The Pressure Mounts On Terrestrial Radio

by Evan Kramer : February 2011

Imagine Joe Smith as the head of a small chain of radio stations somewhere in the US’s mid-west region. Despite the downsizing of his staff, dwindling ad revenue, and the growing uniformity of the station’s playlists, Joe could at least end the year on a positive note. He survived running a small terrestrial broadcast operation, which in and of itself, was quite an accomplishment. Later in the day, however, a stern record industry lawyer of the Recording Industry Association of America walks into his office and tells him that he would like to collect a first-time-ever royalty on the use of his playlists. The amount asked, Joe estimates, is about one-tenth of his existing revenues—and he barely broke even! Joe becomes depressed. While the lawyer meticulously walks him through the legality of the request, Joe can only think about being solvent. In fact, Joe Smith’s plight may not be unlike that of a thousand other small broadcasters who, on February 4th 2009, learned that a revision of the Performance Rights Act was being proposed to Congress and the new law asked for such royalties.

History of the Performance Rights Act

When it comes to musical works, there are two classes of expression that are governed by copyright law. The first, the rights to a composition, refers to the actual musical work (lyrics and melody; the second, the sound recording right, addresses the use of master recordings (the recorded product). Composition rights are typically held by the original composer or the work’s publisher, while sound recording rights are generally controlled by the performing artist or the record label that distributes the recording. Since the dawn of the terrestrial radio industry, broadcasters have paid royalties to composers and publishers for the use of their copyrighted compositions. In the US, these royalties have been collected and distributed to composers and publishers through three performance rights organizations: Broadcast Music Inc. (BMI); the American Society of Composers, Authors, and Publishers (ASCAP); and the Society for European Stage Authors and Composers (SESAC)—a misnomer that dates back to the 1930s.

If you’re wondering why record labels and performing artists, and their sound recordings, have been left out of the money pool, it is for good reason. The relationship that labels and artists have had with terrestrial radio has been immensely beneficial for both parties over time, despite the fact that no money ever changes hands. On the one hand, broadcasters enjoy the free, unlimited use of sound recordings, which draws in listeners and attracts advertisement revenue. But on the other hand, labels and artists reap the intangible benefit of free promotion to the mass consumer audience–a crucial element in popularizing new releases. A recent study for the National Association of Broadcasters, reveals that free radio airplay generates somewhere between $1.5 billion to $2.4 billion in annual music sales for the major record labels. In fact, labels have held radio to be so valuable over the years that, before they were penalized, they likely spent millions of dollars bribing disc jockeys to move their catalogues to the top of their playlists in a practice known as ‘payola’.

Over the past forty years, Congress has viewed this symbiotic relationship to be “mutually beneficial” and refused numerous attempts to impose royalty payments on sound recordings–first in 1971,when it granted copyright protection for sound recordings, and then in 1976 when revisions were made to the Copyright Act. The Digital Millenium Act of 1998 recognized a Sound Recording royalty for subscription and non-subscription services over the Internet, but no reference was made about payment from broadcasts via traditional airwaves. The RIAA now argues that technological change requires that a new exception to encompass terrestrial radio be written into the Performance Rights Act.

Consequences

Enactment of the Performance Rights Act could stand to drastically upset the balance that’s been established between labels and broadcasters. The proposal would create a compulsory license that would require radio stations to pay set royalties to labels for the use of each sound recording that’s broadcasted. This would create an entirely new set of expenses (in addition to royalties currently being paid for compositions) on an already beleaguered terrestrial radio industry.

With the new legislation, small-range independent radio stations would be forced to pay a flat fee that would vary in size depending on situational factors, but would be capped at a maximum of $5,000.00 per year. While this may seem manageable, larger stations will not be getting off as easily: stations above a specified annual revenue mark will be required to pay a percentage of their total earnings as royalty compensation for the use of the sound recordings. Rates have not yet been determined, but royalty fees for satellite radio are currently hovering around 7.5% with the expectation of an 8% rise by next year.

Considering the current state of the economy, and the multitude of digital, streaming, and satellite competitors that are beginning to absorb market share, the Performance Act really could not be coming at a worse time for terrestrial radio. On average, local stations have watched their ad revenues slip between 10% to 50%, depending on the market. Moreover, the radio industry as a whole has experienced an 18% decline since 2009. This tightening of receipts has already forced well over three-hundred radio stations nation-wide off the airwaves.

While the growing loss of these stations is certainly a concern, broadcasters also argue that the diversity of their programming will be compromised. Fewer will fight for the same pool of listeners, and indie, experimental, and locally produced music will be sacrificed. It is possible too that many stations might abandon music all together in favor of the popular talk-radio format. Stations who could afford the levy would re-stream popular radio shows that have proven ratings and the tried-and-true top 40 would be the most rotated material.

Terrestrial Radio Today

Nevertheless, the radio business generally appeared to be doing quite well in the last quarter of 2010. With industry giants like Clear Channel and CBS venturing further into digital territory, listenership seems to currently on the rise for the first time in years. This is music to the ears of the recording industry.

Yet, the devil may lie elsewhere. According to Arbitron & Edison research, an estimated 43 million Americans (one in six) listen to Internet radio on a weekly basis. Broadcasters now say that streaming accounts for 10%-15% of total listening for some stations with 10%-25% of that occurring on mobile devices. Given these trends, CBS Radio relaunched its radio.com service in July of last year. In partnership with last.fm, the platform creates a Pandora-esque experience for listeners, allowing them to program their own non-interactive channels based solely on their own individual musical preferences. Clear Channel also added some additional web-only channels to its platform last year, including artist branded pages for groups like Linkin Park and Nikki Sixx. Many of these new channels are offered commercial-free with a paid subscription service.

Riding on advancements like these, digital radio has seen a year-on-year ad revenue spike of 22% according to the Radio Advertising Bureau. In an estimate made by SNL Kagan, receipts are projected to double by 2015 from $552m to $1 billion. These uplifting figures aren’t just limited to digital radio either; terrestrial radio enjoyed a 25% gain last September compared with the same month period in the year prior.

Yet it is remarkable that Pandora still outperforms much of the current radio market. In the past year, its listenership expanded a staggering 140% thanks to its user friendly, total programmability model. Moreover, the technological disparity between streaming and terrestrial radio is made apparent in the same Arbitron & Edison survey quoted already. Out of the core music age bracket (12-34), Pandora out performed terrestrial radio listenership by more than double (13% compared with 6%) and 8 out of 10 (78%) respondents said that terrestrial radio was simply too difficult to personalize (they must have assumed they could!). Finally, Pandora has signed a number of very lucrative deals with Ford Motor Company and Mercedes-Benz to include its service as an added feature in their new lines of automobiles. With such a formidable foe on the rise, terrestrial radio and digital streaming services alike must compete to hold market share.

The Future of Radio

On the whole, it’s interesting to note that since its debut in the early 1900’s, terrestrial radio has gone relatively unchanged from its original format. More than hundred years later, live or recorded programming is still being transmitted, and the listener hears what is chosen for her. Instead, the last twenty years have witnessed much change. Consumers have been conditioned to expect instant access and total programmability with zero interruption all the time. To illustrate, XM Radio can ensure crystal clear and commercial free reception across all States. Terrestrial radio is finding it harder to compete.

Satellite Radio and Pandora are slowly phasing terrestrial radio out of cars, offices spaces and shopping centers. last.fm and other services like MOG are now offering streaming radio channels that are fully customizable–down to the individual artist and the percentage of deviation from that particular style. And as with almost everything else on the Internet, social networking is fully integrated and has opened the new paradigm of musical discovery and online radio listening.

But the concept of terrestrial radio will be alive for a while. The need for hands-free, playlist-oriented programming is still very real, but terrestrial radio must compete with many other options and the medium has to be perceived as more flexible.

In the meantime, the dispute about the new terms of the Performance Rights Act continues into its second year, with little movement since the latter part of 2010 and no clear outcome. If the fortunes of terrestrial radio improve, the broadcast industry will likely come under more pressure. After all, the Digital Millenium Act of 1998 brought the US in line with European legislation that recognized that record labels could exercise their sound recording right and collect from broadcasters. Back then, however, the US recognized the sound recording right more narrowly and allowed the labels only to collect from webcasters (i.e. internet radio and others). Record labels, no doubt, have more of a chance to win a more fundamental revision of the Performance Rights Act with a better economy.

By Evan Kramer

Holding Out For Vinyl

by Bernard Mantel : Business

The U.S. Copyright Act requires that in order for a work to be entitled to copyright protection, it must be “fixed in a tangible medium of expression.”¹ With the rise of the digital age, one might argue that the majority of musical works that are consumed today are not quite “tangible” in the general sense of the word because they are embodied in computer files or streamed via websites.  Today’s most popular form of music cannot be held, flipped through, opened, or closed.  A digital download cannot be visually admired or showcased in a collection on a bookcase.  Recent statistics reflect that a group of unique consumers are gravitating towards purchasing music, in what some might call, an antiquated and primitive medium – vinyl records.

Demand Growth

Global Internet piracy has changed the recorded music industry.²  As overall sales continue to decline, most record companies have slowly begun to revise their sales and marketing strategies in an effort to adapt to the rise of freely distributed digital music.³  Despite a major plunge in global CD sales, global digital sales increased in 2011 by eight percent.⁴  This has led to speculation that conventional modes of retail are no longer profitable in the music industry.⁵  However, recent market statistics have revealed that vinyl record sales have surprisingly surged over the past five years in both the US and the UK.⁶  Moreover, this sales boom could only be the tip of the iceberg, as major distributors such as Best Buy and Wal-Mart have only recently begun to carry vinyl.⁷  In addition, vinyl’s recent top sellers have ranged across a variety of artists from different genres and time periods, including Radiohead, The Beatles, Arcade Fire, Vampire Weekend, Beady Eye, Pink Floyd, Metallica, The National, and Pavement.⁸  This suggests that a younger demographic of high school and college students who grew up in the digital age are choosing to buy vinyl records.

While it is true that vinyl sales represent a small fraction of the overall global marketplace,⁹ these puzzling numbers raise an important implication about today’s ever-changing music industry. What is it about vinyl records that appeals to consumers who are now accustomed to spending less time, energy, and money by downloading music? There may still be profit to gain by selling music as a fixed and tangible medium.

A recent study at BYU University reveals a growing movement among the student body that has gravitated towards vinyl records.¹⁰  In a series of interviews, students revealed that there are some qualities about vinyl records that simply cannot be enjoyed when downloading music.¹¹  One student said that listening to a vinyl LP provides a richer listening experience than listening to mp3s: “With the digital medium, it’s not so much an experience thing as it is a convenience thing.”¹²  Another local musician added that vinyl, “forces someone to sit down and listen rather than have a soundtrack going on while they’re doing other stuff… it creates more value.”¹³  Finally, a record store owner simply stated, “everyone knows that vinyl sounds better.”¹⁴ While these individuals do not represent all music consumers, many believe that the only redeeming characteristic of the digital market is the convenience and ease with which music can be obtained.

Further, these individuals are still willing to pay for music if doing so will provide them with a superior listening experience.  This suggests that if record companies could provide a superior listening experience to that of an mp3 from Amazon, iTunes, or The Pirate Bay, a base of consumers who truly value the experience of listening to music would likely pay for it.  The interviews above reflect that selling a product that delivers a higher sound quality and level of interactivity could sway at least some consumers into legally obtaining and paying for their music.

Similarly, an LP’s album artwork might be more enjoyable in a tangible form than in a digital one.  Last year, the vinyl edition of Radiohead’s “The King of Limbs” was advertised as the world’s first newspaper album.  The package featured two clear plastic 45 records, a series of artistic inserts, a copy of the CD, and a full-length newspaper filled with lyrics, additional artwork, and various writing pieces.¹⁵  Needless to say, the artwork gave consumers an artistic experience that had never before been coupled with the purchase of a record.  These additions were only available to those who purchased a vinyl copy of the album, evoking a sense of exclusivity for those who bought it.¹⁶  Those who paid the extra money for a vinyl copy of the album in the end received a substantial addition that others did not get to experience.  Not surprisingly, “The King of Limbs” was the top grossing vinyl record of 2011.¹⁷  This demonstrates how artwork can be used as a powerful marketing tool in luring consumers to pay for music.  It also suggests that superior and exclusive benefits can be used as a powerful marketing tool to sell hard copies of albums.

Marketing Opportunities

One of vinyl’s major shortcomings in the modern era is its lack of portability.  Consumers have grown used to having all of their music on the go with portable mp3 players, phones, tablets, and the like.  In an effort to work around this inherent deficiency, Universal Records has launched a new initiative called “Back to Black,” which aims to provide consumers with the best of both vinyl and digital music.¹⁸  Universal now inserts a slip of paper with a unique code in every vinyl record that it presses.  Consumers who buy the record redeem their code online and receive a free digital copy of the album, allowing them to enjoy the experience of having the album on vinyl without sacrificing the portability of modern music.¹⁹  In addition, Universal has created a unique brand to promote this effort, advertising the Back to Black campaign with the slogan, “Vinyl is Back.”²⁰  The success of the campaign, as reflected in the recent surge of vinyl sales, demonstrates that providing consumers with this kind of validation and flexibility is a successful adaptation to the digital evolution of recorded music without completely abandoning the conventional model of selling it.  As a result, combining the convenience of the mp3 with a hard copy of an album could be another step in the right direction in reviving the conventional music market.

While these tweaked marketing methods might not be the quick fix to the music industry’s declining sales, vinyl’s re-emergence suggests that there are ways for record companies to reclaim a portion of their lost market. It appears that many music fans want tangible objects of art, an impression of exclusivity and better sound. Even if vinyl’s resurrection is gradual, it produced positive sales over the past five years. The recent successes of creative marketing strategies that provide consumers with enriched and interactive experiences demonstrates that the traditional method of selling music is not quite dead – it just needs a facelift.

By Bernard Mantel

¹ 17 U.S.C. § 102 (2011).

² See David Goldman, Music’s Lost Decade: Sales Cut in Half, CNNMoney (Feb. 3, 2010), http://money.cnn.com/2010/02/02/news/companies/napster_music_industry/; see also Piracy Impact Studies, RIAA, http://www.riaa.com/keystatistics.php?content_selector=research-report-journal-academic (last visited Mar. 7, 2012).

³ See, e.g., Paul McGinness, How to Save the Music Business, Rolling Stone, Sept. 30, 2010, at 43; see also Nico Maddox, Record Companies Rethink Strategies as Music Sales Fall, Yahoo! Voices (Mar. 4, 2011), http://voices.yahoo.com/record-companies-rethink-strategies-7983132.html?cat=33.

⁴ Mark Sweney, Digital sales boost ailing music industry, The Guardian (Jan. 23, 2012),http://www.guardian.co.uk/business/2012/jan/23/digital-sales-boost-music-industry.

⁵ See, e.g., CD-format to be abandoned by major labels by the end of 2012, Side-Line Music Mag. (Oct. 23, 2011), http://www.side-line.com/news_comments.php?id=46980_0_2_0_C.

⁶ Digital Music News, Vinyl Projected to Grow More Than 25 Percent In 2011…, (May 17, 2011), http://www.digitalmusicnews.com/stories/051711vinyl.

⁷ Digital Music News, Uh-Oh: Are Vinyl Sales Slowing Down, Already?, (Dec. 1, 2011), http://digitalmusicnews.com/permalink/2011/111201vinyl.

⁸ Matthew Perpetua, Vinyl Sales Increase Despite Industry Slump, Rolling Stone (Jan. 6, 2011), http://www.rollingstone.com/music/news/vinyl-sales-increase-despite-industry-slump-20110106.

⁹ Digital Music News, Vinyl Sales Already Up 41% On the Year…, (Jul. 8, 2011), http://www.digitalmusicnews.com/stories/070811vinyl.

¹⁰ Charles Beacham, With vinyl’s resurgence, what goes around comes around, The Universe, (Feb. 23, 2012), http://universe.byu.edu/index.php/2012/02/23/with-vinyls-resurgence-what-goes-around-comes-around.

¹¹ Id.

¹² Id.

¹³ Id.

¹⁴ Id.

¹⁵ Caleb Garling, Radiohead Readies King of Limbs, the ‘World’s First Newspaper Album’, Wired (Feb 14, 2011), http://www.wired.com/underwire/2011/02/radiohead-king-of-limbs/.

¹⁶ Id.

¹⁷ Richard Smirke, Radiohead Drive 55% Rise in U.K. Vinyl Sales, Billboard (Jul. 27, 2011), http://www.billboard.biz/bbbiz/industry/retail/radiohead-drive-55-rise-in-u-k-vinyl-sales-1005295802.story.

¹⁸ Back to Black Vinyl, http://www.backtoblackvinyl.com/ (last visited, Mar. 7, 2012)

¹⁹ Id.

²⁰ Id.

Preparing Artists for Stardom: Angelo Ellerbee

by Aaron Gottlieb

Angelo Ellerbee is the founder and CEO of Double XXposure Media Relations, a full service public relations, marketing, and artist development firm.  Ellerbee’s client roster is deep and diverse. He has worked with some of the top artists in the industry including the likes of Mary J. Blige, Alicia Keys, Michael Jackson, Ginuwine, Roberta Flack, Dionne Warwick, and Nina Simone.  Mr. Ellerbee is a staunch believer in the notion that head-to-toe artist development is what is needed most to ensure longevity in an ever-evolving music industry.

Can we talk about the way you work for artists?

AE: I was raised on my mother’s teachings.  I grew up on faith, believing in God, and struggling against resistance.  She said to me, “Never ever take resistance and live with it—rebuke it.  Challenge yourself to do better and get more.”  My mother taught my siblings and I survival skills.  So, I teach survival skills to my artists because I think that people need to know how to take care of themselves.  Self-preservation is key, especially in this industry.  I stand very firmly on the foundation that she gave me, and in my line of work I use everything she taught me.

I understand that you have a background in fashion.  How have you transformed that into being a manager and publicist for over 20 years?

AE: I am still figuring that out.  I started as a model relatively young in Paris at 16 and did that for two and a half years.  I wanted a better life.  My French was horrible, and still to this day I can barely speak one word of it.  Man, I screwed up so many jobs at first.  I would get lost and was always late because of it.  When I left, my portfolio was not as good as it could have been.  I rushed it because I wanted to go at the same time that my friends were.  I ended up working in a soul food restaurant making fried chicken and collard greens for a portion of my first year.  I wasn’t getting any jobs.  One day a photographer came in to the restaurant, we started talking, and I explained to him that I was a model. I showed him my book and he agreed that my portfolio was awful.  He shot all new pictures of me, and I worked constantly for two years after that.  I came back and started to sketch and design.  I graduated from the Fashion Institute of Technology and had some of my stuff sold in nicer department stores like Lord and Taylor—I made around 300 prom gowns.  I was doing a lot of one of-a-kind pieces, too.  From that, I had the nerve to shop my designs around to potential retailers.

I was blessed with the opportunity of meeting James Mtume.  Mtume is a four-time Grammy award winner who has written songs like “Killing Me Softly”, “I Never Knew Love Like This Before”, and “Juicy Fruit”.  His wife is a fellow designer and used to come to my fashion shows.  She approached me once at a show and asked me about doing some collaborative work with her for her husband’s latest album cover.  She and I became close friends instantly—like family—and I would help her shop her designs around like I used to do with mine.  She would talk to her husband about me.  One day he came to me and said, “If you can do all this stuff for my wife, you should come work for me.  I want you to manage me.”  I designed clothes.  I didn’t have any clue why he wanted me, but I agreed.  So, I started working for the Mtume’s.  I must’ve gone to six meetings at CBS records not knowing what the hell I was talking about, and every time they would call him and ask, “Are you sure this is the guy you want to manage you?”  Eventually, he told me “Angelo, when you talk to them you have to have the same balls that you have when you talk to your fashion people. What I do is naked and you need to dress it up the way you need in order to pitch it to people.” After that, I understood.

That’s how I got into music.  I created his corporation. At that time he also had a production deal with Sony Music.  I started to manage several of the artists he was working with—clearly not knowing what I was doing.  I was smart enough to be able to add what I needed and put the pieces in place.  Mtume is a highly intelligent person, and was really my guide through it all.  He got the opportunity to score a major motion picture, called “The Native Son”, which had Oprah Winfrey in it.  I was so happy that we got him the opportunity, but now he wanted me to get him some publicity.  I turned his basement into my office, and I went and bought hundreds of newspapers and magazines.  I called all of them telling them about the new film, about Oprah, and that my client, Mr. Mtume, had done the score.  I got the press’ attention.  Thus, from fashion came music.

Are you still active within the fashion community?

AE: I’ve incorporated it all still to this day, both fashion and music.  I look at what I have now as sort of a one-stop-shop.  Fashion is truly married to music.  Look at Lady Gaga, who has taken fashion to another level, Rihanna, Nicki Minaj, and all these people.  I don’t think we sell just music anymore.  We sell image and style.  When you go to a magazine stand or go online, you see how these people look first.  Then you get into the music.  Whenever I have a new artist, I focus on the importance of image and style first before looking at their music.

How do you recruit clients?

AE: I don’t, really.  Sure, if you would like to become a client you can go to my website or call the office, but I have 30 plus years worth of relationship building under my belt.  Most of the clients I have come to me as a result of some sort of referral by association. Building relationships is paramount to everything else.

What kind of things do you work on with artists?

AE: Let me start by saying that I’m a hands-on guy, especially when I see something special in an artist.  A young girl from Long Island came to me earlier this year.  Her name is Stephanie Courtney (not to be confused with the comedienne).  She looked like a mess, and to me, her sound was not much better.  I had a feeling there was something to her, though.  She was warm and polite, and her father was equally as nice.  She came back to sing for my staff who thought I was crazy for taking this girl on as a client.  I had her go through our artist development program.  We worked on hair, skin, makeup, clothes, and style.  At the same time, we set her up with voice and dance lessons—she had some amazing teachers.  She did them all without complaining, was always on time, and was always happy to do anything we asked of her.  Her work ethic is incredible.  Now she sings like a bird.  On top of that, we aligned her to an anti-bullying campaign, for which she wrote a song.  I teach my clients that it’s important for them to be able to give back to the community.

Do you also teach them about the business-related aspects of music?

AE: Very much so, yes.  Industry education is incredibly important.  You need to know what has been written in your recording contract, you need to know about publishing deals, endorsement deals, and things of the like.  Technology has circumvented this somewhat.  With the Internet, new artists are quickly achieving levels of success without being prepared adequately for all of it.  They don’t last very long, do they?  If you invest the time, teach the necessary skills, and prepare an artist for what they will face, then that artist will have a longer career.  When an artist studies the business of music, he or she must understand that every entity is important.  You can’t go and get a manager without knowing about the work that he’s supposed to be doing for you.  He’s managing you, but you also need to be managing him.  Wouldn’t it be great for you to know all of the who’s, what’s, when’s, where’s, and why’s so that as this manager oversees your business you know the effect that his decisions will have?  It’s a real functioning business, and you have to indulge in every aspect.  If you don’t, you’re here today and gone tomorrow. We’ve seen evidence of this.  In the past, I’ve spoken out against certain hip-hop executives regarding the day in time when rap music was gaining popularity.  These executives were ripping these young artists off by taking their publishing rights and their royalties.  They now live in mansions and their children live a life of luxury, while the rappers who made the music have come and gone.  Those executives didn’t care about the artists, and the artists didn’t know anything about the business.  Where are the artists now?

Do you think that artists need to be as scrutinized in the media as much as they are?

AE: I firmly believe that artists should be held accountable for their behavior just as you and I are.  At this day in time, an artist has the ability to be more influential than the President.  Our own children want to be like the artists they see.  You have a problem in urban communities today because artists in music videos are glorifying this materialistic lifestyle in which you have jewelry, tons of cars, and 500 women.  A lot of artists don’t realize that they have to take this seriously and think about how their words affect their audience.  Artists need to especially take responsibility for committing crimes.  The consumer is watching them and taking it all in.

One of my artists, Ginuwine, went through a really hard time with his parents both dying in the same year.  He was suffering from mental health issues and ended up doing drugs to help him deal with everything.  Part of what I had him do was to talk to the public about it, because it’s important that you take responsibility and give back by sharing your experiences thus allowing other people to learn from them.

Is it unfair for an artist to have to live up to public expectations?

AE: I really respected Charles Barkley for saying, “I am not a role model.”  He acknowledged that he’s fallible and that he’s human.  Unfortunately, that’s not really how it works in America.  You have to realize that any public figure, whether positively or negatively influential, is going to be idolized by someone.  That’s a conscientious decision that an artist makes when he decides to call himself an artist.  That’s just the way it is.

How do you handle artists’ crises?

AE: I’ve had to deal with a lot of those, and people come to me most often when they have a crisis.  I worked with Michael Jackson in the 90’s when there was the alleged situation with that little boy.  I got to know him, he told me he did nothing wrong, and so I had to carefully examine the problem.  The media was relentless, too.  I always find that touching on the source of an issue is typically the best approach.  The source of the issue was children, so I worked to help create the Children’s Choice Awards.  A lot of high profile people were there, including Governor (of New York) Cuomo’s wife.  I packed the auditorium with 3,000 kids, and Michael ended up being the recipient of an award.  Also, presenting the award to Michael onstage was a handful of children.  The crowd loved it.  It was such a press-driven event that whatever they thought of Michael was no longer what it was.  This was, of course, until new allegations started popping up.

I’ve dealt with DMX and his drug problems throughout a portion of his career.  I personally managed him for five years and was his publicist for two.  Going back to the source of the issue, I learned that he has a fear of abandonment from his father leaving and his mother always working to support the family.  I try to really get to know my clients as people, because I feel that I’m better prepared to handle the situations that they get mixed up with if I can really get to the root of the issue.

Are some artists’ crises not manageable or fixable?

AE: For sure, but it’s always preventable. So many artists don’t take the time to think before they speak or act.  A lot of them just react and it’s not always pleasant—even for the ones that mean well like Sinead O’Connor when she ripped up the picture of the pope.  One has to ask the artist whether or not they realized they did something wrong.  I always tell people that America is “gangster”.  When you do not go by the customs of the masses, you get shut down.  After Kanye West got on the stage at the VMA’s and embarrassed himself, he got shut down for a long while.  Fortunately for his career, he’s managed to come back from it for the most part.  You have to wonder, however, how many opportunities he has missed and how many people won’t work with him now.

I think that the record labels’ reluctance to take the time to develop artists like it used to do is the hugest mistake ever.  I understand the need for “artistry.”  There are certain things, however, that should not change in modern times.  One of those is artist development.  Diction, speech, and manners are what allow an artist to succeed—as well as knowing when to shut up.

Do you think most artists need to be developed?

AE: To reach their maximum potential, absolutely yes.  For me, it’s not about the Beyonce’s of the world.  It’s about the people who are trying to get to that same level, who have previously lacked the opportunities and chances to get there.  A lot of publicists won’t work with an artist who they feel “won’t cut it” or is a “lost cause”.  When I started my whole artist development program, people laughed at me and thought I was totally insane for teaching things like fashion and etiquette to artists, especially to rappers.  When I started my business, I tried to emulate Berry Gordy. He realized that his people were being shunned by mainstream America; so he taught the people under his tutelage how to walk, talk, dress, and meet kings and queens.  I try to teach the same thing to my clients, and provide them with the best chance to succeed.

Artist Contracts: What To Look For

by Kerry Fee

Recently, I visited Nashville and was able to interview Linda Edell Howard, a top music lawyer. Nashville, where Howard has her practice, has a different environment than New York or Los Angeles. There is a large legal community working with many artists and songwriters. The pay, however, is considerably less and there is a real component of artist service in the profession. For Howard, that service involves helping artists avoid mistakes, while taking care of their creative rights and freedoms. This is especially important as the music industry changes. As will be seen, the role of an entertainment lawyer often involves preparing contracts with an exit strategy in mind.

Howard has worked on a range of contracts, from Lady Antebellum’s record deal to Wallmart’s online music operation, at Wallmart.com. Currently, record companies are trying to restructure nearly every aspect of their artist contracts to include 360 deals. “Nobody signs an artist now to make and sell records”, said Howard; “companies are not paying them to live” (while making those records). Artists are now only getting about a $100,000 split between the entire band, a much smaller figure than before. Solo acts are given much less. This lack of funds is affecting everyone and everything; there is less money disbursed among studios and engineers, and distribution has shrunk significantly.

Record companies are following the money, and are trying now more than ever to get in on every piece of the pie. The old language that appeared in recording contracts is now being manipulated to mean something entirely different. For example, touring now includes anywhere an artist appears–and wherever they open their mouth. The definition is no longer exclusive to a musical performance. Sponsorships and endorsements are part too of the label’s revenue share. ‘Merchandise’, for that matter, has also been expanded to include mobile phone applications, online icons, avatars, voice and ring tones (call backs, shout outs, greetings) and anything else that the artist can potentially make money from.

Currently, there is a dispute in the courts regarding the common packaging- deduction-and-breakage language found in contracts entered prior to the year 2000. The Allman Brothers Band have taken Sony to court over whether these fees should be taken out of digital downloads as well. If this language is disposed of due to the intangible nature of digital downloads, then the artist will receive fifty percent of the licensed income (thirty five cents as opposed to seventeen cents for a sale). This also poses the question of whether one actually owns a download or if it is a license. Yet Sony may not be able afford a decision that favors artists–a symbol of how much things have changed. With so much at stake at stake, many contracts hang in the balance. Eminem, for example, raised a similar contractual issues, but litigation was dropped when the terms of his contract appeared solid.

Record companies make the case that the goal of these 360 deals, if done right, is to try to create a partnership. The idea is that if a record company does what it is good at, i.e. distribution, and the management and the merchandising company pull their weight, success will follow. It has worked for some artists. As Howard notes, artists typically think that the 360 deals will work out, and in the end sign the contract. But they should be careful. “I spend a lot of my time now trying to get these artists out of these deals.”

All in all, the landscape of recording contracts has changed drastically. There is little difference between a deal from a major and an independent, and distribution deals are common. When looking at a contract, look out for the commitment expected by the artist, the exclusive rights granted, and what is recoupable or not. Howard says: “It takes me four to six hours to read a contract through once…and I have no idea what I’m looking at now”. Contracts are often up to sixty or seventy pages long. The term or concept of an ‘album’ is no longer used in contracts; they are referred to as ‘projects.’ It is unclear what an artist is going to be making, whether it’s a single, an EP, or a full length record. In these contracts, labels only commit to the first ‘project,’ with nothing specific regarding the promotion they will be doing (marketing, advertising, buying into tours, paying for photo shoots, etc). Likewise, artists are given rights to merchandise and touring, but labels do not make promises on funding. Essentially, an artist may be signing everything away and getting nothing in return.

The terms of the contract have also changed. In regards to recordings, deals used to be seven to nine albums over the term, then four to five. They now require having five to seven ‘projects’ over a minimum of ten years. Howard has had some success negotiating that early gross earnings between $500,000 to $1,000,000 not be earmarked for recoupment. She also remarked that it has become easier to withdraw publishing rights from the deal.

The cash flow at major labels, naturally, has diminished considerably, and fewer artists are being signed. To compensate for the lack of resources, record companies are trying to control every part of an artist’s livelihood. One of the most outrageous requirements seen in recent contracts is that a label demands ownership of everything an artist has done before signing up with them: the artist’s name, the website, any and all recorded music prior to the contract, domain names, and even photos. Howard has seen a record company allow a band to remain in control of their original site, but become prohibited from streaming any music on it.

Bands that have become good at creating success under their own power while maintaining a fluid relationship with fans, sometimes sign it all away for the promise of “a team that will handle that now.” Indeed, there are some unnerving sentences within new contracts. Record companies are now trying to step in and take on the role of the personal manager, including the manager’s common sunset clause—i.e., wanting to be part of that brand forever. 

Contracts are structured to allow labels ten to fifteen percent of all sponsorship money, and cross-collateralizations and recoupments are stiffer.

Singles are also changing the market strategy. In the past, once a song hit a certain point, it would go to retail. However, this rise used to take eight to twelve weeks–not up to forty weeks to climb the charts, as Howard says is the case now. In Lady Antebellum’s case, however, the group released a single for radio, which almost immediately went straight to number one. At the time of the release, the group was still in the studio working on the record, and had only four tracks cut. There was immense pressure to rush the album in order to get it out, and the label ended up releasing the completed tracks, making them available for download, with the promise to add the remainder of the album once it came out.

The popularity of single releases are affecting the market, and changing the terms of an artist’s contract. In general, there is also a great need now for copyright and technology lawyers. If artists are to be freed from poor contracts, they made need the advise of such experts. Artists have to understand the digital mindset and seek appropriate advise. An entrepreneurial outlook is also required for, despite everything, a large portion of an artist’s revenue is being made from merchandise, synchronization licensing, photos used in ads, touring, and sponsorships. As Howard points out, “you need to be aggressive, but not entitled, and be willing to work with the industry and not against it, bearing in mind your own definition of success”.

By Kerry Fee

YouTube: The New Radio Star?

With the rise of online file sharing and data-streaming, copyright infringement is currently at an all time high. Now, the future of the industry finds itself in the middle of a tug-of-war battle between the conventional methods of media giants, and the progressive ideals of today’s most cutting-edge companies. On June 23rd 2010, a federal judge sided with Google’s YouTube in 3-year legal battle over copyright infringement accusations made by The Viacom (‘Vi’deo & ‘A’udio ‘Com’munications) Corporation. The decision could be prompting a great deal of change in copyright law and the ways in which artist materials are handled.

Background
In early 2007, Viacom programmers noticed that YouTube was streaming thousands of their copyrighted videos on its free website, without their permission. YouTube— having just caught on with the majority of online users— was quickly becoming known as a place that almost anything could be found and viewed without payment or membership. In an official statement, Viacom stated that YouTube “[is] liable for the intentional infringement of… Viacom’s copyrighted works… for [it] had actual knowledge and were aware[1]” (i.e., that infringing activities were apparent on its website but failed to act swiftly to stop it).
In addition to streaming the videos, YouTube was generating a significant amount of profit from the vast amounts of advertising that it hosted on pages featuring the illegal material. The court recognized that YouTube not only had the knowledge, but “welcomed” such activity by encouraging its millions of users to upload content without regard for infringement-prohibiting laws. It wasn’t until the company was presented with an official DMCA Takedown Notice that they began assigning “designated officials” to the task of removing the videos from the website.

DMCA Takedown Notice Provisions have been a controversial issue in Washington since their passage in 1998. The laws are mainly criticized based on the fact that they allow copyright owners to take down infringing web links and content, without first providing proof that the material had even been infringed in the first place. Upon receiving notice, the alleged offender is given a set period of time to take down the material. If there is any doubt towards the validity of the accusation, the offender has the option to file a counter-notice— claiming in good faith that the content was lawfully used. If such counter-notice is issued, the copyright owners can either file a lawsuit or allow the material to remain on the Internet. These procedures are considered complicated and are heavily slanted in favor of copyright holders.

With all of the accusation directed towards YouTube, the company took very aggressive action to remove all of the illegal material from its website. In this particular scenario, the DMCA notification regime worked quite efficiently, considering that after over 100,000 infringing videos were red-flagged by Viacom, one single Mass Takedown Notice— filed in February 2007¬— was all it took to get YouTube to remove all of its illegal material. In fact, by the end of the next business day, YouTube had already deleted almost 100% of the videos. This compliance— along with the protection that the company was afforded under the Digital Millennium Copyright Act— prompted the court’s favorable decision towards YouTube on June 23rd, 2010.

At the core of Viacom’s interest is a demand that YouTube should devise a system to catch every illegally infringed video that’s uploaded onto their website and have it automatically removed, thus ensuring the safety of copyrighted works for everyone. If proved to be effective, this system would completely bypass the current DMCA system— making it unnecessary for owners to send Takedown Notices to users via their online service provider. YouTube has already begun developing an automated system to block suspicious videos from its website.

Implications of the Legal Decision
After the court’s decision was made official, Kent Walker, Vice President and General Counsel of Google, (YouTube’s parent company), reveled in the victory stating that, “this is not just for us, but also for the billions of people around the world who use the web to communicate and share experiences with each other.[2]” He also promised the continuation of the company’s vision to support “the incredible variety of ideas and expression that billions of people” are able to communicate through YouTube. Viacom, on the other hand, has continued its petition by creating a webpage to “provide perspective and legal evidence regarding Viacom’s copyright infringement litigation[3],” asserting that it should be “illegal for companies to build their businesses” with infringed creative materials. Michael Fricklas, Viacom’s Executive Vice President, continues, “the case has always been about whether intentional theft of copyright works is permitted under existing law.” ¬¬

To place things into perspective, the court’s decision reflects an overall shift in control of copyrighted materials— from creators, to users. The explosive success of companies like Facebook, Myspace, and YouTube is foundationally built on the use of content created by musicians and artists around the world. While such a shift is creating some very serious instability in the music industry, consumers aren’t about to stop using these resources to find new, free ways of accessing the content that they want.

The YouTube vs. Viacom case has taken large steps towards shaping the future face of the Music Industry. Having brought light to the lack of control that copyright owners are beginning to have due to the outdated set laws protecting them, people are starting to wonder what the future holds for the artists and creators of the world. While some view the decision as a win for consumers against “over-reaching content conglomerates[4],” others are concerned that without DMCA Takedown Notices, artists might lose the benefits of copyright ownership altogether. Viacom is currently preparing to appeal the case to a higher court, in hopes that copyright law— through a process of reexamination and/or revision— can still be honored in their favor. The trial’s outcome could mark turning point in the future of music copyrights.

By Ben Hong

References
[1]Summary Judgment from U.S. District Court: Southern District of New York
[2]http://youtube-global.blogspot.com/
[3]http://news.viacom.com/news/Pages/youtubelitigation.aspx
[4]http://abcnews.go.com/Entertainment/wireStory?id=10998401

U.S. Performance Rights in Sound Recordings

by Mary LaFrance : Featured Articles, Music Law

In 2008, the Department of Commerce urged Congress to expand the statutory royalty scheme for digital music streaming to include terrestrial radio transmissions, arguing that this would: (1) level the playing field between satellite, Internet, and terrestrial broadcasters, (2) increase the incentives for performers and record companies to produce new recordings, and (3) make it possible for U.S. record producers and performers to receive substantial amounts of foreign performance royalties that have previously been held back by foreign PROs.  Public performance royalties would also replace some of the mechanical royalties that record producers and performers have lost due to the proliferation of unauthorized downloads.

The Obama Administration’s support for performance rights in sound recordings is consistent with the position that the Copyright Office has argued for decades.  However, opposition from the broadcasting industry has consistently scuttled legislation designed to achieve this goal.  Until the U.S. enacts a broader public performance right for sound recordings, domestic performers and record companies will be unable to claim their share of foreign performance royalties (a share which probably exceeds $100 million per year), because most countries (or their collecting societies) impose a reciprocity requirement which U.S. law does not satisfy.  It is ironic that the country that produces the most popular sound recordings in the world is unable to collect the royalties from those overseas performances.

The Performance Rights Act

The 2010 Performance Rights Act (PRA) would have been a large step in the right direction. At the congressional hearings, musicians and record company executives testified in favor of the bill, while representatives of the broadcasting industry opposed it. Although both the House and Senate Judiciary Committees approved the bill, it never proceeded to a floor vote.  There is a good chance that some version of this legislation will be re-introduced in the 112^th Congress.

If enacted, the PRA would dramatically change the rights of musicians and record companies by giving them the right to receive royalties from public performances of their sound recordings on terrestrial radio.  In contrast, current law grants public performance rights only with respect to digital transmissions of those recordings – e.g., satellite radio and webcasting.

Recognizing that the new performance royalty will increase the cost of broadcasting –the chief objection raised by broadcasters — the PRA would provide relief to smaller radio stations as well as public broadcasters, giving them the option to pay, in lieu of the statutory royalty, an annual flat fee determined by their gross revenues.  For the lowest-grossing broadcasters, the annual fee was as low as $100 in the Senate version ($500 in the House version).  This relief should help niche broadcasters, such as college radio, to continue to bring diversity to the airwaves, and to offer a platform for new and emerging artists.  In the next iteration of the PRA, it would be helpful to extend this relief to small webcasters as well, since they, too, can foster diversity and help new artists find an audience.

The PRA would also improve the royalty rights of the nonfeatured performers on sound recordings (both vocalists and musicians). Under current law, when a statutory royalty applies to a digital audio performance, a specific portion of that royalty is set aside for nonfeatured performers.  However, some digital performances (e.g., Rhapsody and Spotify) are not eligible for the statutory royalty, because they are “interactive” – meaning that the user determines which recordings will be played.  The royalty for these interactive transmissions is negotiated by the record company and the company that provides the streaming service.  A nonfeatured performer receives no share of these negotiated royalties unless the performer’s contract with the record company so provides; as a result, most nonfeatured performers receive no payments at all. In contrast, the PRA would require the record company to deposit 1% of the negotiated royalty for each recording into the AFM/AFTRA Intellectual Property Rights Distribution Fund, to be distributed 50/50 between the nonfeatured vocalists and musicians. Thus, under the PRA, nonfeatured performers will be entitled to at least a small share of the negotiated performance royalties.

Unfortunately, the bill does not require the licensee to inform record companies which recordings were performed or how often – information which is necessary to enable the AFM/AFTRA fund to allocate royalties to nonfeatured performers.  Thus, the burden falls on the record companies and the performers to determine these allocations.  This increases costs, and reduces the funds actually distributed to performers.  While the PRA’s new allocation scheme would improve on current law (under which nonfeatured performers typically receive nothing), it does not guarantee that nonfeatured performers will collect their full legal share.

The absence of recordkeeping requirements in the PRA would also affect the allocation of the new statutory (i.e., non-negotiable) royalty for terrestrial radio broadcasts of sound recordings.  Although the PRA would give both featured and nonfeatured performers, as well as record companies, a share of this royalty, it would not assist them in tracking those broadcasts so that the royalties could be accurately disbursed.  Under current law, digital audio transmissions are eligible for statutory licensing only if they are “accompanied, if technically feasible, by the information encoded on that sound recording,” which identifies the title of the sound recording, the featured recording artist, and “related information, including information concerning the underlying musical work and its writer.”  Because terrestrial radio broadcasts do not carry digital encoding, record companies and performers will need some other way to determine which recordings are being played, and how often. Unfortunately, neither the House nor the Senate version of the PRA would impose any duty on terrestrial broadcasters to maintain records of this information.

To monitor usage, radio stations should be required to maintain logs of their musical transmissions and deliver these records to the parties charged with allocating the royalty. This requirement may be burdensome, especially on smaller stations.  However, radio stations are already required to maintain logs — at least periodically — under their blanket licensing arrangements with ASCAP and BMI.  If ASCAP and BMI are willing to cooperate with SoundExchange, it may only be necessary to add additional information to those logs, identifying the particular sound recordings (as opposed to merely the musical compositions).  Although some of the burden of tracking usage may inevitably fall on the recording industry, other countries (including Canada) have imposed rigorous recordkeeping requirements on radio broadcasters.  While the Canadian approach may be too burdensome, surely some compromise is possible.

Beyond the PRA

While the PRA would be a tremendous improvement over current law, it would not give musicians and record companies a full public performance right equivalent to the right enjoyed by songwriters and music publishers.  The PRA would not give musicians and record companies a right to receive royalties from  performances of recorded music in public venues such as clubs, restaurants, bars, retail stores, or other business establishments. Thus, even if the PRA is enacted, public performances of sound recordings in these venues will continue to generate royalties only for songwriters and publishers.

While this type of limited progress is typical of incremental legislative reform, there is no principled justification for continuing to exempt these businesses, and eventually they, too, should be required to pay for the use of these recordings.

With respect to recordkeeping, however, the expansion of the performance right to public venues will be even more problematic than its expansion to terrestrial radio.  In order to allocate royalties (whether compulsory or negotiated) among the various rights holders, the agent in charge of collecting and disbursing those royalties (SoundExchange or a similar entity) will need to determine which recordings have been played, and how often.  If this burden falls on the rights holders, this will be even more difficult than the task of monitoring radio broadcasts.  It is impossible to monitor thousands of individual venues, geographically disparate, with widely varying music usage (e.g., dance clubs versus grocery stores).  How, then, will royalties be allocated?

ASCAP and BMI do not require venue operators to maintain records of the music they play, relying instead on radio airplay and other proxies to estimate frequency of performance. As noted earlier, however, the PRA would not require terrestrial broadcasters to maintain records of the specific recordings they play. Thus, the convenient “radio proxy” would not be available for sound recordings.  This is another reason why future versions of the PRA should require radio stations to engage in some degree of recordkeeping.  In addition, operators of large commercial venues (or the music services with which they have contracts) could be subject to a limited recordkeeping requirement — perhaps only for a few days per year — and these records could be used as proxies for the smaller venues.

Under their blanket licensing arrangements with ASCAP, BMI, and SESAC, public venue operators normally pay a license fee that reflects their revenues as well as the nature of their business, because music plays a greater role in some businesses than others.  If the statutory license for public performances of sound recordings is extended to public venues, then the Copyright Office will need to take similar factors into consideration.  The statutory licensing scheme for digital audio services, and the proposed extension to terrestrial radio, distinguishes between services only on the basis of revenues and audience size; this approach simply will not work for public venues as varied as dance clubs and grocery stores.

Fortunately, collecting societies outside the United States have already developed methods for estimating usage of sound recordings by public venues as well as broadcasters, and these methods could serve as useful models for the United States.

Rate-setting will present another challenge if the performance right is extended to public venues.  To what extent should the government play a role in establishing the royalty rate?  Should public venues be subject to a statutory license, with the rate set by the Copyright Office, or should the rate be negotiated by the parties?  Should the royalty scheme be modeled after ASCAP and BMI performance licenses for musical compositions, with a collecting society (such as SoundExchange) setting a blanket license rate, subject to judicial or administrative oversight?

There are precedents for both approaches in other countries, and their models can offer helpful guidance.  If there is no government oversight at all, an impasse in negotiations could harm songwriters and publishers, whose royalty income depends to a great extent on public performances of sound recordings.   In contrast, if the license is statutory, or if it is privately negotiated but subject to government oversight, this would avoid the bottleneck problem, but it would also mean that the government entity charged with setting the royalty rates would have to consider the cumulative effect of the sound recording royalty combined with the songwriters’ and publishers’ royalty.  If the cumulative royalty is too high, venues will cut back on the amount of recorded music they play; some will stop playing music altogether.  Ideally, rate-setting authorities should ensure that the cumulative burden on music services and broadcasters is reasonable and not subject to major fluctuations over time. Thus, the government will need the authority to reduce the ASCAP, BMI, and SESAC licensing fees – an outcome which songwriters and publishers have vehemently opposed.  Indeed, both the current statute on sound recording performance royalties and the PRA contain language that precludes the government from reducing songwriters’ and publishers’ royalties in order to make room for sound recording royalties.

Clearly, there are substantial obstacles on the road to a full performance right in sound recordings.  These obstacles are routed in the long-standing perception that the creative work of performers and record producers does not deserve the same degree of copyright protection as the creative work of composers and publishers.  This discrimination has been known to create strife among band members, some of whom receive substantial songwriter royalties while others must settle for the lesser stream of income generated by performing.  The rest of the world grants performers and record producers a public performance right far superior to that of the U.S.  If other countries can overcome the obstacles to a full performance right, then the U.S. can do so as well.

Mary LaFrance is IGT Professor of Intellectual Property Law, William S. Boyd School of Law, University of Nevada, Las Vegas.  For the author’s more detailed treatment of this topic, see From Whether to How: The Challenge of Implementing a Full Public Performance Right in Sound Recordings, 2 Harvard Journal of Sports and Entertainment Law 221 (2011).