. As I pointed out in my intial post, the new models work for artists like Reznor who are already profitable and famous. But what about getting the next big thing to listeners around the world? What new artists broke out big time without help from a major label? It seems like the few who have are flukes.
On the post: Yet Another Music Business Model: Label Signs With A Band
Risk
I think this is in the artist's best interest less than ten percent of the time (i.e., only in cases where the artist is already or becomes profitable). The other 90+% of the time, the artist will lose money.
If I were an unestablished artist looking to break through, I would want the financial backing of a major label to increase my chances of success and minimize my losses. If I became wildly successful, then I would be interested in an arrangement like the Blue Scholars'.
I don't know about you, but I can't name even five artists who have *sold* more than 1 million downloads or physical records without a major label partnership. Can you? If so, let me know - they probably need to audit their licensees at this point!
On the post: Is Streaming Really Replacing Downloading?
Streaming is the Future
On the post: Why The New Webcasting Rates Are A Death Sentence For Webcasters
SoundExchange Monopoly
However, the 2009 SoundExchange rates are not as "ridiculously high" as Mr. Masnick suggests. Moreover, record companies are desperate to monetize digital uses, so if the rates put too many webcasters out of business, SoundExchange may be agreeable to a reduction.
In my view, the United States is long overdue to require master and video performance royalties, like the rest of the world before it.
Do you know that other countries worldwide refuse to pay US artists and record companies performance royalties solely due to the fact that we in the USA do not reciprocate?
Considering the international stardom of so many US artists, the US has forgone a significant stream of income for a long time. When the US begins paying out such master performance royalties to foreign entertainers, it stands to collect untold millions of dollars from foreign collection societies.
Music is valuable. If the webcaster business model doesn't account for that, then it needs to change. Owners and creators are entitled to their fair share of the revenue pie.
I just think all of this would work better if SoundExchange had competitors and artists could designate their own affiliations, including agents with lower rates.
On the post: The Secret 'Profits' Of YouTube
The Secret Youtube Profits of *Record Companies*
But the record companies haven't shared a penny of it with artists, including my client who had the #1 Youtube video during the month leading up to his record company's "investment" with Youtube (really, it was a settlement agreement). My client drove millions of users to Youtube to see the video, which is what gave his record company the leverage it needed to negotiate its sweet "investment" deal with Youtube. That's why he and other artists like him deserve a chunk of his record company's profit on the deal.
Regrettably, so far, none of my clients' lawyers have had the gumption to hold the record companies' feet to the fire on this issue.
If you are remotely interested in this issue, I encourage you to read Marc Cuban's 2006 re-post of a report from an anonymous source that is at least mostly true: http://blogmaverick.com/2006/10/30/some-intimate-details-on-the-google-youtube-deal/
For those of you who think that Artists are lucky to have the exposure on Youtube, that may be true for unknown artists, but for artists like my client, what good is increased popularity when it cannibalizes your income? Youtube and the record companies have piggybacked artists' brand equity and my client has reduced income as a result, even though he may be more popular than ever (people don't want to buy his record when they can watch his videos for free on Youtube).
Beyond the measley share of ad revenue that the record companies finally began to report in late 2008, entertainment companies should be held accountable to share Youtube and other hidden profits with the content creators.
I just need a client with a lot of leverage who is willing to fight for this!!!
On the post: So Why Can't Major Record Labels Provide Accurate Accounting To Bands?
Re: Sarbanes Oxley
On the post: So Why Can't Major Record Labels Provide Accurate Accounting To Bands?
Re:
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