Challenges Facing Digital Music Start-Ups

Interview with Steve Masur, Esq. and Moses Avalon

Steve Masur is a founder and Senior Partner of MasurLaw, a law firm focusing on digital media and entertainment, corporate finance, and intellectual property. He is a member of the Executive Board of the International Association of Entertainment Lawyers and is Editor of Collective Licensing at the ISP Level (IAEL 2010).

Moses Avalon is Author of Confessions of a Record Producer: How to Survive the Scams and Shams of the Music Business (4th ed. Hal Leonard, 2009) and Secrets of Negotiating a Record Contract (Hal Leonard 2010). Mr. Avalon currently runs a music consulting service which offers workshops and contract analysis to artists, managers, producers and labels. He is also a sought after speaker for his expertise on issues facing the music business, and maintains a popular blog and newsletter at www.mosesavalon.com/mosesblog.

I asked Steve Masur a series of questions. What follows below is Steve’s thoughtful responses to these questions followed by Moses’ responses to Steve’s comments.

SG: What are the greatest challenges facing new digital music startups, and have the major labels impeded the growth of legitimate alternatives to free music?

SM: The major labels are still asking for advances, but now, instead of the advances being their primary business model, it serves the purpose of weeding out the better business opportunities from the mass of underfunded, under-researched or otherwise unrealistic ones. Also, the majors now see more clearly the value of having a market of sustainable and even successful online, mobile and cloud-based music services. This has made them more collaborative in their approach. However, they still face significant challenges.

The first challenge is that consumer confusion over music distribution technologies has inhibited music promotion and eroded demand for recorded music. A smaller percentage of the population identify themselves as hardcore music fans and the typical person on the street is now less identified with their music than in previous eras. Radio has become more generic, fewer people listen to radio, and from an empirical perspective nothing else has fully replaced radio as a solid way to identify new music choices (although there are great alternatives in this race, like Shazam, Pandora and MOG). Furthermore, this downward new music exposure spiral is increasing as declining sales of recorded music further limits promotion budgets, and new music is even harder for the typical person to hear about. Quixotically, the counter trend is that because of the Internet, music you already know about has never been easier to find, and more people than ever before listen to music on mobile devices. To my mind, this spells only one thing; unrealized economic opportunity.

The second challenge is that consumer adoption of new paid digital music services is not growing quickly enough. To my mind, changing this does not take rocket science, it takes promotion. During previous format changes, there was a huge amount of promotion beckoning consumers to adopt the new formats. Equipment manufacturers extolled the virtues of LPs over 78s and 45s. CD players were relentlessly pushed into hands, homes and finally into cars. Music marketers made you feel compelled to change over your entire record collection into the new format and buy more music on the new format. But now, despite the freely available, already ubiquitous standard formats of MP3 and others, the only music service you regularly see promoted on TV and billboards is iTunes. And its the only massively successful one. Furthermore, after nearly 10 years in existence, Shazam made it onto an iPhone commercial, and a Super Bowl commercial, and now everyone knows about Shazam and its one of the most successful apps. Yes, Steve Jobs is brilliant and he is the Henry Ford of our time, but in many regards, he is just doing what’s obvious, promoting Apple’s products well. My perusal of the numbers reveals that these services are competing pretty damned well with “free,” at least when measured on the basis of money made per download, so the promotion is definitely worth the money.

The third set of challenges surrounds the law that evolved around music's previous distribution models. This law has created populations of stakeholders who have a legal right to collect part of the proceeds from music sold, but who play little or no role in selling the music they control. Furthermore, these people are insulated from the real market by the record labels, which must pay them. So in many cases, these stakeholders are the reason that wholesale prices for music are so high, and the record labels take the rap for their unwillingness to budge on price. This upward price pressure is then passed on to the digital music services, which then can’t make enough of a legal margin to properly promote their service and make a modest profit. This is the position in which music services promoting plain old downloads and streams find themselves. Woe unto the entrepreneur who comes up with a truly new and novel way to market, promote and sell recorded music. He or she must overcome a poisonous, complicated and ultimately highly expensive nettle of legal issues. If they fail to get deals done and are sued on any of the many bases available to the stakeholders, a judge who chooses not to ignore the precedent must rule in favor of the stakeholders. Even when the labels want to license music to these people, they can’t because of their agreements with the stakeholders. In short, the stakeholders are protected by the law at the expense of the market, and the recorded music industry as a whole continues to decrease in size. Any entrepreneur who does a proper due diligence will ultimately reach these conclusions. As a result, prudent entrepreneurs choose other available businesses with fewer problems, so recorded music continues to attract only the most passionate about music, or most disdainful of the law.

Last, but possibly not least, it is actually still possible to download music for free, and the paid download services have still failed to sufficiently differentiate themselves to be perceived as better than the free services, even if they actually are. I think the cure for this is good promotion of these new services, and overcoming the technical problems that make it difficult for the normal consumer to use them in all the places they like to listen to music.

MA: Wow, Steve has said a mouthful of truth here. And I agree with most of it, but rather than pat each other on the back, which doesn’t benefit the readers of this book, I’m going to take a Socratic approach and only comment on the parts that I disagree with, or sort of disagree with.

The second to last paragraph of his reply may be one of the best summaries of the difficult business dynamic faced in the music space that I’ve ever read. It’s balanced and states the issues clearly. But I have a different take on a few nuances, and perhaps if he reads this, Steve may agree with me, and change some of his overall views. I will repeat certain sections of his answer and then give my comments.

SM: This upward price pressure is then passed on to the digital music services, which then can’t make enough of a legal margin to properly promote their service and make a modest profit.

Well, I would agree with that were it not for the many business plans I’ve seen and vetted for labels and investors on so-called “new models.” I see about 10 a year. Most are re-inventing the wheel; they are merely record companies but with a new twist. They all still revolve around signing artists and exploiting exclusive rights to masters. But the point that makes this worth disagreeing with is the salary and bonus schedules I’ve seen in these plans. Not a single one has a CEO making less than $150,000 a year, and not a single one has executive overhead that is costing the Venture Capitalists less than $1 Million a year. Now it’s hard to cry a river for a guy who says “these damn labels are charging too much -- if I give them what they want I’ll go broke,” and the same guy wants $150K a year for an untried start up. And if you try to tell these guys that they should defer a salary for the first three years; they will have no part of it. They want to get paid for their genius now. Which sends the little voice in my head saying, these guys are not really in the music innovation business. They are in the get the money now business. But even if they agree to defer, their investors won’t let them. VC guys know most of these ventures fail and so they won’t get excited about anything that defers a large salary. They want the CEO to be incentivized to make the plan work, not walk away because they are not getting paid anyway. And so we have a conundrum. There are no business plans where the so-called innovators are willing to work strictly off a back end, because either their VC backers will not allow it, or the executives themselves won’t allow it. High overhead means you need to make big profits. Therefore for the venture to make a profit, the licensing fees must be lower than is reasonable.

My suggestion is if you want to innovate in an industry that has been doing well for over half a century, expect to have to prove yourself BEORE you get paid. That goes for the VC folks as well.

SM: In short, the stakeholders are protected by the law at the expense of the market.

Not sure I buy this, and after reading my response, my guess is that Steve wouldn’t either. The market is created by the “stakeholders,” and the principal stakeholders are the labels. If they want to destroy it or recreate it, it’s theirs to do that. This comment is born out of what has become the copyright vs. copyleft argument. The question boils down to this: who should have more power over how a work is sold and distributed, the creators of a work or the people who buy it. Clearly the law as it’s written now says the creators should have a limited monopoly on how their work is distributed. These are copyrightsists. The copylefists feel the other way, that once a work is created the public should get to decide its fate. A comment like the one above (if I read it right) betrays a copyleftist agenda. It suggests that the market should control how much people pay for music, if anything. I don’t think commerce would function well like that under our current laws and justice system.

SM: But now, despite the freely available, already ubiquitous standard formats of MP3 and others, the only music service you regularly see promoted on TV and billboards is iTunes. And the only massively successful one is iTunes.

Well, one reason people are shy about getting into this space is that so far there is only one “success” story, and even iTunes has stated publicly that they are barely profitable. This is with a licensing model that retains over 30% of revenues from sales. iTunes is 30/70 partners with the labels, and they still cannot make a lot of money. So how is a start up supposed to make a go of it with a deal that will never be as sweetheart as iTunes. A more fare statement would be this: so far NO ONE has come up with a method that satisfies both content creators/holders and retail vendors, including iTunes.

SM: Radio has become more generic, few people listen to the radio, and from an empirical perspective nothing else has really fully replaced radio as a solid way to identify new music choices.

Here I can flatly disagree but asking the question, how does anyone know there are less people listening to the radio? Who says? From where are we starting our survey? 2008? Sure, maybe if you start your survey at 2006-2007 you can make that statement, but I don’t see how you can say it if you begin your survey at anything before 1999. Every car sold in there US has a radio. Car production has just about doubled in the US since 1999. That means twice as many radios are in use. That does not even include the many types of devices that have AM/FM tuners incorporated into them, like many MP3 players, or broadcast apps for smart phones. If I had to guess I think I’d be on firm ground by saying that there are probably three times as many FM radios in use today as there were a decade ago. How can you make the leap from that type of imperial data to “less people are listening to the radio?” Where’s the data that backs that up? Are we to presume that car manufactures got it all wrong, and they are making radios that people are NOT using?

SG: Are there examples of business models that could have been good for the business but that the labels decided to block?

SM: In my opinion, the biggest missed opportunity in the music business was the failure of the first Napster. Yes, it’s true that it was very difficult and expensive throughout the 1990s to get licenses for digital music services and this remains true today. But I watched in disbelief as the major labels blocked the development of the most efficient music distribution service ever to exist. I thought that Napster would continue free for a few months, maybe a year at the outside, and then the labels would license them. You would have to pay for downloads and that would be it. I just couldn’t believe that they would not want to take over and control this technology, and take advantage of the cost savings and increased margins to be gained migrating off of physical distribution. I think they adhered too closely to an analyst report telling them that most of the money was being made from physical delivery, and I think they might actually have believed they might be able to stop this technology from existing using the law.

And then I couldn’t believe Napster refused to present any viable business model that included paying rights holders. I believe that Napster could have presented almost any business model that paid rights holders, no matter how tenuous, and the courts might have upheld their right to continue developing the business. But to just say, “hell no, we won’t pay and we don’t believe we should have to,” this was unbelievable, and impossible for the courts to uphold. This was the match that set off the burning of the library of Alexandria that put us in the dark ages from which we are still trying to emerge today. If Napster had been legally licensed, unauthorized peer-to-peer would have survived, yes, but they might have stayed on the margins and may not have gained the foothold and massive penetration that they did. Ultimately, a centrally served database such as Napster is technologically the better way to go, because you can do a lot more to guarantee quality of experience, as the cloud-based services are proving today.

[Author’s note: See Ted Cohen’s interview, included in this Part IV, in which he tells the story of how Napster offered a billion dollars to the labels but WITHOUT a royalty, or any share in Napster’s income.]

MA: So, this is interesting, because the Ted Cohen YouTube video makes the opposite case of the one made in the initial part of Steve’s answer. He tells of an arrogant bunch of piss ants who thought they would change copyright law, not one that wanted to work with labels on normal business terms. Napster only offered $1 million (not $1 billion as Ted said in his interview with you), for all rights two years after they drew first blood. It was intended as a joke. A paltry sum that no label in their right mind would accept. I’ve said all I have to say on this subject in my blog and in the book Million Dollar Mistakes. Here’s the link to my blog: http://www.mosesavalon.com/mosesblog/http:/www.mosesavalon.com/mosesblog/major-labels-and-the-internet-what-really-went-wrong-at-that-party-in-1999/

SG: What has made Spotify so popular in European countries in which it has been allowed to launch?

SM: Spotify is popular because it works well. I have had the opportunity to demo it to music lovers here in the United States. I have yet to find one who does not become addicted to the ability to call up and instantly play any song or band of which you can think. I’ve had friends report back that they spent entire days listening to Uriah Heep, Gentle Giant, Chico Science, obscure Nigerian rock or New York acid jazz that they might have found difficult to find any other way. Centrally serving music from the cloud, with catching of your most frequently played songs, so you can hear them when your connection cuts out, is the way to go. I’ve been pushing cloud-based streaming and download services since MusicStream, which was the first one I saw that integrated a music service with social networking and playlist sharing. I really do believe that the more music you expose to people, the more music they will want, and the faster the industry will grow. However, there is a lot of work to do around developing new business models and pricing plans. These must be developed through experimentation, not guesswork. The longer rights holders deny digital music distribution companies the ability to experiment with different pricing plans, promotions and product offerings, the longer it will take for new music products to be created and for real money to be made. Although I would never condone or support stealing money from artists and rights holders, there are some excellent lessons to be learned from the short-lived success of AllofMP3.com regarding effective pricing and viral promotion. A lot of users signed up and a lot of money was made. The only thing that was missing was paying the rights holders. Rights holders should get deals done with digital music companies and support experimentation with different pricing plans and payment structures. This is the future of the recorded music business.

SG: What are the chances that the labels will allow Spotify to launch in the U.S.?

SM: I don’t know, ask the labels. Spotify is one competitor in a crowded field of great music services. If I were the labels, I would lower advances, license all of these services on a revenue share and let the services spend their money on promoting themselves to consumers. The digital distribution horse is out of the barn. What these services are really doing is expanding the number of people who pay for digital music, not the number of people who use it. That’s already a huge number.

SG: Why are the majors tolerating it in Europe?

SM: I have no idea. Ask the majors. But for you, Steve, I’m going to go out on a limb here, and offer suggestions based on culture and technology that I can’t back up with numbers.

The European market is very different than the US and Canadian market. First, people listen to different music, and it means something different to them. The governments in Europe support music much more aggressively than we do, and European music tastes are broader. Europeans adopted playlists over albums earlier than we did. Furthermore, in Europe, mobile digital signal delivery standards were strictly controlled, so most digital delivery to mobile phones uses similar standards. As a result, it is easier and less expensive to roll out digital services to European mobile users, and Europeans have long experienced a much wider range of digital services delivered directly to their mobile phones. As a result, there is less of a learning curve to using these services and integrating them into their daily lives, so widespread adoption can happen more quickly there than here. Finally, and most importantly, Europe is smaller, and more densely populated, so digital signal penetration is almost completely ubiquitous in Europe. As a result, a digital stream delivered to a mobile phone in Europe is much less likely to drop out than it is here.

MA: I don’t have any germane comments about Spotify. It may not even be in business in a year, so why devote page space to it?

SG: Do you agree with Universal's lawsuit against Grooveshark?

SM: Universal has the right under existing law to bring these claims, and Grooveshark has the right to defend against them. Grooveshark is an example of the dynamic I described above. It is a new way to market and sell music, run by people who are highly passionate about their music, which the law has left exposed to claims by stakeholders.

MasurLaw advised Grooveshark for a few months during its earliest days. At that time, we advised them that it might be possible (not necessarily legal, but possible), to experiment with new ways to sell music to people, even without having obtained the rights, then hold the money in escrow to use as a budget to cut deals with the rights holders to pay them their share of the proceeds. We came up with this idea because bitter past experience had taught us that we would not be able to obtain the rights on behalf of Grooveshark, without having already demonstrated “traction,” or tangible proof of a working business model. We also advised them that for an unknown start-up company, any PR is good PR, and that getting sued by a large international conglomerate corporation might be a good, cheap and effective way to promote their service to a large number of people. Unfortunately, we no longer represent them and don’t know the particulars of the case, but we hope they use the opportunity that Universal has given them to its fullest advantage, sell more music, and help grow the recorded music industry.

MA: This is a half truth at best. I consulted ad hoc for Grooveshark. Here’s what I can say. The majors offered Grooveshark a one time licensing agreement of somewhere between $4 and $7 Million. A very reasonable fee, all things considered. Grooveshark didn’t want to pay it. They thought it was high. I was told their attorneys were advising them that they could beat the labels in court if push came to shove. Their entire mentality was a hold out from the Napster era of doing business with the majors, which is, we’ll do it our way and let them try to stop us. UNI is doing just that. They will win and Grooveshark and its investors will never accept responsibility for their actions. I’ve had talks with people very high up on both sides. I didn’t think the fee was excessive but I was willing to try to get Groovshark a better deal. Grooveshark was interested in my services but they wanted me to work off a back end fee; I would be paid a percentage that was the difference between what the major’s offered and what I could get them down to. This model would have compromised my integrity in being an artist’s rights advocate and my judgment as to what was fare to both sides. I passed.

My experience with Groovshark is they echo and embody the very reason that tech folk and content folk just do not get along: both feel entitled to their points of view. The difference being that content has about 100 years of legal precedent on their side; the tech folk have lots and lots and lots of new and very arrogant VC money. My suspicion, based on how immaturely some of these “information should be free” start ups respond to reasonable negotiations is that much of their money comes from inheritance and/or dealings that did not require the acknowledgment of the creative work of others. The tech people just don’t seem to “get” the copyright concept, until it applies to their trademarks and software. They just don’t think writing a great song or making a great recording is all that hard compared to writing code for a social media platform. In my view, that’s why they thumb their nose at the music space.

SG: LimeWire lost in court and now face a determination on damages that may exceed a billion dollars. Do they deserve it?

SM: During the days of horse-drawn carriages, traffic accidents were rarely fatal, and superhighways were not necessary. The law that applies to copyrightable material today developed during an era of physical distribution. The relevance of these laws to an inexpensive, nearly instantaneous means of distribution should be examined more carefully, and with an open mind to doing things differently.

LimeWire is an example of a new way to market and sell music, and its business model has already been proven to make money. I’m just not sure it makes enough money to pay rights holders at the rates they require and the law allows. We would have loved the opportunity to work with LimeWire on developing new legal business models. I personally pitched them on this many times. They have a big installed base and a great brand name. In my opinion there is still a good opportunity here.

MA: Yes, I agree with Steve, if things were different, they wouldn’t be the same. If the law didn’t require LimeWire to pay for rights, then they would not have to pay labels/artists. But, the law does require it. The fact that you may invent a new widget that sells an old product in a new way does not mean that you get to trample on the law, the rights of creators and an infrastructure that presently feeds thousands of people. To ignore that is selfish and immature. That’s what these guys were. They wanted to be geekstars. Now they are unemployable and un-investable.

SG: As sales of CDs have dropped precipitously, so has income from recorded music, and digital has not picked up the slack. It’s been estimated that 90% of music downloads are unauthorized. Can authorized music ever catch up with "free"?

SM: Absolutely. If you provide good value and promote well, people will pay money. Value competes quite well with free. With music services, you can compete with free on convenience and ease of use, safety, quality of service, stability and longevity (trust), availability on a wide variety of devices, or through music recognition or social media services. Pandora, iTunes and Spotify all prove that people will pay money for value. We’re just in the early days and there is a lot of work left to do. In New York, we have clean, good tasting, efficiently-delivered water available for free all over the city, yet people still buy it in plastic-leaching bottles delivered by trucks that burn petroleum. There is a lesson in this for the recorded music business; promote your product well, and people will buy it, even if they can get it for free.

Also, you can’t compare CD sales to digital distribution. Digital distribution of music is a completely different business requiring completely different business practices. The winners in the old game are rarely the winners in the new game unless they are very smart and agile. To extend my previous analogy, during the 19th century, there were a great many makers of horse-drawn carriages, many of which were custom build shops. The advent of automobiles and mass production changed things a great deal, and very few of the carriage makers survived. A company called Superior Coach survived by continuing its custom builds, and building ambulances, hearses and other special use vehicles. But the real winners were new companies that did things differently. Similarly, everything about the value chain of digital music services is different, and they must do things completely differently. You can still buy a Faith Hill cassette tape at a Little America truck stop on the outskirts of Evanston, Wyoming. This is a completely different sale then selling a Ke$ha CD at the Best Buy in downtown Evanston, Coldplay on iTunes, or DangerMau5 on Beatport.

MA: This is excerpted from my new book, 100 Answers to 50 Questions About the Music Business. First, it’s pure hyperbole that CD sales are going into the abyss. Will they eventually go the way of the Dinosaurs? Vinyl made a comeback. So who really knows?

Regardless, it is also something of a myth that major labels make most of their profit from CD sales. They have not since about 1992. Sure, they make lots of income, but income is not profit. The biggest profit center for labels is the licensing of masters to film and television (and recently to new stuff like iTunes, Spotify, Pandora, etc.) The cost to license content is zero, leaving a 100% profit margin. Labels get a call from a film producer or director or Internet service developer who wants a hit song in their movie, or a blanket license for a catalog. The cash register starts a-ringing. Think of the Black Sabbath song “Iron Man” in the movie Iron Man. What do you think Paramount paid for that license? Coupla bucks?

This does not mean that labels don’t care if CDs sell. CDs and LPs were once the mainstay of label income, but when licensing began to boom in the late 1970s, record companies began to see the “disk” (the LP and later the CD) as something other than the final product. A philosophy that would mature over the next 10 years, but which was kept secret from most major label employees who were told that CD sales were everything. Meanwhile, higher ups knew otherwise.

To them the final product was the six-figure movie license, and the disk was relegated to being a way of recouping the research and development costs of the catalog. In other words, labels need to invest in new artists in order to build catalog that they can someday license for $1,000 on the penny. To do that they need to spend money on creating and promoting new recordings. They need to make new hits. To recoup the cost of the development, they have the disk (and to some degree, the download).

Automakers recoup about 10 cents from derivative products for every dollar they invest in the R&D of a new car, even in good times. Sometimes it takes 10 years to pay back the costs of a new model. Other industries don’t fare much better. This is why the music business is so friggin’ profitable. R&D is recouped at a ratio of about 1:2 with physical sales, then the hits are licensed for profits of about 10,000:1.

That’s why labels can afford a 30% drop in CD sales spread out over five years, and can still afford to pay senior execs six-figure bonuses each year. Their profit is not grounded in CD sales at all. One Iron Man-type license a year pays the salaries of an entire executive team. And major labels do hundreds of such licenses each year. If CD sales are down, it simply means their R&D takes a hit that year and that they cannot spend as much money on new artist development the next year, or they have to fire a few mid-level executives until sales recover. Which history shows they always do.

Does a 30% drop in CD sales have any negative impact on the business overall? Maybe and probably, but it’s not as catastrophic as the tech-biased media would have you think, nor as bad as labels would have us believe. But it is a great excuse to clean house of a few overpaid executives, re-negotiate legal bills, drop a few barely recouped acts, and whine to Congress that we need new legislation to protect us from rampant Internet theft.

Major labels, like most big conglomerates, exaggerate to everyone equally to serve their best interests. To artists they say “You didn’t sell enough,” to their staff they cry poverty in the form of a pink slip, and to the government they scream “theft.” And the band plays on.

SG: Are mobile subscriptions the answer -- making "free" music part of your monthly mobile fee. Is this happening already?

SM: Mobile subscriptions are one answer of a great many. There is a lot of marketing and experimentation left to do. A lot of Americans don’t even know what a streaming music service is, or why they would want it, for the same reason they didn’t know in 1972 that they would want the level of Cable TV they now have. In 1972, or even in 1985, they also would not have been willing to pay so much for it. It is very early days for digital music services. We have to work hard, be patient with the difficulty people have adopting new ways of doing things, and sell good services that provide good value.

MA: I think it’s a viable answer in Europe and other parts of the world, but not for the US. We in the U-S of friggen A, like to own things. iTunes make you feel like you own something, but that illusion will be shattered if and when a major label does not renew their licensing agreement with them and suddenly an entire catalog disappears from the store and then, with your next update, from your personal iTunes library. In the US we like to own stuff. So the idea of paying monthly for a virtual record collection will work for some, but not most in the US.

SG: "Free" music is not free at all. ISPs make fortunes from people who need high speed Internet to get "free" and people spend small fortunes on computers, MP3 players, etc. so they can hear "free" music. Is the answer to the woes of the recording business to put a levy on the ISP's and makers of the devices that allow people to "steal" music.

SM: I don’t think so. ISP licensing is at best a “mop up,” that cleans up the Internet’s free uses of marginal value the same way that ASCAP, BMI and SESAC performance licenses mop up the money that would otherwise be left on the table in bars and restaurants nationwide and around the world. I don’t think there is any single answer to the woes of the music business. First, we have to find great music that people feel compelled to buy just because it is good. Then we have to create new music services that are easy to use and promote them well. After addressing these fundamentals, we have to retrofit our law to work better with the new distribution paradigms. As part of this process, yes, we can consider new ideas for how to mop up payment for uses that are not otherwise addressed by the market. I edited the 2010 International Association of Entertainment Lawyer’s book, “Collective Licensing at the ISP Level.” This book focuses not on whether ISP licensing is a good idea, but whether it is possible, and how to do it, from the perspective of experts in 22 countries. That’s because I strongly believe we should stop talking about what’s good or bad and instead talk about what might work, and build it.

MA: Many smart people are in favor of this model and I would be too if someone could show me exactly who this money will end up in the pockets of artists and songwriters. So far, no one has. Sure there will be collection agents but these will use the same pooling systems and that have failed us for years. The top people get the majority of the cash. Like ASCAP and BMI. Then there are the large administration fees. These are the real winners of this model and if you look closely at some of the strongest proponents of it, you’ll see they are jockeying for this administrative position. Blanket fees have hardly put a dime in the pockets of artists when they were applied to “blank media” or digital tape recorders. Will they work here? I’d like to believe they could but I just don’t see it yet.

SG: What is the next big thing?

SM: Hopefully, a lot of great new music will be the next big thing. After that, music labels and the stakeholders they have to pay, working hand-in-hand with digital distribution services, promoters, and artists to promote music sales, increase demand and provide good value to consumers at a fair price. That’s what I want. But what do I really think is the next big thing? Disintermediation; or put another way, a lot of entitled people making a lot less money than they used to. That’s what seems to be going around in America today.

MA: I believe that we are perched on the verge of an essential change in the way music interposes in our world.

Pop music as an art form, but has become a gentrified neighborhood. Good artists and executives are still moving there, yes, but not the Picassos, Mozarts, or Einsteins. In truth, most artists I know who are successful do not think they are advancing the medium to a new level with their latest release. They don't have to record the next Sergeant Pepper's to be happy. Nor do labels want them to, now that singles are more compatible with the net-based buying habits. This is probably no big revelation but it does paint a huge sign on the wall that says, “Pop is a dying art form.”

Music's power vanguard was the early 1960s through the late 1970s. During that almost 30 year span, music rallied people and ultimately influenced foreign policy. It showed the world what three chords and voice can do. Unfortunately, the conditions that existed then are absent today. Mainly, portable broadcast radio as a means to experience music. Back then your favorite song was something you could hear in the background of just about any indoor or outdoor commercial space. This made music both ubiquitous and harmonious, meaning you knew that when you were hearing a socially relevant song, so were thousands of others -- at exactly the same time. That was the power of radio. It unified us at a time when the draft was in effect and the youth of American was politicized.

Conversely, today, we still have things to get political about but thanks to MP3 devices and “smart radio” Apps, music is now so very much an individual experience rather than a group one. While Internet technology may be revitalizing the money side of music, iThings have been the most significant assassin to pop’s ability to be a cultural leader. We hardly turn to public forums like radio for something new, and we will never again be able to sneakily thumb through a date's record-collection to get a read on their tastes or politics. Now, you'll need a password to hack into their hard drive or smart phone.

Yep, just about the only time music is uniting us face-to-face is, on the rare occasion, at concerts. And, according to studies, we are going to fewer and fewer of those as well. Every day we are becoming more disconnected from music as a social experience and moving closer to it being a mere commodity. Pop is becoming more ethereal, more virtual and shrinking in stature. So much so that for a few years in the early 2000s, many people thought that they had a “right” to free music because music’s new virtual format felt free. Sure, stealing a CD from a record store was an obvious crime, but sharing a file? C’mon. How can that be illegal?

In music’s next incarnation the form will be decided probably not by its creators but by its fans. Some person sitting in front of a screen IMing his BFF will be hit by inspiration. Someone out there reading this, maybe you, must say to him or herself, no, I'm not going to write yet another three-minute song with a verse, chorus, verse structure, not because I'm not good at it, and not because I don't think I have what it takes to make it a hit, but because the world simply does not need another one. What the world needs is for that person's unique talent for communicating to be channeled into coming up with something so different that when you first hear or see it you cannot instantly figure out how it will make money. You may not even recognize it as a traditional form of pop music.

But until that day arrives, we will still be making and selling the same product that we know, over and over again. We’ll find more clever ways to monetize it and re-package it. But it will only be some new version of the same old thing. The days of the three-minute pop hit are past. We can build on it. We can remold it, but we must accept pop music’s destiny as a powerful medium that, like the printing press and cave drawings, is an artifact of society’s youth. We need the next group experience. (And I don’t mean Twitter.)

It's time for something new.
It’s time for something new.
It’s time for something new.

The Finer Points of Covers

In this article from Digital Music News, Paul Resnikoff writes about the finer points of recording covers, and quotes me about complications that arise if you want to change the melody or lyrics of a song, or if you wish to make a video. 


Think Covering a Song Is Complicated? Try Covering Part of a Song...
by Paul Resnikoff

The following is part of a series of articles taking a closer look at covers. It's also part of an ongoing sponsorship partnership with Limelight, which specializes in mechanical clearances for cover songs. See it all works out… Enjoy!

We all want to run with our creative juices, and deal with the details later. Let the lawyers, publishers, labels, and managers figure the rest out! But sometimes, the cost of doing it a certain way can be astronomical, especially when it involves someone else's work.

Take covers. Play your own interpretation of a previously-recorded song, and a few predictable licenses come into play. That includes a compulsory mechanical license, which gives an artist the legal right to create and distribute a cover version - as long as a penny-rate (usually 9.1 cents per copy or download) is paid to the writer and publisher.

That's the easy part. Actually, the more popular launchpad for a cover song is YouTube, though this introduces more complicated sync licensing. And, none of this is covered by compulsory law, meaning that a direct licensing discussion is typically required with the publisher or songwriter. And, we're talking serious takes, not hairbrush sing-a-longs with a boombox in the corner.

But this is baby stuff. Because once an artist steps outside of the exact lyrics, melody, or structure of the original song, some totally different terms apply. "You can't chop it up, you can't loop it, or the compulsory license doesn't apply," music attorney Steve Gordon explained to Digital Music News. "If you change one word of a lyric, you're going to need a direct license."

Case in point? Take a look at chart-topping "The Time (Dirty Bit)" by the Black Eyed Peas, which chops up and reinterprets the chorus from "I've Had the Time of My Life" from Dirty Dancing. Without knowing the details of that negotiation, Gordon estimated a very pricey payout, and noted that some publishers demand a nice advance against penny-rate payouts. "If it's a bigger song, you can bet on it."

And what about a flimsy fair use defense? Have fun with that one in court.