The Future Of The Music Business

LICENSING MUSIC FOR FASHION SHOWS

2012-02-14T05:16:00.000-08:00

The Fashion Institute at Fordham Law School recently asked me to speak on a panel about licensing music for fashion shows. The Fashion Institute is the world’s first center dedicated to fashion law. This article incorporates my presentation. It provides a legal roadmap for designers and producers of fashion shows who wish to use music for live shows, TV programs and the Internet including uploading footage to YouTube.

Music Licensing Primer

In order to understand music licensing for any project, it is necessary to know that every piece of recorded music contains two copyrights -- one is the underlying musical composition or song, and the other is the recording itself. The copyright in the song is usually controlled by the songwriter or the writer’s representative, a music publisher. The copyright in the recording is usually controlled by the artist if unsigned or and by a record company if the artist is signed. Songwriters and music publishers have an exclusive right to publicly perform their songs. If you sing a song in the shower, you don’t need a license. That’s a private performance. But permission is required to publicly perform music on any radio or TV station, Internet radio and streaming on demand, and in bars, nightclubs, restaurants, arenas, stadiums, bowling alleys, amusement parks, and any other place or venue where music is publicly performed.

However, if songwriters tried to license each venue and place that publicly performed their music they would never have time to write music. Even large music publishers do not have the resources to do this job. Instead songwriters and publishers use performing rights organizations or “PROs” to license their music and collect the fees payable from the licensees on their behalf. The vast majority of countries in the world each have one PRO. For instance, England has PRS, Japan has JASRAC, Germany has GEMA, Australia has APRA and France has SACEM. In the United States we have three: ASCAP, BMI and SESAC. They all have the same function: to license and collect monies on behalf of their members, the songwriters and music publishers, from anyone who publicly performs music. And each provides a “blanket” license that allow the licensee to play any song in their repertoire. Together ASCAP, BMI and SESAC represent almost every commercially successful song in the U.S., and through their reciprocal relationships with foreign PROs, they represent almost all commercially successful songs in the world.

Owners of “sound recordings” are also protected by copyright law. Only the owner of the copyright in a recording of music has the right to make copies of that record and sell it because the exclusive right to make and distribute copies is one of the rights afforded by the copyright law to copyright owners. However, in the U.S., unlike owners of copyrights in songs, owners of copyrights in sound recordings do not have exclusive public performance rights. When the Copyright Act was amended to protect sound recordings in the early 70’s the broadcast community heavily lobbied Congress to carve out this right. They argued that broadcasters, especially radio, promoted record sales and they should not be forced to pay for a service that they were providing for the artists and the labels. They also pointed out that record companies not only encouraged them to play their records, they often paid DJs to play them, a practice known as “payola.” Congress agreed with the broadcasters perhaps because the politicians needed radio’s good particularly during their campaigns for re-election, and they needed the good will the record companies far less. In any event, because owners of copyrights in sound recordings have no exclusive right of public performance, anyone can publicly play a record without permission. There is one exception -- the Copyright Act was amended in the 90’s to provide an exclusive right to perform sound recording via digital transmission. I will describe the impact of this exception when we discuss transmitting fashion shows on the Web.

Licensing Music for Live Fashion Shows

Applying the above rules to fashion shows, the designer or producer of live shows can play CDs or hook up an iPod to speakers without having to worry about clearing the records. But it is necessary to clear the underlying songs. So, for instance, you can play Lady Gaga’s recording of “Bad Romance” without permission, but you will need to clear the underlying song by Gaga and Nadir Khyat who are represented by Sony/ATV.

Some venues where fashion shows take place, including most nightclubs, will already have ASCAP, BMI and SESAC licenses. So the producer of the show doesn’t have to worry about getting a license to play songs. However, some venues won’t have a license. For instance, the temporary structures set up for Fashion Week in NYC at Lincoln Center. Also venues such as schools, museums or galleries will usually insist that the designer or producer secure a PRO license. Each PRO has different licenses that apply to the many different places that publicly perform music, and each has a license that would apply to fashion shows. Here are the rates that apply to fashion shows:

SESAC: The rate is $74 per day for a show that runs 1-10 days, and $67 per day for shows that run from 11-30 days. The rate continues to decrease the more days the show runs. (Note that although SESAC is the smallest of the three U.S. PROs, its repertoire has grown a great deal in recent years in every genre of music.

BMI: The rate is based on seating capacity -- for shows that don’t charge admission the fees are $16 for venues with 250 seats or less, $19 for 251 to 750 seats, and the fees rise gradually as seating capacity rises. However, to use this license you have to pay a minimum of $222 which covers an entire year. For shows that charge admission, the fees are based on % of gross ticket sales starting with 8/10ths of 1% (.8%) for venues with 250 seats or less, and 6/10 (.6%) for venues with 2501-3500 seats. Thereafter, the fee decreases for larger venues.

ASCAP: If the fashion show is designed to raise money for charity then, like BMI, the fee is aligned with seating capacity: $10 for venues with 5,500 seats or less; $48 for venues with 5,501 seats to 10,000 seats; $99 for venues with more than 10,000 up to 20,000 seats, and the rates continue to increase as the seating capacity increases. Similar to BMI, ASCAP charges a minimum fee ($126) which covers a full year. If the live fashion show is not designed for charity and pre-recorded music is used, then the fee is $97 per day. If a live band plays and there is no admission charge, then the fee is 1% of “Live Entertainment Costs.” Such costs include paying the band, instrument rental and booking agent fees. If the show charges admission, the fee is 1.75% of Live Entertainment Costs.

Fashion Week License

ASCAP has a special license for IMG, the major talent/modeling agency which produces a lot of shows during Fashion Week in New York, but the rates are confidential.

How to Avoid PRO Licenses

If the venue is not licensed, and the designer or producer wants to play music at a live show, they can still avoid having to secure the PRO licenses and paying the accompanying fees by hiring a live band that writes its own music. Even if the members of the band who wrote the music are signed to one of the PROs, they retain the right to permit any third to publicly perform their music.

Licensing Music for Fashion Shows that Play on TV

Last fall the “Victoria's Secret Fashion Show” raked in record ratings at CBS. The 2011 broadcast of the annual underwear parade saw its highest ever showing in adults 18-49 and the largest audience since 2002. Aside from the models and sexy lingerie, the show featured an abundance of music including songs by Kanye West , Jay-Z, Rihanna, Maroon 5, Nicky Manaj, Lady Gaga and Beyoncé. Victoria Secret’s lawyer did not have to worry about PRO licenses for the public performance of the songs, however. CBS, like all other networks and indeed cable TV services, already have licenses from ASCAP, BMI and SESAC in place. Moreover, the lawyer didn’t have to be concerned that pre-recorded music was performed on the show. As discussed, owners of sound recordings do not have the exclusive right to publicly perform their recordings at live shows or on standard radio and television broadcasts.

However, since the TV program was pre-recorded (as opposed to broadcast live), the music had to be “fixed in time relation” to the visual images contained in the program. In regard to songs, a synchronization or “synch” license for each musical composition was required. In addition, since some of the original master recordings were used in the is show, a “master use” license was required from the record company which owned those sound recordings.

Synch Licenses for TV

Unlike PRO licenses, there is no pre-set rate for synch licenses. Every synch license is subject to negotiation. The fees for synch licenses can vary wildly from very cheap for a music documentary to extremely expensive for national TV commercials. Synch licenses for network television fall somewhere in between. In order to secure a license, the producer must negotiate with the songwriters’ representative, usually a music publisher such as Warner/Chappell, Sony ATV, or EMI music, although there are thousands of publishers and sometimes the songwriter is self-published. The fee for use of music in a TV program will vary depending on a number of factors including:

- The identity of the broadcaster. For instance, network is more expensive than cable and the fee may be cheaper if the TV station has a limited audience such as a local station or one only available to an audience with special devices such as satellite TV. Note that a producer does not have to acquire a synch license if the show is performed on public broadcasting stations because PBS has a blanket license to use musical compositions in its programs.

- The nature of use. For instance, you may pay more to use a song over the credits as opposed in the body of the program. You also may have to pay more for a “visual vocal” use, that is when a performer is depicted performing the song, rather than a background use.

- Duration: You may be able to get a discount if you use only brief excerpts of a song.

- Term: A producer may want a long term such as 3-5 years because the TV service may want to repeat the program. But a 5 year license will cost more than 1 year.

Another important factor is the song itself. A song written by Mick Jagger and Keith Richards, or Lennon and McCartney may be much more difficult to secure than a song written by an obscure songwriter or a new songwriter. Their representatives, the music publishers, may deny permission because they do not want the songs associated with a particular brand such as Victoria’s Secret. If the show has already been recorded, and the publishers refuse to license a song, the producer must bear the expense of replacing the song with other music or face the disaster of cutting the footage containing the song if an artist is depicted performing the song. The best way to avoid these problems is to try to clear the music BEFORE production. If there is denial, the producer can choose a different song without any economic loss. Generally the rates applying to network synch licenses can range from $1500 to $3000.

Master Use Licenses for TV

If the producer used the original recordings of songs such as the Rihanna’s recording of “Umbrella” he has to go the record company to use the recording. In this case, Def Jam.

All the same factors that we talked about for synch licensing apply to negotiating master use licenses. But generally a label will go along with the quote provided by the music publisher for the song. However, just like songs, the owner of the copyright in a master may just say “no” EVEN IF the copyright owner of the song gives permission. For instance Sony Music may not want a recording made by Tony Bennett to be included in a fashion show featuring lingerie even if the publisher had no problem with the use of the underlying song. Again, the best way to avoid this potential disaster is to clear the music before taping the show.

Licensing Music for Fashion Shows for the Web

Public Performance

If the producer uploads footage containing music on YouTube or Vevo there is no need to secure licenses from ASCAP, BMI or SESAC. These sites already have licenses from the PROs. But if the producer plays the footage on its own site, public performance licenses will be required. These are the current minimum fees:

SESAC: $225 (semi-annual)

BMI: $335 (annual)

ASCAP: $340 (annual)

Also if the website has advertising, sponsorship, or subscription revenues, the PROs require a share of that money. SESAC’s Internet license agreement requires payment of .0057 (.57%) multiplied by revenues generated by the site. BMI requires payment of 1.75% of gross revenues. ASCAP’s rate card for interactive streaming is the greater of 3% of the site’s revenues or .0009 multiplied by the number of “service sessions” defined as an individual visit to the website up to one hour. Any excess to an hour counts as an additional hour. Both BMI and ASCAP also offer alternative fee structures for websites in which music is contained on a limited number of pages. Details on all these licenses can be secured at the websites of each PRO.

As we reported above, owners of the copyright in sound recordings do not have public performance rights for live performances and normal broadcast, but they do for digital transmission. But if the producer uploads the show to their own website, and the show includes pre-recorded music, they will usually negotiate the public performance of the master as part of the master use license.

Synch and Master Use Licenses for the Web

Since the songs will be synchronized to a visual image the producer must negotiate a synch license for each song – just like a TV show. The prices will depend again on many of the same factors we discussed in connection with a TV show including how the song was used, the term of the license, etc. My recent experience is that one can expect a quote of approximately $1,000 for one year. Again most record companies will go along with the music publisher’s quote. However, the producer should pre-clear the songs and the masters because the publisher or label can refuse to license the music for any reason.

2012-02-14T05:12:00.000-08:00

2011-08-26T21:20:00.000-07:00

CAPITOL RECORDS v. MP3TUNES

Earlier this week, the federal district court for the Southern District of New York handed down a ruling which basically found that Michael Robertson's MP3tunes.com did not violate copyright law, Capitol Records, Inc. v. MP3Tunes, LLC, No. 07 Civ. 9931 (S.D.N.Y. Aug. 24, 2011). At the very beginning of his decision, district court judge William Pauley wryly pointed out that Michael Robertson "is an online entrepreneur familiar with high-stakes copyright litigation." He was referring to MP3.com which Robertson founded years ago. MP3.com offered users a "digital locker box" that allowed them to access their music from any internet connected device. However, various labels brought suit against MP3.com and the result was a $53 million judgment which led to the sale of MP3.com and the abandonment of its digital locker box. The crux of the case was that although users of MP3.com had to possess a CD containing the songs they wanted to store on their locker box, MP3.com had already made copies of almost all commercially successful music. When the user accessed songs they were accessing songs copied and uploaded by MP3.com not songs they had themselves uploaded. The court found this to be copyright infringement, UMG Recordings, Inc. v. MP3.com, Inc., 92 F. Supp. 2d 349 (S.D.N.Y. 2000).

In this case MP3tunes similar to MP3.com, also offers a digital locker box. But unlike MP3.com, users of MP3tunes.com have to upload their own digital files. However, a companion website, also owned by Robertson, called Sideload.com, allows consumers to search for and download free music from any website offering music for free.

In September 2007, EMI sent a takedown notice to MP3tunes specifying 350 song titles and URL’s that allegedly infringed EMI’s copyrights. MP3tunes took down links to the specified songs, however, it did not remove the songs from its users’ digital locker boxes. Additionally, EMI demanded that MP3tunes “remove all of EMI’s copyrighted works, even those not specifically identified.”

In its motion for summary judgment, EMI argued that sideloading songs from the Web directly to personal lockers (like Google's new blog Magnifier is doing and Amazon's store is doing) was copyright infringement. EMI also claimed that MP3tunes didn't do enough to stop repeat infringers and that MP3tunes should have taken down all EMI content because their notices provided a “representative list.” Judge Pauley disagreed with all these arguments and found EMI’s arguments misconstrued the Digital Millennium Copyright Act (the “DMCA”) and applicable case law.

The court held that MP3tunes could avail itself of the safe harbor provisions in Section 512 of the the DMCA because it maintained and implemented (i) a “repeat infringer policy” and (ii) it expeditiously removed songs specifically identified in EMI’s takedown notice. With regards to (i), “service providers that purposefully fail to keep adequate records of the identity and activities of their users and fail to terminate users no matter how persistent and flagrant their infringement, are not eligible for protection under the safe harbor,” Capitol Records, Inc. v. MP3Tunes. In this case, MP3tunes satisfied these requirements because its Terms of Use contained a provision stating that MP3tunes had the authority to terminate users’ accounts for repeat infringement, it kept records of all songs uploaded and downloaded by its users, and it actually terminated the accounts of 153 users after receiving the takedown notice from EMI.

The court found that MP3tunes satisfied (ii) because they complied with requests to take down specific songs. Contrary to EMI’s argument that they were required to remove all of EMI’s copyrighted works, the court found that the DMCA did not require MP3tunes to conduct its own searches for infringing content in order to take advantage of the safe harbor provisions. Judge Pauley sited Viacom v. YouTube, discussed below, for the following proposition: “service providers must take down the specific infringing material identified in the notice but are not required to search for and take down other material that may infringe the identified copyrighted works.”

Therefore, the court held that MP3Tunes.com complied with the DMCA and ruled against EMI’s demand for broader searches. It is also interesting to note that even if MP3tunes.com conducted a deeper search, it could not determine which “free” songs were or were not authorized by EMI. Judge Pauley pointed out:

[A]s part of its innovative marketing, EMI itself regularly distributes works on the internet for free. Because of these activities, EMI’s executives concede that internet users, including MP3tunes’ users and executives, have no way of knowing for sure whether free songs on the internet are authorized.

However, the court did find that MP3tunes should have taken down specific songs identified in EMI’s takedown notice that were present in individual users’ digital locker boxes.

EMI also argued that works prior to 1972 were not covered by the DMCA. The court specifically rejected this argument in a footnote. This could have an impact on Universal’s continuing lawsuit against Grooveshark based on its claim that the DMCA does not apply to pre-1972 songs.

MP3tunes Extends the DMCA’s Safe Harbor to Digital Locker Services

In Viacom v. YouTube, also decided in the Southern District of New York, the court held that YouTube, similar to MP3tunes, was entitled to the protection of the safe harbor provisions of Section 512 of the DMCA. In that case, Viacom complained that YouTube contained a great deal of its copyrighted material, including thousands of excerpts from hit shows, such as The Daily Show with John Stuart. YouTube argued that it complied with each request from Viacom that YouTube take down specific copyrighted material. Similar to EMI in the MP3tunes case, Viacom demanded that YouTube take more aggressive action. But the court disagreed, holding that so long as YouTube continued to expeditiously remove content from its site and in accordance with copyright holders’ takedown notices, it would be immune from liability for copyright infringement based on content uploaded by its users.

The decision in MP3tunes extends the safe harbor beyond the parameters of Viacom v. YouTube. MP3tunes is the first case to hold that digital locker services are legal, so long as the service complies with Section 512 of the DMCA.

Prior to this holding, there was a grey area surrounding the legal concept of digital locker boxes. Under the Home Audio Recording Act of 1995, home audio taping was deemed legal, provided that music fans only made copies for their personal entertainment. However, it has never been clearly decided, until now, whether third parties could legally provide digital locker boxes to enable those music fans to listen to their music from any internet connected device. Therefore, the holding in MP3tunes provides a powerful precedent for the legality of digital locker boxes, including those provided by Apple, Google, and Amazon.

The Copyright Alert System: A useful tool in the war on piracy, or another demonstration of the power of the ISPs to avoid responsibility for copyright infringement?

2011-07-22T15:12:00.001-07:00

The new Copyright Alert System, a voluntary arrangement announced earlier this month by Internet service providers (ISPs) and the representatives of the record and motion picture industries (RIAA and MPAA), will not have a significant impact on copyright piracy. In fact, this arrangement’s only true significance may be to demonstrate the relative strength of the ISPs compared to the music recording and movie industries, and the ISPs continuing power to evade responsibility for the grievous damage inflicted by pirate websites and file sharing.

AT&T, Verizon, Comcast, Time Warner Cable and Cablevision have agreed to implement a six-stage notification system that will electronically alert users whenever their ISP account is used for illegal downloading of music, movies or TV shows. This system will work similarly to a credit card fraud alert system, whereby an account holder will receive an email in the event their account is being used for illegal downloading. One inspiration for arrangement is the fact that many parents have no clue what their kids or the kids’ friends may be doing on their computers, and this system will help parents tame their children’s nasty habit of downloading free songs and movies. Upon instances of illegal behavior the ISP is allowed, but not required, to implement “Mitigation Measures “ which could include sending the subscriber to an “educational” webpage that explains the economic damage piracy does to copyright owners, or temporally reducing Internet speeds. The accounts of users who do not curtail their illicit use of their Internet after six notifications may have their accounts suspended, but not terminated.

If this is the best the copyright community, including Hollywood can do to get the ISPs to crack down on piracy, it’s pathetic. There is no law backing up this voluntary arrangement, and the ISPs have no obligation to terminate a subscriber’s account or provide the subscriber’s names to rights holders.

It should be pointed out that there is little incentive for ISPs to crack down on piracy. After all, free content is one of the biggest draws for high speed Internet service from which the ISP’s make a fortune in subscription fees. The ISPs have no interest in terminating paying customers even if those customers are downloading unauthorized free music and films. The power of the ISPs to block the copyright owners’ attempts to combat piracy first became manifest in the Digital Millennium Copyright Act of 1998 (DMCA) which provided them a “safe harbor.” Under the DMCA, ISPs are immune from copyright liability so long as they promptly block access or remove infringing from their systems if they receive a notification claiming infringement from a copyright holder. Many copyright holders have complained that these guidelines do not provide sufficient protection for their works because infringers quickly replace the works that have been taken down, but so far they have been unsuccessful in repealing the safe harbor, or getting courts to interpret the DMCA more strictly.

In contrast to the Copyright Alerts System, the French equivalent seems like a much more powerful weapon against piracy. As I wrote in the forthcoming third edition of the Future of the Music Business (Hal Leonard, fall 2011), under the Hadophi statute, better known as “the 3 strikes law,” ISPs are required to provide the personal contact information for IP addresses found to be file sharing, and face fines of 1500 Euros a day for failing to provide this information. After that the ISP must invite the owner to install a filter on his or her own connection. If a repeated offense is suspected by the copyright holders within 6 months following the first step, a certified letter is sent to the connection owner with similar information sent in the first mail. On failure to comply, the ISP is required to suspend the user’s Internet service for 2 months to 1 year. The connection owner is blacklisted and third party ISPs are prevented from providing him or her Internet access. And this service suspension doesn't interrupt billing. Notwithstanding the draconian nature of Hadolphi compared to the Copyright Alert System, there have been recent reports that the law isn’t helping solve the infringement problem in France because the ISPs have not been fully cooperative. The ISPs in France have only sent 470,000 “1st warnings” in response to 18 million complaints about infringement and only 10 of those users from the 470,000 received “3rd warnings.” It has also been reported that the French ISPs do not want to prosecute people and have been holding off on sending 2nd and 3rd warnings in order to avoid losing customers.

The alleged policy and objective behind The Copyright Alert System is to educate the public about the damage to the creative community and to “direct subscribers to legitimate sources of content.” But its difficult to comprehend how this will help parents or their kids’ reform their habit of file-sharing and illegal downloading. Indeed, the true educational element in the Copyright Alert System is that even when Hollywood studios join forces with the big record companies, they are still not collectively strong enough to force the ISPs to take meaningful action against copyright infringement.

The real answer to copyright infringement on the Internet is to force the ISPs to police infringing behavior or make them pay a royalty to the copyright holders to compensate for lost sales. But so far the copyright community seems unable or unwilling to make these solutions happen.

Spotify launches in U.S., users can wait for an invite or pay to get inside

2011-07-14T10:38:00.000-07:00

Spotify (finally) launched today (7/14) in the U.S. with three different options for users. The first is a free version called "Spotify Free" which requires an invitation to join. I requested an invitation and am awaiting a response. Once you get in users can listen to music on their computers, but not mobile devices, and there will be advertisements integrated into the program. The second version is a $5 a month subscription plan which allows users to listen on their computers with no advertisements. And the third and final version is a $10 a month subscription plan that allows users to listen to high quality music on their computers and mobile phones, also with no advertisements.
For more info: see http://venturebeat.com/2011/07/14/spotify-launches-in-u-s-users-can-wait-for-invite-or-pay-to-get-inside/

DMX vs. BMI demonstrates that digital services may use direct licensing to reduce their payments to the PROs but the decision may be reversed on appeal

2011-07-12T09:21:00.000-07:00

The case of DMX, the digital background music service, against BMI shows that direct licensing may not be a substitute for the blanket licenses offered by ASCAP, BMI and SESAC, the three performing rights organizations (“PROs”), but it may significantly reduce the license fees they have to pay. On the other hand, BMI is appealing the decision and there are sound reasons why it may be reversed or at least modified.

DMX currently provides background music to approximately 100,000 locations including restaurants, bars, clubs, retail stores and chains. DMX and BMI failed to agree on the price for a blanket license covering its 6.5 million songs, and DMX initiated an action in “Rate” court under BMI’s consent decree asking the court to reduce the amount that BMI sought to charge.

According to Federal District Judge Louis Stanton’s opinion (July 2010), BMI sought a blanket license fee of $41.81. DMX argued that it had secured “direct licenses” from 550 different publishers for $25 per location, and that that amount should be used as a “benchmark” for the true market value of the blanket licenses offered by not only BMI, but all three performing rights organizations including ASCAP and SESAC. The court agreed, and significantly reduced the fee DMX would have otherwise had to pay BMI. The judge held that the blanket license fee for use of BMI songs should be only $18.91 per location. However, even that amount subject to further reduction. The court created a mathematical formula that reduces the amount payable to BMI in proportion to the number of BMI songs that DMX clears through direct licenses. This is referred to as an “adjustable fee blanket license“ or “AFBL”, and it is the first time the Rate court has implemented such a license.

In a subsequent action against ASCAP (December 2010), DMX was also successful in significantly reducing ASCAP’s per location rate to $13.74 (also subject to reduction depending on the number of ASCAP songs subject to the direct licenses). ASCAP wanted DMX to pay $49.50 per location! Similar to BMI, ASCAP is appealing this decision

According to DMX’s chief counsel, Christopher Harrison, these decisions provided DMX with “more than $5.5 million dollars annual savings.”

BMI is currently appealing the rate court’s decision, however. “On behalf of our songwriters, composers and music publishers, we will not allow this ruling to stand without an appeal,” said Del Bryant, BMI President & CEO. “Our writers and publishers should not be expected to lose more than half of their income from DMX based on the court’s erroneous holdings, which substantially reduce the value of their creative efforts.” BMI’s appeal has already been briefed and argued, and the Second Circuit’s decision is expected soon.

BMI’s appeal may have some success. Here’s why. In regard to BMI, among the 550 “direct licenses”, there is only one license with a major publisher, that is, Sony/ATV. The court found that the $25 per location fee was a good benchmark for the real market place value of a license for all the songs DMX plays. However, the court did not consider it relevant that DMX paid a $2.7 million dollar advance to Sony. BMI maintains that although the nominal rate Sony agreed to was $25 they would never have entered into the direct license unless they received the advance, and that DMX used the deal with Sony to persuade many of the 549 other direct licensees to accept the $25 per location rate. As BMI’s appellate brief reported, DMX never told the other direct licensee publishers about the advance to Sony, and instead assured them “they would be the same as a sophisticated major publisher who had accepted the same deal.” Moreover, the $2.7 million represented approximately 150% of all royalties Sony received from both ASCAP and BMI for one year.

An ancillary issue is how can 550 direct licenses be a benchmark for the true value of the PROs’ blanket licenses when those 550 licenses represent, in probability, only a tiny fraction of songs represented by the PROs. Judge Stanton in his decision stated that the 550 direct licenses included 5500 different “catalogues“, but he never indicated how many songs were included in those catalogues. BMI as noted above, represents 6.5 million songs, ASCAP represents even more. It is doubtful that the 550 licenses add up to more than a small fraction of the number of songs in the PROs’ catalogues. And if that’s the case, how did the Rate court find that direct licenses presented an accurate benchmark for the true market value for the PROs’ blanket licenses? In its brief, BMI made the argument this way: “The direct license do not reflect a willing buyer/willing-seller price because they do not include those publishers who valued their music at a higher rate and those chose not to sign.”

Another fact that the rate court did not focus on is the consequence of its decision on writers and composers. As I noted in my previous blog about EMI withdrawing digital rights from ASCAP (7/2/11), all three PROs pay writers, as well as publishers, directly. That is, for each dollar paid, they pay 50 cents to the publishers and 50 cents directly to the writers. For that reason publishers are unable to deduct advances paid to the writers. Since many writers are “unrecouped” they may never see any money under “direct” licenses.

Note: the formal citation for the case and appeal: Broadcast Music, Inc. v. DMX, Inc., 08 Civ. 216 (LLS), 2010 U.S. Dist. LEXIS 78417, (S.D.N.Y. July 26, 2010); on appeal at 10-3429-cv (Second Circuit).

Will EMI's withdrawal of digital music rights from ASCAP help streamline licensing or further damage the music business?

2011-07-02T23:26:00.000-07:00

EMI Music Publishing recently announced that it was withdrawing the right to license digital public performance rights in its April Music catalogue (which holds the rights to over 200,000 songs including works written and performed by Jay-Z, Mos Def and Beyonce) from ASCAP, one of the three U.S. performing rights organizations or "PROs.” "The digital world demands a new way of licensing rights in musical compositions," said EMI Music Publishing Chairman & CEO Roger Faxon, who also serves as EMI Group CEO. "By bringing these rights back together our aim is to reduce the burden of licensing, to create greater efficiency and importantly to reduce the barriers to the development of innovative new services. That absolutely has to be in the interest of everybody involved in the process -- songwriters, licensees and consumers alike." I strongly disagree.

The reason d’être of the PRO's is to provide "blanket licenses" to those who publicly perform music. In exchange for paying a small percentage of revenues, physical venues such as clubs and restaurants, radio and TV stations, and digital users such as webcasters like Pandora or subscription services that stream music like Rhapsody, are assured of legally using any commercially distributed song because SESAC, ASCAP and BMI collectively represent virtually all commercially released music and each one offers a license that allows the performance of their entire repertoire.

If other publishers follow EMI's lead, and start exclusively offering direct licenses to digital services, a nightmare could befall those services. There are literally thousands of music publishers. Although the majors, EMI, Warner Chappell, Universal and Sony/ATV represent a great deal of commercially released music (approximately 50 percent), they hardly represent all of it. So instead of dealing with 3 entities, webcasters and other digital services that stream music would potentially have to deal with thousands of licensors. And this would go for "mom and pop" operations as well as major digital services such as Pandora. But most small webcasters and subscription services which stream music would not have the resources to deal with all those licensors. This could potentially mean closing shop, or at least curtailing their choice of music to songs represented by the major publishers so as to limit the time they spend on negotiating licenses; a result that EMI probably would not mind at all, but which would hurt many digital services and thereby hurt music fans.

Another catastrophic consequence of publishers withdrawing digital rights from the PRO's would be the price of licensing public performance rights. Collectively the PRO's collect approximately 7 per cent of ad revenues from webcasters and other websites performing digital music. ASCAP and BMI charge approximately 3 percent each and SESAC, the smallest PRO, collects approximately one percent. The total tab is affordable. Moreover, ASCAP and BMI operate under consent decrees. As a result, they must be careful about upping their rates because under those consent decrees the licensees can challenge any increase in fees in what is known as the "Rate" court. But if the publishers unhinged from the PROs they could charge whatever rate they liked or refuse to license their music altogether. The result could be disastrous with many digital services unable to afford to perform music and either closing if they were exclusively music based, or discontinuing their use of music.

Another deeply troubling consequence of EMI's action is the negative impact on its own writers. ASCAP, BMI and SESAC all pay writers directly. For every dollar paid, 50 cents goes to the publisher and 50 cents is paid directly to the writer. But if EMI collects the licensing revenues, many of its writers may never see a dime. The reason is that many of their writers are "unrecouped." This means that the writers have not earned back the advance they originally received. Therefore EMI may "credit" many of their writers' accounts, instead of actually paying them.

Some have contended EMI's move is primarily meant to boost its bottom line since they could charge more than what ASCAP is currently paying them, avoid the modest administrative fees charged by ASCAP (approximately 5 percent), and retain a great deal of the monies that would otherwise be paid directly to their own writers. In light of EMI's impending sale by its owner Citibank, some argue that EMI’s plan is to enhance their bottom line and thereby up the price that a potential buyer would be willing to pay.

Whatever its motives, EMI's action could have a disastrous effect on the music business and music fans by killing or at least stunting the growth of digital music services which represent a key element in the potential recovery of the music business in the wake of the dramatic decrease of CD sales, as well as depriving their own writers of income that they currently receive.

Update on Apple’s Adventures in the Cloud

2011-06-07T15:50:00.001-07:00

This week Apple announced the features of its cloud based music service “iCloud” which will be available this fall. The features not only include automatic transfer of new iTunes purchases to iCloud, but the ability to access any music in your iTunes library without having to upload the music to the cloud. iTunes does it for you. Under its new license agreements with the four major record companies and, so far two major publishers, Apple has gained the right to copy music from its server to the cloud and allow consumers to access their music without having to upload it themselves. iCloud will also automatically transfer all purchased music from iTunes to all your Apple portable devices including iPhones and iPads. This means that the user will no longer have to sync their devices to iTunes in order to listen to new purchases on their other devices. iCloud is not just for music, you can also transfer to the cloud Apple apps, iBooks, documents, calendars, emails and personal settings. iCloud will give the user 5GB of storage space but music, apps and iBooks will not count against the 5GB.

Apple must still negotiate licenses with the indie labels but having all the major labels opens a huge catalogue of music to iTunes users. According to CNET, Apple has cleared publishing with Universal Music Publishing and Sony/ATV, but must still finalize deals with Warner/Chappell, EMI and indie music publishers.

According to Billboard online, the major labels will be entitled to 58% of revenue from iCloud, and music publishers will be entitled to 12%. Apple intends to offer the indie labels 53%, but it has been reported the indies are holding out for more money.

It is worth noting that Apple is also in the process of negotiating deals with TV networks and movie studios in order to place movies and TV shows in the cloud as well.

These moves put iCloud well ahead of its competitors, Google and Amazon. Unlike iCloud, users of Google and Amazon’s cloud based services have to upload their music files themselves, and that can hours, or for large collections, days.

CLOUD BASED MUSIC SERVICES COMPETING WITH AMAZON

2011-06-01T09:52:00.000-07:00

In our last update, we discussed Amazon’s new cloud based music service. In this blog we discuss competing services from Apple and Google.

GOOGLE
Although they have been promoting it for the last several months, Google has only made its beta (trial) service available by invitation only. The beta service is free, but it will be available to everyone for a price yet to be determined. Like Amazon, you can store music on a server (in the cloud) and access your songs from any compatible device including computers, tablets such as an iPad and mobile phones through the Android app. Google limits the number of portable devices a user can stream from to a total of eight. Like Amazon, you must first download software which allows you to upload the music. Google’s software is called Music Manager and can be downloaded to any computer.

Google’s music cloud will hold 20,000 songs whereas Amazon only holds about 2,000 with the option to purchase more space. However, the process of uploading 20,000 music files has reported to take several hours to several days. Google gives a user more file options for uploading including the following types: MP3, AAC, WMA and FLAC files. Amazon only allows MP3 and AAC.

Something different from Amazon’s service is the ability to play songs from the cloud offline. Though you need an Internet connection to initially access the music, once you play the songs, they are available to the user to replay offline, or the user can select “available offline” so that the particular song can be played without Internet access. The user can also add songs from multiple playlists including uploading your entire iTunes library or uploading music files saved on your computer. Google also has a feature that automatically uploads recently purchased music to the cloud. This is a feature that Amazon does not share. Another feature that Amazon does not share is Google’s “Instant Mix” which creates new playlists from your existing songs that Google thinks go well together. The way it works is the user selects a song from their library and Instant Mix will build a playlist based on similar songs also in your library. Billboard reported that Instant Mix was not such a hot feature, as it creates playlists of songs that a user would not realistically consider putting together and are from vastly different music genres.

APPLE
Next week Apple will launch its cloud based music service called iCloud. Apple has not announced any of the features that iCloud will possess. It has been reported that Steve Jobs is keeping the features under wraps until the World Wide Developers Conference next week.

LEGAL
It has been reported that Google is in talks with the 4 major record labels to negotiate licensing deals, but as is the case with Amazon, no deals have been inked. Due to this fact, Google cannot sell music though it has an option to “shop for an artist.” If a user clicks on this option, they will be redirected to Google.com. Apple however, has sealed licensing deals with 3 out of the 4 major labels including: EMI, Sony and Warner. These deals have put Apple at advantage over both Amazon and Google. Apple still has to clear publishing which reports say should not be a problem given Job’s many industry connections.

Google already offers a cloud based service, Google Docs, which allows one to upload and save documents online . It will be interesting to see which service consumers gravitate towards. Both Google and Apple have existing popularity, Google with Google Docs and Apple with iTunes and its portable devices. Consumers concerned with legality are probably more likely to gravitate towards iCloud since Apple has licenses with 3 of the majors. Given Apple’s popularity with iTunes and with its technological portable devices, it’s seems Apple has the power to pull in the majority of music listeners.

AMAZON’S NEW CLOUD BASED MUSIC SERVICE

2011-04-26T10:11:00.000-07:00

The Service
Last month Amazon announced the launch of its new cloud based music service called Cloud Drive. A “cloud” allows one to save files online and access those files from any computer or mobile device, thus taking away the need to save files on a hard-drive, USB or other portable device. Clouds have been referred to as an online storage locker. Consumers who use the service will be allowed to lease space from Amazon’s servers and can download content into the cloud as well as stream from it. Amazon also has included an option to download or stream onto an Android phone if they purchased the phone through Amazon or have the Amazon MP3 app on their Android. iPhone users do not have access to this app. A user can listen to the music through Amazon’s Cloud Player if it is saved on one’s phone or can download or stream the songs from your phone or computer with a Wifi or internet connection.

The service does allow users to upload previously purchased music into the cloud, by downloading “the uploader tool” which allows Amazon to search your hard drive — including your iTunes folder — and asks if you want to upload the MP3s it finds to your Cloud Drive. There are restrictions however as to what type of music file can be uploaded. The service will only allow a user to upload MP3 or AAC files as long as those files are DRM-free and are not larger than 100 Mega-Bytes. Non-music files such as: ringtones, audio book files, and podcasts cannot be uploaded into the cloud.

The service is free for the first 5 gigabytes that the user stores. Any files that are purchased directly from Amazon are stored for free and do not count against the 5 gigs. A user is entitled to an additional 20 gigs, if the user buys 1 MP3 album from Amazon’s website. Otherwise the user can purchase one gigabyte for $1.

Legality
Currently Amazon has no agreements with any of the major labels or music publishers to allow them to implement the service. It begs the question as to whether the service is legal. Amazon argues that since the cloud only allows people to hold the music rather than copying it via download it does not infringe on anyone’s copyright. But if one uploads the files into the cloud, which in essence amounts to copying the files, one must ask if that amounts to an illegal reproduction. Attorneys for Amazon have claimed that uploading files into the cloud qualifies as “Fair Use” under the Copyright Act. Under the Copyright act, certain uses are exempt from copyright. For example uses for education, new reporting and commentary are considered fair use and reproductions of a work for these uses are not considered infringement. This controversy may result in later litigation by the labels. Sony has made a public statement saying they are angered by Amazon’s decision not to obtain licenses before launching the service. What the labels decide to do next remains to be seen.

Challenges Facing Digital Music Start-Ups

2011-01-30T20:46:00.000-08:00

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

2011-01-13T10:29:00.000-08:00

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.

Sound-alikes

2010-12-15T12:31:00.000-08:00

This section on sound-alikes is meant to supplement my discussion of music in advertising in Chapter 6 (published below) of the forthcoming third edition of The Future of the Music Business

Sound-alikes: If the advertiser re-records the song, however, they take a risk if they use a “sound-alike,” that is a recording intended to imitate the sound of a popular record or the style of a popular recording artist. In the case of “Groovin”, my client re-recorded the song on a synthesizer and the result clearly could not be mistaken for the original recording by The Young Rascals. But in the 1980s, singer Bette Midler sued over a sound-alike version of her recording of "Do You Wanna Dance" that was used in a Ford commercial, and she won. The Federal Court of Appeals held:

"We need not and do not go so far as to hold that every imitation of a voice to advertise merchandise is actionable. We hold only that when a distinctive voice of a professional singer is widely known and is deliberately imitated in order to sell a product, the sellers have appropriated what is not theirs and have committed a tort in California. Midler has made a showing, sufficient to defeat summary judgment, that the defendants here for their own profit in selling their product did appropriate part of her identity."

Bette Midler v. Ford Motor Company (9th Cir. 1988). The Circuit Court found it relevant that the advertising company, Young & Rubicam, actually asked Midler if they could use her voice. She denied permission. They then asked one of Midler’s backup singers if she could make herself sound “as much as possible” like the Bette Midler recording of “Do You Wanna Dance.” Midler won the case even though Young & Rubicam secured a license from the copyright owner of the song and owned all the rights to the new recording.

On a similar note, legendary singer-songwriter Tom Waits, has steadfastly declined to license his music for commercial use and has filed several lawsuits against advertisers who used his material without permission. Waits first lawsuit was against Frito Lay for imitating his voice to sell chips. The 9th Circuit Court of Appeals affirmed an award of $2.375-million in his favor (Waits v. Frito-Lay (9th Cir. 1992)). Similar to the Midler case, the advertiser approached Waits to perform one of his songs in an advertisement. Waits declined the offer, and Frito-Lay hired a Waits impersonator to sing a jingle in a style and manner similar to Waits. Waits won the lawsuit, becoming one of the first artists to successfully sue a company for using an impersonator without permission. The Midler and Waits cases show that an advertiser should proceed with caution if they want to produce a commercial using a “sound-alike” recording.

Music Licensing Fundamentals - Chapter 6 of The Future of the Music Business

2010-11-12T13:50:00.000-08:00

Chapter 6: Music Licensing Fundamentals

This chapter is designed to provide an overview of music licensing. Songwriters, composers, labels, and artists can make significant income from licensing music for audio compilations, television, motion pictures, and other media. We will outline the fundamentals of music licensing for:
• Audio compilations

• Home Video including Documentaries, Concerts, Old TV Series and Wedding Videos

• Television

• Motion pictures

• Advertising

• Musical Theatre

AUDIO COMPILATIONS

Compilation albums usually contain songs that have been previously released such as “Best Of” collections (i.e. The Very Best of Elvis Presley). Other compilations can be genre based and can be a lucrative way of selling old music in new packages. Time-Life, for instance, sells hundreds of different compilations with themes designed to attract baby boomers and their parents such as Legends, The Ultimate Rock Collection or The Ultimate Love Songs Collection. Other compilations are collections of songs that were used in a movie or TV show. Recently, for instance, I licensed a dozen songs for a CD compilation; each song had originally been included in a documentary called Airplay that focused on the history of American DJs. The licensing of compilations is fairly straightforward.

Songs: If a compilation consists of songs that have previously been released, they are subject to the compulsory mechanical license. As we discussed in Chapter 1, the Harry Fox Agency (“HFA”) is set up to issue mechanical licenses that incorporate the statutory mechanical rate of 9.1 cents for songs five minutes or less or 1.75 cents per minute or fraction thereof over five minutes. All you need to do is fill out forms provided by Fox, which are now available online, indicating the names of the songs, the writers, and the publishers. Here are the requirements:
• Song title

• Songwriter’s name(s)

• Publisher name

• Playing time for each selection (especially if the song is over five minutes in length)

• Release date

• Artist name

• Title of album

The form can be filled out and sent to HFA online. They will generate a contract that can be signed electronically. You never even have to print out the licenses. HFA, as we pointed out in the first chapter, also has a database, www.songfile.com, that you can use to find the writers and publishers, as well as ASCAP, BMI, and SESAC for their respective songs. Upon securing a license, the distributor can pay after the record is released. In the rare occasion that HFA does not represent a song, you will have to go to the publisher. If the publisher does not respond you can acquire a mechanical license through the Copyright Office. However, the procedures required under the compulsory license provisions in the Copyright Act are burdensome such as the requirement of monthly, rather than quarterly accounting and notice conforming to strict regulation. Of course, if the song is in the public domain, as most of the classical repertoire is, you will not need permission. However, new arrangements of PD songs may be protected by copyright, and in that case you will need a license. Check for an arrangement credit on the packaging of CD, cassette, or vinyl record from which you derived the music.

Masters: You must negotiate with the owners of the masters for compilations. There is no “compulsory” rate. The standard rate is 10 to 12 cents per track. The labels may request a percentage of the retail price of the compilation such as 10 percent plus a floor of 10 cents or more. In addition, they will seek advances. For instance, an advance of 10,000 units is commonly required. Sometimes a more difficult problem than establishing a fair rate is getting a license at all. Record companies are extremely reluctant to license tracks that are still selling well. They fear the compilation may compete with their own albums or “best of” records. Since there is no compulsory license for use of masters, they can just deny permission, and frequently do. Finally, each record company will usually ask for Most Favored Nations protection. As we discuss in more detail below, this means that if label X insists on more money than label Y agreed to accept, and label Y conditioned its consent on MFN treatment, you would have to pay Y the additional amount.

HOME VIDEO

I am often called upon to clear the following types of audiovisual programs for home video:

- Music based documentaries

- Audiovisual recordings of music concerts

- Old TV shows (such as old episodes of music based shows such as Soul Train, or episodic comedies such as “Marcus Welby, M.D. which used excerpts of music in some episodes)

- Instructional videos (for instance a DVD on how to play guitar)

- Wedding videos (use of music in DVDs of weddings or other special events)

As we shall discuss later in this chapter, when music is cleared for a motion feature, usually the licenses are for “broad rights,” that is, all media including home video as well as theatrical release and all forms of TV.

The words “home video” generally refers to DVD’s although downloading is now generally perceived as another form of “home video” and most copyright owners will include downloading as another form of home video distribution. They will not charge additional fees, although a few music publishers still try to extract an additional payment for downloading. On-demand streaming is not considered to be a form of home video and a separate fee must be negotiated.

Generally the music publishers, who administer the licensing of home video rights on behalf of their writers, will require a “penny rate” for each song in a program. That rate is generally 10-12 cents. Sometimes a publisher will accept a lower penny rate if, as in the case of a music documentary, only a brief excerpt of a song is used. Music publishers will also usually require an advance based on units, generally 2500 to 10,000. So for example, if there are 12 songs in a music concert program and each is licensed for 10 cents with an advance of 5000 units, the amount to be paid for each sold will be $1.20. However, the advance of $500 for each song means that that no royalty will be paid on the first 5,000 units.

Generally the producer of the program will be responsible for the initial advance and they will negotiate with the distributor that the distributor shall pay for any units over that. However, who pays for the music will be subject to negotiation in each case between the producer and the distributor and occasionally the distributor will agree to pay the advances as well as the royalty payable if sales exceed the advance.

Some music publishers will insist on a “roll-over” payment if the number of units sold exceed the advance. For example if the royalty is 10 cents and the advance is $1,000 for the first 10,000 units, if 1 unit in addition to the 10,000 is sold, another $1000 shall be become due. Other publishers will allow for periodic accounting so that royalties will be payable for the exact number of units sold.

The duration of most penny rate home video license is usually 7 years. The territory is generally U.S. and Canada. In other territories usually there is an industry wide agreement in place between music publishers and distributors. For instance in England the rate is 6.25% of PPD (publisher’s price to dealers, i.e., the wholesale price) and in Japan the rate is 5% wholesale. These payments are usually made to collection societies who turn around and pay the music publishers. For instance in England the fee is payable to MCPS and in Japan to JASRAC. So if a video is sold in England for 4 pounds sterling, the distributor will have to pay 6.25% of 5 pounds for all the music in the program. With programs with a great deal of music such as music based documentary or concert, this system is much more favorable than a penny rate. For instance if a concert video has 15 songs and each one costs 10 cents for a total of $1,.50 per unit, then the royalty due will be $1.50 per unit. If the wholesale price for that program is 10 dollars, 6.25% would be 62.5 cents , but American publishers generally refuse to accept this kind of formula.

Occasionally a producer will try to secure a “buy out” instead of a royalty. A buy-out means that no royalty will be payable after the buyout fee is paid. Most publishers will insist that the buyout fee is greater than the normal advance as quid pro quo for waiving a royalty. Therefore, a producer who wants to pay a buyout fee is making a “bet” that sales will justify a greater upfront payment. Suppose for instance a publisher will accept a $1500 for home video buy out. If the same publisher would have accepted a 10 cent penny rate, then the producer will come out ahead if he sells more than 15000 units. The following chart demonstrates this point.

Penny rate at 10 cents

7,500 units $750
15,000 units $1500
30,000 units $3000

Buy out for $1500

7,500 units $1500
15,000 units $1500
30,000 units $1500

The duration of a buyout license will usually be 5 to 10 years. After that if the distributor wants to sell units, he must go back and negotiate new licenses.

Most Favored Nations: One of the most important concepts in clearing home video rights is “Most Favored Nations” or “MFN”. In international trade, MFN means that the country which is the recipient of this treatment must receive equal trade advantages as the "most favored nation" by the country granting such treatment. In regards to music clearances, MFN refers to the clause in most publishers’ contract which states that if any other publisher is treated more favorably, then that publisher will be treated equally as well notwithstanding the terms in the agreement. For instance if there are 10 different publishers who control songs in a program, and 9 agree to 10 cents, but one insists on 12 cents, then the MFN rate is 12 cents. The following is a typical MFN clause:

It is hereby agreed and understood that if Licensee shall pay to any third party a greater royalty and/or advance payment than those paid to Licensor hereunder with respect to any musical composition performed in the Product, Licensee shall pay to Licensor such greater royalty and/or advance payment, retroactive to the date of the agreement.

MFN can produce harsh results. Some music documentaries can include dozens of small excerpts of music and if one publisher insists on a higher rate, the impact on clearance costs could be catastrophic. For instance, if a doc includes brief excerpts of 50 songs and the publishers all agree to accept 6 cents for each excerpt then the per unit fee will be $3. But if one publisher wants 12 cents then the per unit fee will be $6 and this may make it impossible for a distributor to make profit since they also have to pay for manufacturing, packaging and shipping. There are various methods of avoiding the harsh results that MFN can sometimes produce. The easiest way of doing it of course is to clear the songs before the program is made. If a song comes in too high it can be excluded.

Masters: So far I have been discussing what music publishers charge for use of songs in a program. Sometimes it is necessary to clear a record label as well. This happens when the original master is used. For instance a documentary about an artist may include music from an album. In that case it would be necessary to secure a license from the owner of the album, usually a record company, as well as a license from a music publisher for the underlying song. The license for the song is referred to as a “synch” license. The license for the master is referred to as a “master use” license. Usually the record company will accept the same terms as the music publisher has accepted. Live concerts do not require clearing masters because they are not being used in the show as the artist is performing live. However, if the artist was merely lip synching or “performing to track” then it would be necessary to clear the master. In documentaries, a producer will often use footage containing a live performance. For instance, a documentary about Elvis Presley may include an excerpt of performing a song on the old Ed Sullivan show. In that case, you would not need to secure a license from the record company because the license for the footage will include the right to use the sound in the footage.

Wedding Videos: I receive a number of calls from professional videographers or family members who want to use music in a video of a special occasion such as wedding or birthday. They tell me that they only want to make a few dozen copies and whether they need permission. The answer is that they do – if they use copyrighted music and even if they give the videos away for free. And many owners of popular songs will not want their music associated with someone’s event. On the other hand I have had success in licensing some popular songs for fees around $500 for limited run of copies. This is particularly doable for “non-approval” songs. These are songs that music publisher can license without the permission of writers or their estates. The more recent and commercially successful the song, the more likely it will be subject to approval. If the original recording is desired, then it will also be necessary obtain the approval of the owner of the master, usually a record company. Those who want to use music in a wedding video should consider a music library from whom they can license or buy music in all kinds of genres for a limited fee.

TELEVISION

There is a basic distinction in licensing music for documentaries and concert programs for television and licensing music for network and cable shows. Let’s discuss documentaries and concert programs first.

Documentaries and Concerts

In clearing music for these programs there are a number of variables to be considered including the fee, duration, and territory.

The Synch Fee: The fee payable for the use of a song in a concert or documentary can be from a few hundred dollars to well over a thousand depending on the rights requested. For instance if a producer asks for “all forms of TV” the price will be higher than if a specific form of television is requested such as “basic cable.” Therefore, I advise my clients to ask for the specific rights they absolutely need. For instance, if the show will only air on a specific television service such as A&E, I will ask for the right to air the show on A&E only in order to get the lowest price.

Foreign TV Rights: Usually foreign TV rights will be negotiated as an option. This is because many of my clients have no deal for foreign TV until after the show airs in the U.S. If we request foreign TV rights as an option then we don’t have to pay for those rights until we license the show for foreign broadcast. The fee for foreign rights usually is approximately equal to the fee for U.S. rights. For instance I recently cleared 12 songs in a documentary on a pop singer for $750 for U.S. cable and $750 for foreign TV.

Duration: The producer’s deal with a particular television service such as a basic cable service or network may require the producer to acquire a minimum number of years. Networks generally require at least a year but basic cable services usually require a minimum of three years.

Usage: Use of an excerpt of a song may cost less than use of a full performance. Also, if a song is heard but no one is seen performing it (“background use”), the song may be cheaper to license than if someone is depicted singing or playing an instrument (“visual vocal” use).

Promotional Use: Producers generally want the right to use a song that is included in the documentary or concert to advertise the program in a commercial or on-line promo. Many publishers will limit promotional use to “in context” promotion. This means you are allowed to use the music to promote the program only by using excerpts of the program including the music—you can’t strip the music and use it in a different way than it is actually used in the show.

Most Favored Nations: All the considerations that we discussed in the home video section of this chapter above apply to concerts and documentaries on TV. Basically, the publishers insist that if you pay one other publisher more money than they have agreed to accept, you must pay them the additional amount. However, sometimes, MFN can be used as a way of securing all the music in a program on reasonable terms. Suppose a publisher controls a number of songs in the program and grants a favorable rate, that rate can then be used to secure the same rate from the other publishers. On the other hand, if one publisher demands more than all the others, you may have to pay more for all the other songs or delete the high-priced song.

Masters: All the rules above apply to masters. Generally the owners of the master will insist on MFN treatment with the owners of the songs. As we previously discussed, concerts generally do not require master clearances because the music was performed live unless the artist lip synched the song. If a producer of a documentary used music from a record, then a master clearance will be required and just as with home video, the record label will usually accept the same fees and terms that were negotiated with the music publishers.

Special Rule for Public Broadcast Stations: The Copyright Act provides for special rules for use of copyrighted materials, including music, on public broadcasting stations. Generally, producers are not obligated to clear songs or masters for programs produced for PBS or other public broadcasting stations as defined in the act. The relevant Sections of the Act are 114 and 118.

In regard to songs, Section 118 provides for a statutory license subject to federally prescribed rates. PBS, on the producers’ behalf -- with funding from the Corporation for Public Broadcasting -- will pay the federally prescribed fees to the copyright owners. But, Section 118 does not provide for a statutory license with respect to the use of the songs in the home video distribution of the program or for foreign TV. So producers have to acquire synch licenses for these uses.

In regard to masters, Section 114(b) reads in relevant part:

The exclusive rights of the owner of copyright in a sound recording . . . do not apply to sound recordings included in educational television and radio programs . . .distributed or transmitted by or through public broadcasting entities . . . Provided, that copies or phonorecords of said programs are not commercially distributed by or through public broadcasting entities to the general public.

Therefore, no payment is required for use of masters in programs on public television. But note that the
last sentence quoted above means that if the program is released as a DVD, the producer will have to secure master-use licenses if music from records was used in the program.

Cable and Network Shows

Licensing music for popular TV shows has become a lucrative source of income for the music business. The price for a song on a popular network, say HBO or Showtime, usually ranges from $2,500 to $10,000, depending primarily on the identity of the song. It's a pretty good bet that a Lady Gaga song or Rolling Stones’ hit will be lot more expensive than a song by a relatively unknown band. Another important consideration is how much the producer wants the song. For example, I recently licensed an very little known song for $12,500 to a program on HBO. The program was a docudrama that focused on historical incidents and included a scene about the musical comedy in which the song was originally performed. HBO wanted the song to make the docudrama more authentic.

In addition to being a source of income, TV shows can also help promote a song or an artist. For instance, the band Death Cab for Cutie became much more popular and sold a lot more records after their music was featured on The O.C. In his book Ripped, Greg Kott noted that "shows such as Six Feet Under, The O.C. and Grey's Anatomy turned into a cottage industry to breaking new bands." More recently, the band One Republic achieved mainstream success thanks largely to having several of their songs featured on Gossip Girl. Specifically, the song “Apologize,” featured on one episode of Gossip Girl, later went on to sell 3 million digital downloads and more than 1 million ringtones. Other One Republic songs that got a boost from being on Gossip Girl include: “All the Right Moves,” “Stop and Stare,” and “Secrets.”

Another way that popular shows can promote new music is through the Web. Such music intensive series as Gossip Girl and The Hills include track listings on their websites so fans can identify each song in each episode. The sites also include links to iTunes where fans can buy the tracks featured in the shows. A leading music supervisor in the industry and for shows such as Gossip Girl and Grey’s Anatomy, Alexandra Patsavas, has been quoted as saying:

“What ‘The OC’ did for indie rock, we’d like ‘Gossip Girl’ to do for pop. I’m relying on old favorites while exploring current pop music… and since the show revolves primarily around high school students in New York, we’ll definitely be using some New York based bands. But these kids listen to the radio too, so there will be that music, too.”

Needless to say, promotion of music on TV shows has become a phenomenon, and artists heavily rely on these shows to advance their careers.

It should be noted, though, that licensing music for TV is not a panacea for new bands. The truth is that most new music in shows such as Gossip Girl and The Hills are already signed with labels and music publishers who have close ties with music supervisors who select the music for these shows. On the other hand, there are companies such as Love Cat Music (www.lovecatmusic.com) that will represent unsigned bands and submit their music on their behalf. Also lawyers with relationships with music supervisors can sometimes be helpful in shopping music for TV and movies.

With regard to the terms for licensing for popular shows there is lot less flexibility than licensing music for documentaries and concerts. There are two reasons for this. The first is that over the years the networks and cable services have perceived a market for their shows not only in reruns, but for home video and foreign territories as well. And now there is the dream of making big money from the shows on the Web through services such as Hulu or Netflix. Therefore, the networks and cable services want all rights and media – they do not want to be limited to just television; they want buyouts. The licenses are generally usually unilateral and demand all media and all territories for a minimum of ten years. The second reason that licenses for music in popular TV shows are much less subject to negotiation than for documentaries and concert programs is that generally the latter are created by independent producers with less money and therefore less leverage than networks and cable services,

MOTION PICTURES

The price of clearing music for movies will be primarily determined by the budget and the potential audience for the film. For instance, publishers and labels know that student or “art” films with budgets in the thousands of dollars and a potential audience of thousands of people or less cannot afford to pay a great deal of money for music. Of course, they may decide not to grant a license at all, but if they do, the price will be commensurate with the budget and potential audience. The cost of including one song in a major motion picture, on the other hand, can and often does exceed six figures. The price gets higher depending on the identity of the song with hit songs demanding the highest fees and the use that is made of the music with use of music over the credits whether the opening or end credits fetching highest amounts. Even with a student or independent art movie, the publishers and labels may include a clause that requires additional payments should the movie actually generate a substantial amount of income. For instance, the fee for a popular song in a movie with a budget of a million dollars could be $10,000 but if box office exceeds $250,000 another payment of $10,000 may be required.

Rights: Even before popular TV programs were asking for buyout, producers of major motion pictures and major studios were demanding buyouts for all media. With regard to licensing music for movies, this practice is referred to as acquiring “broad rights.” As discussed above, broad rights generally refers to all rights including theatrical distribution, all forms of TV throughout the world, home video, and the Internet. From the perspective of indie producers who are less well financed than their Hollywood cousins, acquiring broad rights even for an obscure song or master for can be prohibitive. For independent movie makers, using options can significantly save money.

Options: Suppose you are an independent producer who is still looking for a theatrical distributor for your film. You may or may not find it. Perhaps the only form of distribution you will be able to find is home video. Obviously you will not need broad rights. You need only the rights in the music that are necessary for the method of distribution you actually use. You can structure the license to give you options for each of these media -- for instance, home video including downloading, Internet streaming, foreign TV, U.S. cable TV, etc. You only have to “exercise” the option, that is, pay for the rights, once you have secured your deal. So you can save a lot of money by negotiating options instead of paying for rights you may not need. I know a producer who made deals for broad rights for all the music in his movie. Sadly, he never got a deal for distribution. He paid close to $50,000 for music for a movie that is still sitting in his loft.

Festival Licenses: Most music publishers and labels will give producers the right to show their movies at festivals for $250 or less for each song or track. When you secure a festival license you can save time by negotiating options for other rights.

MFN: A record company will usually insist on MFN treatment with the owners of the song embodied in the master. The music publisher of a song will also usually insist on MFN treatment with the owner of the master of that song. But producers can usually avoid MFN treatment between different songs and masters. Both labels and publishers recognize that the use of a song or master over the credits, for example, is much more important and therefore should be more expensive than other uses of music in the movie. It is just as well recognized that the use of monster pop hit such as a classic Rolling Stones song is a lot more valuable than a song by an unknown artist.

ADVERTISING

A Brief History of Music in Advertising: Prior to the 1980s, music in television advertisements was generally limited to jingles and incidental music. I grew up with catchy product-related jingles like “See the U.S.A. in your Chevrolet” and Coke’s “I’d Like To Teach the World to Sing.” Ads like these revolved around the music which was written by writers who were on the payroll for advertising companies. Companies looking to boost product sales would commission these writers to produce a jingle on a “work-for-hire” basis.

This system eventually faded away during the 1980s and was replaced by a commercial landscape in which advertisements were supplemented by popular pre-recorded music. The use of previously-recorded pop songs in television advertisements began in earnest in 1985 when Burger King used the original recording of Aretha Franklin’s song “Freeway of Love” in an on-air ad for the restaurant. Then, in 1987, Nike used the original recording of the Beatles’ song “Revolution” in an advertisement for a new line of sneakers. The flood gates for using pop music in television ads had been opened.

In 1995, audiences around the country were used to hearing some of their favorite songs in television ads. But, it still made news when Microsoft paid the Rolling Stones a rumored $9 million for the use of “Start Me Up” in their Windows 95 campaign. The Microsoft campaign was one of many examples of a commercial not only borrowing interest from music, but also borrowing our interests, milking our memories and desires, and selling them back to us.

Of course, “Start Me Up” was licensed by Microsoft because it was a popular tune. What’s happening now is that unknown songs by emerging artists are becoming hits overnight as a result of their association with these national ad campaigns. Think, for instance, of the iPod Touch commercial featuring Cansei de Ser Sexy’s “Music is my Hot, Hot Sex.” Eighteen-year-old Nick Haley posted a homemade iPod advertisement to YouTube using the song. Apple executives caught wind of the video, were instantly enamored by the music, and contacted Haley to rework the ad for television. The teenager says his inspiration came from the lyrics “My Music is Where I’d like You to Touch.” The band’s guitarist, Ana Rezende, told Spinner in October 2007, “How he found our song, I have no idea, but we’re really happy that he did.”

Using Ads to Promote Music: Getting your music licensed for commercials can be extremely financially rewarding (as in the case of the Rolling Stones’ deal with Microsoft), but artists are generally eager to ink this kind of deal for more than just the money. In the summer of 2007, Volkswagen licensed the right to use all the songs in a brand new album by alternative rock band Wilco for use in its new television ad campaign.

Here is what Wilco posted on its Website in reference to the deal:

As many of you are aware, Volkswagen has recently begun running a series of TV commercials featuring Wilco music. Why? This is a subject we’ve discussed internally many times over the years regarding movies, TV shows and even the odd advertisement. With the commercial radio airplay route getting more difficult for many bands (including Wilco) we see this as another way to get the music out there. As with most of the above (with the debatable exception of radio) the band gets paid for this. And, we feel okay about VWs. Several of us even drive them.

So, licensing your music in advertising gets you paid but it also, perhaps more significantly, gets you nationwide exposure which could help increase your record sales significantly. It also promotes your brand-ability and, as we know, merchandise sales can amount to a significant portion of an artist’s overall income.

It’s important to note the apologetic tone in Wilco’s statement. For an alternative rock band, Wilco worried that its involvement in corporate advertising would be regarded as “sell-out” behavior. But, Wilco has maneuvered its career with savvy and done what any emerging artist should do: take advantage of the outlets available for distribution. Other major artists have done the same. Some examples include Sting licensing to Jaguar, Iggy Pop to Royal Caribbean, Bob Dylan to Victoria’s Secret, Led Zeppelin to Cadillac, and Aerosmith to Buick and Dodge.

Apple commercials are a good example of how advertising can promote an artist. Since 2003, commercials for Apple’s products have propelled the careers of many bands and music artists. For example, the band Jet went on to sell 3.5 million copies of their album, after one of their songs was used in the iPod commercial between 2003 and 2004. Feist had similar success after her single “1234” was used in an iPod commercial in 2007. Digital sales of “1234” doubled after the song was used by Apple, and hits on YouTube increased by 1000% from the previous month.

Also in 2007, CSS’s song “Music is my Hot, Hot Sex,” was featured on an iPod touch commercial and went on to sell many singles. It should be noted that there was no such response when the CSS single was played on a Zune commercial a year earlier. CSS’s agent, Tony Kiewel, was quoted as saying, “This is one of those rare instances where we can point to a single event and say, this is for sure what’s driving all of our record sales.”

In 2008, singer Yael Namin, an unknown artist from Israel, was able to get her album launched in the U.S. thanks to Apple’s use of her song, “New Soul”, for their MacBook Air commercial. “New Soul” later reached number 7 on the Billboard Hit 100 Chart. Apple also launched the career of the band the Ting Tings when an iPod commercial included their now popular song “Shut up and Let me Go.” After the song was used in the commercial, “Shut up and Let me Go,” hit #1 on the Billboard’s Hot Dance Club Songs chart.

These are all examples of how advertisers can make a huge difference in an artist’s career. However, it is important for an artist to have their music used by the “right” advertiser, not just used on any commercial. Apple has been the “right” advertiser for a lot of these artists because of the innovation and creativity of their commercials that sets a platform for these new artists to be heard, as well as their association with iTunes.

License Fees

Fees for Contemporary Mega-Hits. As one may expect, the highest quotes, or fees charged, may be for recent smash hits. There may be little room for negotiation here, because once a song is licensed, its value to another sponsor is radically reduced. Therefore, the copyright owner, who is usually either the publisher and/or the writer, may hold out for the highest royalty price, assuming that the writer is even willing to license the song for a commercial use. The only meaningful leverage is to solicit lower quotes for comparable songs. In any event, the going rate for such hit songs may be a million dollars or more.

Fees for Catalog Songs. An advertiser may be willing to settle for a song that may be recognizable but not currently on the charts. Of course one can expect to pay less for a catalog song than for a contemporary smash hit, but a routine call to a publisher asking for the “standard fee” for use of such a song in a national television campaign may well precipitate a response such as: “We will not license any song in our catalog for less than $150,000 to $250,000 for a one-year period” (a typical duration for a license of music for a television campaign discussed below). A pop standard such as “Strangers in the Night,” or “Wicked Game” (which was used in a television campaign by Jaguar), may garner prices well beyond the “standard” range. The bottom line is that the more popular the song, the more it will be in demand for commercial use, and the higher the demand, the higher the royalty price. On the other hand, there are many songs in the catalogs of major and smaller publishers alike that, although recognizable when originally released, have neither received significant television or radio airplay nor have been used in movies or commercials for some time. The fee for such songs, which are of proven quality and which may work perfectly for a client’s product, may well be negotiated lower than the standard range. The bottom line is that an offer, even if less than the publisher’s standard, is better than no money at all. A publisher may also be hopeful that the advertising campaign will rekindle interest in its song. For instance, the Gap’s use of K.C. and the Sunshine Band’s “Get Down Tonight” revived catalog sales for the band’s records. In addition, the tips that appear in the last part of this section may be helpful in getting the lowest possible rates for songs in this category.

I was recently called upon to license a couple of R&B hits from the 70's for a major insurance company. The client wanted to use the songs in national TV commercials and was seeking to use the songs to connect with baby boomers to sell them life insurance. For a three month window the price was $100,000 for each song. That was just for the songs. The company re-recorded the masters and so did not have to clear the record companies. The same client wanted to use another monster hit from the late 60's for a TV spot plus a greeting card to include a chip that would play the song when the recipient opened the card. The total price was $700,000 including the song and the original master: $350,000 to the publisher and $350,000 for the song.

There are also certain sections of a publisher’s catalog composed of jazz, new-age, and R&B songs that are catchy but which have never had any real commercial success. The publisher may be eager to make a deal for these underutilized songs. Although the songs never received a great deal of public play and would not be recognizable to the consumer, they may fit the spirit and texture of an advertising campaign quite well. These songs may be secured for substantially less than the standard range. However, one can still expect to pay more taking this approach than by going to a music library or “jingle” house and licensing or commissioning a work specifically for a commercial.

Fees for songs by Baby Bands: Publishers also represent songs by unknown artists. They may want to use a national advertising campaign to gain exposure for such baby bands (just as they may wish to gain exposure for older songs that have not been popular for years). If this is the case, one has a reasonable chance to negotiate a deal well below the standard range.

Other Terms: In addition to the identity of the song itself, there are several factors that will be key ingredients in the quote provided by the publisher. As in any negotiation, the initial quote will probably start on the high end. If any of these factors favor the advertiser, however, they may be used to reduce the initial quote.

Manner of Use: If one only needs a song to play in the background while, for instance, a spokesman is making a pitch, one can argue for a reduced rate. In addition, sometimes the lyrics to a song are not needed. Since, in effect, one is only using half of the song, one may be able to negotiate a reduced rate.

Branding: Publishers may start off with a quote that includes the concept that an advertiser will use no music other than the licensed song to promote the product or services. This is sometimes referred to as “branding.” If an advertiser will actually use different music for different commercials, this should be emphasized as a possible way of reducing the fee.

Radio and Other Media: A publisher will often demand an extra 5 percent to 15 percent for use of a song in radio spots. This charge is usually negotiated as an option to run concurrently with the television advertisement. However, for obscure, catalog, or baby-band songs, it may be possible to include radio without an additional charge. This may provide the song with some much-needed publicity and public-performance income. (See the conversation of public-performance income in the first Practical Tip below.) This may be used as leverage to get as many media as possible (such as theatrical use preceding movies) without an extra charge. Securing Internet rights however, particularly when one is not willing to pay additional fees, may be more difficult (see the conversation on clearing music for new media in the next chapter).

Territory: The quotes Mega-hits, Catalogue songs and baby bands set forth above assume that the territory for an advertising campaign is limited to the United States, its possessions, and territories. Of course, one can dramatically reduce the initial fee where an advertisement is targeting a specific geographic market. For example, a very low fee may be negotiated for use in just one geographical market. Sometimes, an advertiser may wish to start a commercial in specific cities, and if the commercial proves to be successful with viewers, expand the commercial to the entire country. In that case, one may structure an option for the entire United States for a one-year period after the initial limited run.

Publishers will generally try to negotiate an additional 10 percent to 20 percent charge for the use of commercials in Canada. If a song is less than a major hit or a pop standard, it may be possible to negotiate Canadian rights into the basic fee, or at least reduce the standard increase.

Options for Extending the Term: The quotes referred to above are also based on the assumption of a one-year license. This gives an advertiser time to roll out its campaign and generate momentum. Of course, those fees may be negotiated down for a shorter period. Options generally cost 5 percent to 15 percent for each additional period. For instance, if the fee is $10,000 for a 13-week period, a publisher may ask for $11,000 to exercise an option for the next 13 weeks. Or the additional charge may be avoided by paying, for example, $20,000 up front.

Master Use: Sometimes publishers will make a recording of a song for the purpose of licensing the music. In that case it may be possible to include the right to use the master produced by the publisher for no additional payment. Generally, the master will be controlled by a record company. In that case, one may expect that the record company will insist on a fee equal to that of the publisher. For the use of popular recordings by big-name artists, this could double an already substantial payment. Use of and payment for the master can be avoided by rerecording the song.

Practical Tips: The publisher, and the writers it represents, will get paid twice if an advertiser uses a song; first by the advertiser when the ad is produced, and then by the publisher’s performing-rights society (ASCAP, BMI, or SESAC) when the ad is broadcast. The societies pay the publisher and writer based on public performances of the songs on television and radio, as well as in other public venues. The income generated by these performances can be substantial when the commercials appear on network television and in television syndication. If a publisher does not license the song, it has that much more to lose, so it is important to reaffirm what it has to gain when negotiating a deal.

Give Them a Budget: Some publishers will work with you if you let them know how much you or your client is willing to spend. As discussed above, ask a publisher for a standard range for a catalog song and the publisher will start with $150,000 and up. If you suggest $50,000, the publisher may suggest songs that are in your or your client’s price range. In fact, the publisher may give you CDs containing those songs to listen to and choose from.

Consult the Experts: There are music-clearance professionals who are very experienced in negotiating these deals. You may wish to avail yourself of that expertise.

Approach the Writer: If you know the writers or composers, it may be better to approach them first. Writers may be more eager to make a deal for a song than publishers who represent many other writers whose work may bring in higher fees. In certain cases, the writer may be able to make a deal without the publisher’s consent, but even if the publisher is the exclusive agent for making the deal, the writer may be your advocate for a reasonable rate.

Don’t Focus on the Number of Spots, Unless You Are Producing Only One: The publisher may ask for more money for the use of a song if it focuses on the fact that the producer plans to make more than one version of a commercial containing the song. You may want to avoid the issue and hope that the license provided by the publisher will not limit your right to use the songs in more than one television spot. If you focus the publisher on the notion that you want to make a dozen different spots using the publisher’s song, the publisher may ask for more money. Of course, the more sophisticated publishers will bring up this point during the course of negotiations. If you only wish to use the music in one spot, however, it is to your advantage to emphasize that in an attempt to reduce the fee.

Consider Using Stock Music or a Jingle House: If you are not looking for a recognizable song, you may be better off not approaching a music publisher at all. There are many music libraries and jingle houses that may be able to provide music composed on a work-for-hire basis that will work for your commercial. They are also more likely to control the masters as well.

MUSICAL THEATRE

With the success of Jersey Boy and more recently American Idiot, more and more producers are dreaming of bringing a musical based on pop hits to Broadway. Over the past year I have been called on to clear songs for two music theatre pieces. One is a based on the life and music of a famous artist from the 1960’s and the other a musical based on a comic book about debutants from Texas. In the first case I received a couple of rejections of songs where the music publisher did not want to be part of play. This is a reminder that sometimes it’s just not possible to get all the music you would like for a certain project.

However, if permission is given the standard financial arrangement is much more favorable for a producer of musical theatre than it is for a producer of documentary, feature film or TV program: There is no upfront cost. That standard business practice for clearing music for theatre is to pay the publishers a percentage of box office gross receipts without any upfront advance. That percentage is usually 5% of box office. The sweetest part is that 5% is the total that has to be paid. Each publisher is paid a prorated portion of that amount depending on the number of song used in the show. For instance, if there are ten songs each song is credited with 0.5% of gross box office.

In order to secure a license the following information will generally needed to be provided:

Identity of Producer
Synopsis of the musical
Scene description of music use
Start date
Length of production term
Performance territory
Total number of Scheduled Performances
Theater size (number of seats)
Ticket price (USD)
Duration of music / timing
Version of song used (i.e. live, CD) / Artist recording (if applicable)
Lyric Change (if applicable)
Total number of songs used in project

Publishers will generally limit the term to one year. They want to see that the producer is actually mounting the production and pays them the royalty on a regular basis before granting a longer term. Permission may be hard to get if the producer wants to change the lyrics. If they do agree they usually want to own the copyright in the new lyric. Usually there is no need to clear the record company as the music will be performed live by the cast.

TIPS FOR MUSIC LICENSING

Entertainment Law & Finance, January 2003

I am republishing these tips because they are still relevant in clearing music for any project.

ELF: What kinds of projects do you work on?

Steve Gordon (SG): TV, movies, documentaries, compilation albums, DVDs, and Internet-based projects. I recently worked on several interesting jobs in cooperation with Universal Media Inc. [a company specializing in finding footage and music]. These projects included a documentary on Latin jazz for the Smithsonian Institution, a companion record album for Smithsonian Folkways Recordings, a network TV special featuring the music of Elvis Presley, and a PBS special featuring Frank Sinatra’s duet performances from his old TV series, to be released as a home video and on foreign TV. Currently, I’m working on an independent movie about a serial murderer who targets punk-rock fans, containing more than two dozen songs and masters. I also represent a publicly traded Internet content provider that is continually securing rights in all kinds of content, including music, videos, and computer games.

ELF: What is the process for securing copyright clearances?

SG: The process is basically the same for any kind of project. Research the songs, strategize with the client, negotiate the terms, and review or, in certain instances, prepare the licenses. In regard to the last item, music publishers and labels will usually provide their own licenses. However, occasionally a small label, publisher, or unsigned artist will request that you draft the license.

With respect to research, the kind of material to be cleared will dictate the nature of research to be performed. For instance, for musical compositions, the ASCAP and BMI databases are excellent sources for identifying the writers and music publishers. Each of these databases may have to be explored because each performing-rights organization provides information only on the songs in its own repertory. SESAC also administers certain songs that will not be included on the ASCAP or BMI sites. In addition, the Harry Fox Agency provides information concerning songs that it represents [see www.Songfile.com]. If your client is using musical recordings, the packaging and liner notes can supply information such as the name of the record company and artist and the release date. If the client is using excerpts of TV, movie, or video footage, someone should view the credits from the original TV program, movie, or music video to determine the TV service, studio, or record label that controls the copyright in the footage. The musical artists, actors, and other persons (or their estates) appearing in the footage may also have to be cleared depending on various circumstances, including whether there is a musical performance in the footage.

Once you have identified those who control rights in the material to be used, you are almost ready to approach the owners and negotiate terms. But, first you must strategize with the client. This conversation should include what rights will be required, that is, media, territory, duration; what you think it will cost; and what to propose to the licensors. This process is the real “art” of licensing. With knowledge of the applicable business practices and pricing, you can advise your client on the approximate amount of money he or she will have to pay for clearances; alert him or her to potential problems, such as material that may be too expensive and may have to be replaced; and develop a letter addressed to the owners accurately reflecting the precise rights that your client needs and proposing the lowest reasonable fee or royalty. The proposed payment, which obviously must be approved by the client, should be as low as possible and include a cogent explanation of the reasons that the owner should accept such a rate. At the same time, the proposal should not be so out of whack with standard business practices that the owner feels insulted.

The negotiation process involves a discussion with the copyright owner or its representative about the project, plus continual follow-up. Many of the projects on which I work will not make a great deal of money for any individual copyright owner. For that reason, many of these requests usually are low-priority items to the people from whom I am seeking permission. To do this work, therefore, a combination of courtesy and persistence is recommended.

Ultimately, if the licensor doesn’t accept your terms, you will have to negotiate compromises or even advise the client to drop the desired music. For instance, trying to get a hit song for an independent movie may not happen because the song owner may not like your client’s project, or may not wish to license it to anyone at any price, or may propose a fee well beyond your client’s ability to pay.

Finally, the owner will send the license, and it is my responsibility to make sure that the terms in the license exactly match the understanding between my client and the owner.

ELF: What issues arise specifically in the case of independent movies?

SG: From a clearance point of view, the most important difference between an independent film and a major studio production is that an independent producer usually has a lot less money to spend on anything, including music. Therefore, an independent filmmaker may have to curb his or her desire for securing “name-brand” talent. For instance, if your client wants to use “Satisfaction” under the opening credits, that is going to cost big bucks indeed, unless he or she happens to be a personal friend of Mick Jagger, and even then, don’t assume a huge discount.

Even if Mick Jagger is your client’s best friend, the people who administer the Stones’ copyrights may never have heard of your client. Music publishers and labels generally will adjust their rates downward based on the size of a movie’s budget. But, don’t expect to pay a nominal fee for a hit song just because your client’s budget is modest. Independent film producers should also understand that no matter how popular or recognizable the music in a movie is, people don’t watch movies to listen to music. A lawyer or clearance person can work with a savvy producer to create a great soundtrack without busting the budget. For instance, many music publishers, labels, and managers may be eager to place new songs written by “baby bands” that will be more reasonably priced than songs written by established acts. Another alternative is a “stock” music house. Generally, these firms can license both the song and the master, and therefore offer one-stop shopping as well as low prices. Finally, a composer or songwriter/producer can be hired to write music for specific scenes, or a complete score. There are many talented but hungry songwriters who would be happy to work on a client’s project for a credit and a reasonable fee.

Another way to work within a client’s budget is to set up the quote request as a series of options. Generally, a film festival license can be secured for a small fee because music publishers and labels recognize that festivals are not commercial enterprises. Additional rights such as theatrical, free TV, cable, and home video can be requested as options. Each one may be exercised by paying a specific fee. “Broad rights”—which include theatrical, TV, and home video—can be expensive. In case your client does not succeed in securing commercial theatrical distribution, these options will allow him or her to gain exposure for the movie (on cable TV, for instance) for a reasonable fee without paying for unnecessary rights.

ELF: Please describe the deal points (e.g., term, territory, royalties, or fees).

SG: The term will vary depending on the nature of the project. Of course, you always would like to secure perpetual rights for your client. But, that may not always be possible. For instance, in regard to a TV project, music publishers and labels will customarily limit the term to three to five years. A longer period will cost a lot more money. One way to accommodate future uses is, again, to set up options. The original term can be three years, with an option for another three. That way, your client doesn’t have to pay the additional fees unless he or she actually exploits the program for a longer term. Movie and TV producers will generally seek worldwide to maximize the audience for, and income from, their projects. Producers of album compilations, on the other hand, may wish to target the U.S. and Canada market only. So the scope of the territory provision will depend on the business interests of your client. Of course, the most important item in virtually all clearance licenses will be the money. Generally, flat fees will be required for TV and movies because that is the standard business practice. On the other hand, if you license a song or master for an album or a home video, you can expect to pay a penny rate per unit. How much you pay will depend primarily on the nature of the project. In regard to a compilation album, although there are exceptions, the owner of the track (generally a record company) will require a per-unit penny rate against an advance. If the penny rate is 10 cents, then an advance payment of $1,000 may be required, with a “rollover” payment of another $1,000 for sales exceeding 10,000, and additional rollover payments after that for each block of 10,000 units. The underlying song will be subject to a statutory mechanical license, currently 8 cents per unit [author’s note: the rate is now 9.21 cents], although it may be possible to secure reductions from such rate in certain circumstances (if a charitable purpose is involved, for example). Clearing music for a motion picture is a whole different ball game because there is no compulsory license for use of musical compositions in audiovisual works. The money demanded for even a never-quite-famous song can easily reach six figures for a movie to be distributed by a major studio. The owner of the master, usually the record company, probably will want at least an equal amount for the master recording.

ELF: What is meant by the phrase “Most Favored Nations?”

SG: Also referred to as “MFN,” this is a business practice that can affect all the terms of a license. It means that you cannot treat the owner or licensor of content less well than any other owner or licensor of content used in a similar manner. The practice is very common in regard to concert TV programs featuring a dozen full-length musical performances. No one who licenses any song for such a program wants to get less money or give more rights than any other licensor. MFN also plays a big role in audio compilation albums. It exists but is less common in regard to clearing music for movies, because in a movie each piece of music is often used in a different way. For instance, one song may be used over the credits, another song may be used for only a few moments in the background of a scene, and another song may be heard as a theme throughout the movie.

ELF: What are some reasons that a copyright clearance cannot be secured?

SG: Money is the most common reason. In regard to a movie, although some baby bands, composers, or songwriters may love the exposure that your client can create, established artists and bands may not need the exposure. They already have it. Therefore, the price can be prohibitively high. To give a recent example from my own practice, we could not get the price of a Bee Gees song down for an independent movie. So we replaced it with a new song composed by my client. Another problem is that the copyright owner, or his or her representative, may not wish to be associated with your client’s project for whatever reason. I once had a problem with getting permission to use “Macarena” for a Chipmunks video. Apparently, the composers did not relish the idea of their song being performed by cartoon characters.

ELF: What are the possible penalties if copyright clearances are not secured?

SG: Perhaps the worst-case scenario is an injunction, which is available as a remedy for copyright infringement. Your client’s project could be shut down completely. If it’s yanked out of distribution, not only are potential profits lost, but there also could be serious expenses incurred in retrieving the product from warehouses or retail outlets (as there would be if a DVD were involved). Of course, copyright owners have other remedies available to them, including statutory damages and attorney fees, if they properly registered their works. Therefore, the price of using a copyright without permission can be quite steep indeed.

ELF: What is the role of a music supervisor?

SG: A good music supervisor can identify music that could enhance your client’s project. But, due to budget constraints, experienced music supervisors make their living working with big studio productions. When they can be afforded, they have knowledge and contacts that could prove valuable, especially when it comes to finding new, cutting-edge music. The client can’t depend on lawyers or clearance people to be his or her “ears.” Depending on the budget, therefore, the client may have to be his or her own music supervisor, although a knowledgeable lawyer with good industry contacts can be very helpful.

ELF: What is involved in licensing music for Internet-based projects? How is it or other new technologies an emerging area for clearances?

SG: New technologies, including the Internet, have created new uses for all kinds of content. New business practices and forms of licensing have also emerged. The issues and rules can be quite complex, depending on what you are trying to do (e.g., Webcasting, streaming, or downloading) and the kind of content you are trying to clear (interactive games, music, etc.). Perhaps the fastest-growing areas of music licensing are interactive Webcasting and video on demand. Already, satellite systems and digital-cable modem services are offering content on demand. Concert specials accommodate themselves beautifully to these new technologies. Eventually, concert videos may also be available on the Web on an on-demand basis. Therefore, in addition to clearing a concert special for TV and home video, clearance people will find themselves clearing for on-demand uses. This will entail educating the licensor as to the new technologies and, in the case of Webcasting, assuring copyright owners that your client will protect the owners’ copyrights with encryption technologies to prevent piracy.

BILLBOARD COMMENTARY

I thought it would be appropriate to end this chapter with a commentary that I published in Billboard in November 2009. It explains the value of the work of some of my clients in using the documentary format to introduce music to new audiences, and is an appeal to the copyright owners to consider that value in negotiating rates for their music. (To read, please click the image below).

Interview with Jason Spiewak, President of Rock Ridge Marketing

2010-10-08T11:26:00.000-07:00

Jason Spiewak is the President of Rock Ridge Marketing, a leading new media marketing company. Jason's clients include Arista Records, Atlantic Records, Clear Channel/Live Nation, Barry Manilow, and Run DMC, among others. In the following interview Jason provides his insights on how to effectively market in the new music business, and how Rock Ridge operates as one of the leading music marketing firms in the country. This interview will be included in Part III of the upcoming 3rd edition of The Future of the Music Business, entitled "How to Succeed in the New Music Business."

SG: How did you first break into the music business?

JS: My path into the music business began on the artist side. I played piano and sang for BlueSuedeGroove for 5 years. We released 3 independent albums, and fought the same battles ever fought by every new band in America. It was trial by fire, though we eventually built a nice following and toured from Canada to Florida, and I’m proud to say that it was how I earned a living for 2+ years after graduating from Penn State.

I took the lessons I learned as an independent artist to an assistant job at Artemis Records. At Artemis I worked long hours and read every piece of paper I could get my hands on while working with artists like Warren Zevon, Steve Earle, Kurupt, Baha Men, and Kittie (whom I later signed at Rock Ridge Music). From Artemis I went to a tiny indie label called Studio E Records. That label moved very slowly, but I learned valuable lessons there about A&R and artist relations. My final big label stop was TVT Records, learning New Media, Internet Marketing and Search Engine Optimization while promoting huge urban records from Lil Jon, The Ying Yang Twins and Pitbull. When I started at TVT, if you googled “pitbull” you would only get information about the dog. Today if you google “pitbull” I’m proud to say that the artist’s website still comes up first.

I had the privilege of learning music marketing from some of the best minds in the business – Tom Derr, my partner at Rock Ridge, taught me how to focus on what counts. As he likes to say, “the truth is brief, bullshit is long-winded.” Michael Krumper schooled me on the retail marketplace, Daniel Glass helped me understand that music marketing doesn’t take place in an office, it takes place on the street and in the clubs, and Christina Zafiris showed me the power of leveraging content online and beyond. All of these lessons and many others continue to serve me at Rock Ridge Music.

In 2004, Tom Derr and I started Rock Ridge Music. At that time, competition was fierce at every turn as the music business faced its largest contraction in over 50 years. Retail shelf space was shrinking and it was a struggle to ship enough units to keep afloat. We had no choice but to make up for lack of physical sales by selling music online. It was an area where we could compete based on our knowledge of that market and our relationships. We delivered big-splash visibility for our humble roster at that time, and other labels took notice so we began to offer our online marketing services on a “by-project” basis. At first it was our friends who hired us, and we worked Better Than Ezra and Black Label Society for Artemis, and Sevendust for TVT. Then we started chasing the online business, taking meetings at all of the major labels and big indies. Were hired by J Records to work Barry Manilow, and the project was very successful which lead to Rock Ridge becoming Barry Manilow’s online marketing company for everything from his Vegas show to archival DVDs released by Rhino. We were also hired to create credible rock visibility for Daughtry on his first RCA Records release. Our client base today consists of over 30 labels and releases by over 100 different artists. Rock Ridge Music became an online marketing company because of our approach and our ability to execute.

Our approach to online marketing is a humble one. It’s impossible to know to know everything about the online world, it changes so rapidly. We try to focus on the music and we employ certain philosophies to market that music. We want to be on the leading edge of technology without being on the bleeding edge of technology. We are paying enough attention to hopefully identify a wave so that we can catch it and ride it.

Today, Rock Ridge Music offers services in 3 general areas: we’re a record company with distribution through ADA (Warner Music Group), an artist management company and a marketing services company. In terms of our marketing services, we specialize in New Media Marketing which generally includes our online marketing services, viral marketing and promotion, and digital distribution.

SG: So why should someone hire Rock Ridge Music to promote them online? How does Rock Ridge Music help "break" an artist?

JS: It’s an old business cliché, “if you don’t promote, nothing happens”. This may seem obvious, but many new artists fall into the trap of simply uploading their music online and waiting for people to discover how great they are. A song cannot be a hit if no one hears it, and if you don’t promote that song, no one will. People often compare under-promoted music to a tree falling in a forest, in that it doesn’t make a sound. I would say that it’s even more tragic, because the “online forest” is so crowded that a tree wouldn’t even have an opportunity to hit the ground. There are simply too many other trees surrounding it.

Not only are there a ton of artists out there, but a ton of websites as well! We create custom bulletins for every project, and reach out on an individual basis to the top music and lifestyle sites on the web. We are always learning about new sites, creative ways to promote, applications that help artists move ahead.

Rock Ridge Music helps break an artist by creating visibility for their art while navigating the massive online music world.

SG: Do you advise on website development, and how important is the artist's website?

JS: Simple is the key, and we are hired to develop websites often. In most cases, an artist website should be an eCommerce hub and a simple funnel for information – one place to offer fans things to purchase, and to provide information and to incorporate all of the dynamic content available for that artist. For example, if you’re a touring act with great live shows, your website should provide detailed information regarding your touring, links to buy tickets, and video clips. If you’re an act with a radio hit, that song should load as soon as your website does – make that immediate connection for people so they don’t have to do any guess work. If you’re a brilliant writer, include a blog feature and share that side of you. And just as important – don’t have anything on your website that is not active and reflective of you. Stale content is a massive turn-off for fans. An artist should consider their audience, and provide a web environment that is simple and makes sense.

SG: How important is Facebook? Is MySpace dead? How relevant is Twitter? What about YouTube -- how do you use it? What other social networking sites do you use?

JS: The incredible thing about social media is how rapidly it changes. By the time this volume is printed, chances are that my company’s specific methodology to deal with social media will be totally different than it is today. So, I’m going to focus on my ideas in general terms.

Effectively marketing music via social networks involves three parties – the marketer, the advocate and the consumer. I’ll give these folks names in order to hopefully breathe some life into my example – Marty the Marketer, Abby the Advocate, and Colby the Consumer.

So, let’s say that Marty is promoting a new single from Sister Hazel, and goes onto the band’s Twitter profile and posts a message promoting the song, including a link to preview the track and pre-order it on iTunes. The message is seen by Sister Hazel fan Abby, who then re-posts it on her profile. Abby’s Twitter account is connected to her Facebook page, so her good friend Colby sees the message on Facebook, and knows that Abby has really good taste in music, so he decides to click the link to preview the track. The links reach Colby directly, which is why it’s very important to offer media-rich marketing messages online. It’s this type of delivery that now creates a credible impression with the ability for the consumer to react.

In order for marketing messages to be effective in breaking through the clutter online, it’s important that the messages be worded cleanly and contain either an offer or an idea.

An offer is a specific value proposition for the consumer. A discount. Complementary or exclusive music (preferably both). First access to concert tickets. To merchandise. Some specific offer that is communicated simply and clearly. It’s ok to include a “hoop” for the consumer to jump through, as long as the hoop is simple. An email in exchange for media. A tweet in exchange for a coupon. But the offer must be there and the value must be real.

If you don’t have an offer to make, it’s important to offer the consumer an idea. “Cool” is the modus operandi for most social networkers. The definition of cool is obviously broad – something may be cool to a young mother who is in a network with other young mothers. Something else may be cool to a dude who loves dick and fart jokes. Something else may appeal to senior citizens. The point is that an idea online must have a targeted audience. If you’re going for broad appeal, comedy and love and two great universal vehicles. All that said, the idea of trying to be all things to all people is a lost art in social media. “Cool” is essential to having a viral video success story, and we have learned a lot about this world having been behind several YouTube video success stories including the popular Psychostick video for “Beer!!!” as well as having served as the record label for Obama Girl’s sensational “I’ve Got A Crush On Obama”.

Offers and ideas are the key to successful social media marketing. One mistake that people often make online is recruiting a “street team” or “online army” to promote on their behalf. In my view, asking your fans to call themselves “street teamer” is a tax on your credibility. All you have is your unique voice online – this goes for artists, as well as Rock Ridge Music as a company. When someone signs up for your mailing list or opts in to your social network, they are automatically part of your inner circle. Treat those people with respect and do not ask them to do for you. Only offer them things they can do for themselves while loving your art.

SG: How important is the quality of the music, or is that genre-specific?

JS: The quality of the music is extraordinarily important. One goal of an effective online marketing campaign is motivating fans to share music with other fans, and if you’re promoting great music it is much more likely that fans will want to share it with others. Genre lines tend to blur online, and that idea becomes less important. I think about the diverse array of music on my computer – 30% of it may be rock music, 20% of it may be pop songs, 20% of it may be urban music and so on – but the songs are all songs I want to hear, regardless of their genre. Greatness is the key. If it’s not great, fans will tune it out and find something else that speaks to them.

SG: How important is the look and style of the artist?

JS: Consistency and authenticity are the key elements here. Artists should pick a direction and be consistent with that direction. Find a look that feels comfortable, have some flattering pictures or imaging created to support that look, and use that look across all of your web properties.

SG: Do you suggest working with a separate PR agency or publicist? If so what do you do that is different then what they do?

JS: It depends what your goals are for a given project. My company specializes in creating visibility on the Internet and driving traffic to a product online, and these efforts are meant to complement a traditional PR campaign. In my opinion, hiring a PR company is a good idea if your project contains a strong non-Internet component such as a large tour, or perhaps a compelling element like a celebrity tie-in. A great PR company can be an excellent complement to a Rock Ridge online campaign – for example, if the PR company is able to secure a large television opportunity, Rock Ridge can then tell that story online and grow interest in the artist before, during, and after the TV appearance.

SG: Do you do "real" world marketing too or just work the “virtual” world?

JS: In my view, it is all “real world” marketing. The online world is a reflection of what is happening offline. If something is interesting and compelling offline, it will likely have some form of online component. The reverse can also be true. Online marketing, in its best form, is reflective of some effort that is taking place offline as well.

SG: Which world is more important now, “real” or “virtual”?

JS: Both worlds are important, neither more important than the other. The physical world is extremely competitive, and there is a perception that it is easier to compete online. That just isn’t true. There are so many new artists making music and uploading that music to the internet. The goal is to break through all of that clutter, the same way a new band must emerge from obscurity if they perform at local bars and clubs.

SG: What can the artist do to help himself even if he hires you?

JS: I am going to gear my answer toward developing artists who have not broken through from obscurity to the mainstream, and say that the artist must continue to do everything they can to help themselves. It takes a solid team to break an artist, and my company can be very helpful in that process. However, the artist must continue to work and be involved. We like to work with artists who work as hard as we do because those are the artists who often find success.

uStream - a Useful Webcasting and Social Networking Tool for Artists

2010-08-06T14:47:00.000-07:00

An exciting new way to engage online audiences is to stream live video of yourself on uStream. It is a free online service where you can create your own live video broadcast show, with a social networking follow-follower aspect similar to Twitter. uStream was founded in March 2007 and has since gained over 2,000,000 registered users, who generate 1,500,000+ hours of live streamed content per month.

All you need to use uStream is a computer, a webcam and a solid Internet connection - once you sign up for an account on uStream, you can create a new broadcast show for yourself, and instantly begin streaming the video from your webcam to your own uStream video player for anyone online to view. You can also embed the live video player into your own website, allowing for fans to visit your own website and watch streaming footage of you or your band.

Curious to learn more about uStream, I created an account for myself. I realized it would be useful for my own podcast – I could do live video broadcasting of the interviews I conduct – in addition to broadcasting various lectures and seminars I give around New York City. On the site, I discovered that the broadcasts were organized by category – so, I selected the ‘music’ category, and the first video to show up in the search results was a live broadcast of Bowwow behind his desk and chatting on a speakerphone with fans about his recent movie. The uStream page reported an active 650 viewers. In addition, a live chat application directly adjacent to the video player displayed comments from several Bowwow fans expressing their excitement about watching him live, as well as commenting on the conversation he was carrying on with fans on speakerphone. I then understood how exciting this new technology is – for now it is possible to go even further with video than YouTube, and create your own internet live video broadcasts – absolutely free. This site may prove immensely useful for artists and bands to conduct live streams of their performances, or even of situations like interviews, being in the studio, rehearsing, etc. – to create another way to intimately connect with new audiences.

Furthermore, uStream has a Facebook application service, whereby uStream creates a custom live video stream, live chat service and banners that all reside on your Facebook Page. This is incredibly useful for musicians, actors and public personalities to host live broadcasts and activate fans on Facebook. uStream selects partners for uStream-Facebook integrations at its own discretion – so, curious to see if I might be able to get uStream for my own Page, I sent in an application to sign up myself. I thought it might be useful to stream upcoming interviews, lectures and seminars on my Facebook Page – when I find out whether my application has been accepted, I will let everyone know! Seeing that the application might only be available to music celebrities (such as Wynton Marsalis, who yesterday gave a live broadcast from France using uStream on Facebook), I won’t keep my fingers crossed too tightly, but I’m curious to find out the details of this service!

Have any of you ever used uStream, and if so, for what purpose? Do you think this is a useful tool for musicians and bands to use? As always, I appreciate your comments and feedback.

Why ASCAP Dislikes Creative Commons

2010-07-28T09:31:00.000-07:00

The American Society of Composers, Authors and Publishers (ASCAP) recently sent a fundraising letter (click here to read) to its members calling on them to fight organizations like Creative Commons and other supporters of the “free culture movement,” claiming that they work to undermine copyright.

Creative Commons, which was founded by Professor Lawrence Lessig, offers authors, including artists and songwriters, a choice of licenses that they can append to their works. Under a Creative Commons license, a composer, for example, can choose to allow others to use her compositions in new songs, such as a remix, in exchange for credit, and/or compensation if the remix is released commercially. Under another type of CC license, a songwriter could waive his right to compensation, including public performance, entirely.

ASCAP’s letter states that organizations such as Creative Commons “are mobilizing to promote ‘Copyleft’ in order to undermine ‘Copyright,’” and that “these groups simply do not want to pay for the use of our music…[t]heir mission is to spread the word that our music should be free.”
Creative Commons responded to this letter in the news section of their website dated June 30, 2010 (click here to read). The Creative Commons response stated:

CC licenses are legal tools that creators can use to offer certain usage rights to the public, while reserving other rights. Without copyright, these tools don’t work. Artists and record labels that want to make their music available to the public for certain uses, like noncommercial sharing or remixing, should consider using CC licenses. Artists and labels that want to reserve all of their copyright rights should absolutely not use CC licenses.

It seems to me that ASCAP’s real concern is that if enough writers waive their right to receive royalties, this could impact their bottom line. ASCAP, together with sister performing rights organizations, BMI and SESAC, currently represent almost all commercially popular songs. If, for example, 10% of songs became subject to a gratis license under Creative Commons, this would decrease the value of a blanket license from the PROs including ASCAP, which could drive their license fees down.

Is Myspace Dead?

2010-07-19T13:47:00.000-07:00

Launched in August 2003, MySpace seemed to be the destination for music-related social networking. With both regular user and music accounts, fans and musicians alike could create pages to interact with each other, and musicians could easily friend other musicians, thus creating virtual communities based on mutual genres or location. In June 2006 it was ranked the most popular social networking site in the United States, but in recent years other sites have risen far past MySpace. In April 2008, Facebook came out on top as the world’s premier social network, and as other sites like Twitter and YouTube soar in popularity, MySpace seems to be stopping dead in its tracks. The pages are inundated with advertisements and the interface is clunky (not to mention the music player crushes mp3s to 96 kbps, a dreadfully low bit rate that often severely distorts the original sound). With the panoply of options for sharing one’s music online, is MySpace really necessary anymore? While some would argue that it’s still a useful tool for keeping in touch – and it’s never a bad idea to have all your bases covered – other sites exist that may be able to promote and in some cases, sell your music, better.

Why spend the time using a social network where YOU don't come first? Here is an example of unrelated, unwanted advertisements AT THE TOP of my page, making me look as if I am sponsored by Contact lenses and Cheerios. Not to mention it is the FIRST thing you see when you visit my page. How does this advertisement adversely position me? Suppose it were a weight loss program, a medicine, or something else inappropriate to my image? Conclusion: Myspace users are not Myspace's first priority, and thus it may not be the most effective way of communicating with your audience. The better choice would be a social network that caters to your image and art.

Here is another example of an advertisement MOST artists would NOT want next to their music video!

3rd Edition of The Future Of The Music Business

2010-07-06T11:58:00.000-07:00

Hal Leonard, my publisher, recently requested a 3rd edition of The Future of the Music Business. During the course of writing the new edition, I would like to blog about various topics and issues to be addressed in the book. I may post sections of new material and ask for comments, or raise questions, or analyze cases and ask your opinion. Any thoughts, comments, questions and constructive criticism are welcome. I urge you to share your ideas with me and whoever else may read the blog. You are even welcome to directly communicate with other readers.

The following is an outline for Part III of the book titled “How to Succeed in the New Music Business.” I am looking for comments on the overall approach. Did I leave anything important out? Also, notice the interviews that I list in Chapter 14. I already conducted an interview with Terry McBride. But the others (Iovine and Medina) are a wish list, and if anyone can help me get in touch with them or other executive “stars” in the business, please let me know! All the best, and I look forward to hearing from you.

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Part III: How to Succeed in the New Music Business

Chapters 11-12 of this Part present strategies to harness the power of the Internet to promote, market and sell your music. These chapters are primarily geared to guide artists who want to make it in the indie world, and make enough money to leave their day gig.

Chapters 13-14 discuss more traditional models of succeeding which still prevail in the pop, R&B and hip hop worlds, because no matter how adept you are in using social networks and how cool your website is, you are probably never going to become the next Usher, Beyoncé, or Coldplay without a huge marketing budget. In Part B we explore how to get your hands on the money.

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Chapter 11: Social Networking and DIY Success

What is social networking? The essentials of creating online presence

Is MySpace dead? Other and better sites to utilize: Soundcloud, Bandcamp & Last-FM

YouTube, or, how to go viral: the Justin Bieber story, CSS and iPod commercial success, OK Go becomes a household name from making a $20 video, and other stories of viral success

Staying in touch: Facebook and Twitter

Blogs: What are blogs? Who are bloggers? Hypem and other blog aggregators, how to attract bloggers to your music, how to market your online presence in a DIY fashion, what to send and what to say (mp3s, mixtapes, videos, etc.), how to develop relationships with bloggers

Your Website: Why your own website is essential in crafting your online presence, methods to easily create your own website, content – what to include on your website and why

Ways to Sell Your Music Online: CDBaby, TuneCore, BigCartel, DIY - Create a PayPal account and keep almost all the $

Other ways to connect with fans online

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Chapter 12: Insights by on-line marketing guru Jason Speivak, President of
marketing company, Rockridge Music (clients include Twisted Sister,
Run DMC, RCA Records, Arista, and Atlantic)

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Chapter 13: How to Get the Big Money & Mainstream Success: Labels, Investors and New Business Models

Big Label Deals: Who gets them & how, and how many are left?

Typical Big Label Deals: Then (Big Advances for Records only), and Now (A Bit of Cash for an EP in exchange for 20% of anything you make during your career)

Are Indies any better?

How Not To Be Entirely Screwed?

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Chapter 14. Insights from Music Industry Professionals

Terry McBride of Nettwerk Music, original home of Coldplay, Avril Levigne & Sarah McLachlan, and creator of Polyphonic, a new investment business model founded in partnership with the MAMA Group (Franz Ferdinand, Kaiser Chiefs) and ATC (Radiohead)will invest directly into artist businesses, offering an alternative to the traditional label-driven investment model of the music industry.

Benny Medina, best known for managing actress/singer/dancer Jennifer Lopez. Other clients were also managed by Medina including Tyra Banks, whom Medina helped to create a largely successful television and fashion career. Medina also managed Sean "P. Diddy" Combs and aided in the launch of the Sean John apparel and fragrance empire. He has also managed singer Mariah Carey, Brandy and R&B singer Usher.

Bruce Lundvall, President Blue Note Records, a division of EMI. Lundvall signed a wide array of artists, including Willie Nelson, Herbie Hancock, Dexter Gordon, James Taylor, Stan Getz, Wynton Marsalis, Dianne Reeves, Richard Marx, Natalie Cole, Cassandra Wilson, Anita Baker and Norah Jones. In addition to Blue Note, he heads Angel Records (classical), and Manhattan Records (adult pop).

Jimmy Iovine began his career as a recording engineer in the mid-1970s, working with John Lennon and Bruce Springsteen. He went on to produce albums for U2 (Rattle & Hum), Tom Petty & The Heartbreakers, Stevie Nicks, Simple Minds, Dire Straits and Patti Smith. Iovine co-founded Interscope Records in 1990. It went on to become Interscope-Geffen-A&M following Universal's acquisition of PolyGram when Iovine was named co-chairman; in 2001, he became chairman, now home of such artists as Eminem, No Doubt and Black Eyed Peas.