Memo to the Copyright Royalty Board: a bigger pie fills more bellies. Tomorrow, the three-judge panel that sets rates on music copyright fees is scheduled to announce new rates on digital music downloads for the next five years. The fees, which go to music publishers (the actual owners of the copyright to each song), are currently set at 9 cents per track. Music publishers want to raise that to 15 cents per track. Apple has vaguely threatened that it might have to shut down iTunes if the new rates go into effect (yeah, right).
Apple still controls about 85 percent of the digital download market, but these fees are also being paid by Amazon, Rhapsody, MySpace Music and others. The music publishers (who are often the artists themselves) want to future-proof their cut of the action and thus want to lock in as high a rate as possible. Apple and the record labels are arguing that the rates should be changed from a flat fee per song to a percentage of revenues. Apple wants to pay 6 percent of revenues, while the labels are suggesting 8 percent. Since, in the case of iTunes, this percentage would come out of the current 99 cents charged for each track, it actually amounts to a reduction in per track fees (6 cents and 8 cents respectively).
On its face, it looks like Apple and the record companies are once again trying to stick it to the little guy (artists, song writers, and other music publishers). But in this case, Apple and the recording industry are actually right. Music on the Web is currently crippled by the fees set by the Copyright Royalty Board (not just for downloads, but for streaming Internet radio as well). As it is, Apple pays 70 cents from each track sold to the record companies (which then pay the music publishers their cut). There is not much margin left out of which to take that extra 6 cents, and charging $1.05 per track will have an impact on sales.
Moving to a revenue-sharing model makes a lot more economic sense. That way digital music sales has more breathing room to establish itself, and the artists will be able to grow with the industry. Eight percent of a bigger pie is better than nine percent of a smaller one. Rather than focus on how much each publisher gets per track, the Copyright Royalty Board should try to maximize the total amount of fees that publishers will get. A rev-share model is the way to go.
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As someone who has written a business plan (9thTrack) designed for the music industry to make money off of NEW ancillary revenue streams I can honestly say - If ever there was an industry with their head that far up their ….
This is only a small issue of what is plaguing the music industry. They need to learn from new models that have worked great for other industries and then adapt themselves. One analogy they might consider is the Freemium model used in Web 2.0 (Shareware in software). Give the music away (or at least priced for this new world we live in), and make their money from other new (Think outside the box, not just RingTones….) revenue streams.
http://www.twitter.com/A_F
Forgotten in this conversation that publishing is split between the songwriter AND the producer of a song. This share, along with the administrative duties is often split with the publishing company. so It’s not uncommon for a songwriter to only have a 25% or less of a stake in a song.
The producer’s share is sometimes split between other copyright holders (samples), composers and musicians with clout (maybe if you had ?uestlove play drums on your track).
Sounds like an argument for a bigger flat rate? Nope.
It’s also conveniently forgotten or not known that the record label often PAYS THIS UPFRONT. Yes, the evil recording industry not only pays the recording, mixing and mastering costs, they also typically absorb the marketing costs and advance the publisher’s future royalties right out of the gate.
Publishers are also typically paid in advance, based on a percentage of a fixed number of units (let’s say .05 cents per unit on 10,000 units). Anything above that would continue to generate revenue for them at that rate.
This is nothing more than a grab by the publishers for more upfront money.
Not all publishers are the, ‘little guy’ (Warner-Chappell and Radiohead ring a bell to anyone?) and not all record labels are evil.
HARD TO ACTUALIZE, GOOD IDEA THOUGH.
Selling music online won’t really take off until labels get a lot more realistic about the prices. People may pay $1-2 per album and 10-20c per track, they won’t pay $7-8 and 99c per track when the alternative is free. The only way to really grow the pie is a drastic price cut. They can do it because distribution costs are almost zero online so whatever they charge is pure profit to split between the label, artist and seller.
Why pay per album or track when you can pay by the month for a subscription plan. What percentage of the movie business model is not theater ticket or DVD sales, but a cut of revenue from subscription plans like HBO, Netflix, etc.? Which segment is shrinking and which growing?
Sell whatever it is that people will pay for.
BTW, online distribution isn’t free. As someone who worked in the digital supply chain for one of the majors, I know that file space, development, and distribution mechanisms and systems are extrememly expensive to obtain and then maintain. We’re not talking one dude ripping CDs and putting them up Waffles. We are talking retail partner specific files, with individual codec needs. This duplication, spread over the world, means that our company had to distribute each and every track (TRACK not ALBUM) to over 350 digital retailers globally, with over 100 partner-specific codecs. Not free my friend, not free in the least.
See if this 700$ bil bailout would pass , they would shut up. But now that artists are afraid of not making few millions more , they go after the law.
U know what? F****** them all!
I don’t think iTunes will be going away anytime soon.
Wait. iTunes isn’t the spawn of hell and the blame all to blame all? Where’s the DRM rip blaming Apple for DRM?
Oh Sorry. I’ve just seen this kind of discussion a lot lately. People get it wrong, the labels are the pigs in this scenario. They’ve always squeezed others or cheated artists out of money.
Let’s hope something positive happens.
If the current royalties are 9 cents per track, then where does the other 90 cents of the iTunes $0.99 price go?
Lawyers and blow.
i get 87 cents from every my track sold on itunes.
going there via TuneCore without any label.
true diy.
itunes has revolutionized buying music online. more on the apple planning on shut down here,
http://gatesandjobs.blogspot.c.....wdown.html
Uh your numbers are a bit incorrect. Itunes is doing quite fine monopolizing the digital sales market.
Love Techcrunch, but this is where the business of music sales (remember it started with sales of sheet music) is trying to make an equitable balance for all rights holders. This post over-simplifies and confuses the players, and I hope I can clarify:
There are 2 rights holders on any recorded song: a master copyright holder who controls the right to sell the specific recording of that song - say The Beatles “Hello Goodbye.” and then a mechanical copyright holder (also known as publisher who represents the songwriter). Their compensation rate is set by Congress and they currently receive just more than 9 cents per mechanical copy sold (be it sheet music, CD, vinyl, download, etc.). They are paid for all versions of the song recorded and sold - it’s what makes cover songs possible. Without the compulsory license law, we would never have goodies like Alanis Morissete covering “My Humps.”
Back to the Beatles “Hello Goodbye” - if you purchase that, EMI gets paid. But since the publishing is owned by Sony ATV, that allows versions like the one in the Target commercial to be recorded.
This update of publishing royalties will be assumed by all parties. If publishers receive more, than labels are likely to receive a little less - they already deduct those payments from wholesale sales at physical retailers in the US, and do the same for digital. Now they could attempt to renegotiate with Apple, but my gut is their wholesale deals with Apple are struck for at least another 6-12 months, so they would take the hit for now, and later will try to force a price increase or a share of the increased cost.
Publishing money goes back to the song-writers. It is not a scam, they are not ripping anyone off, they advanced a lot of money and support, often more than the label, to secure a 50% interest in the song’s mechanical right. This is not screwing an artist at all. In fact more publishing money probably means more money for the artist directly, as most bands perform their own material these days, and publishing always has a higher royalty than record labels.
Finally, Apple takes approximately a 30% margin. That is a BIG margin for anything outside of clothing retail. Ask a local store what their margin is on most goods. It’s no where near 30%. On a penny level, it is low, but Apple batches their credit card transactions - notice how if you buy 5 songs over a couple days the receipt comes together to decrease those transaction costs. They enjoy a margin greater than most physical retailers do for the same product, with arguably fewer costs than a Wal-Mart or Target.
Labels are definitely slow to license and realize the sea change in music consumption. But let’s not cheer sites on for “tiny” margins or punish publishers who are working hard to break music as well.
I assume that by rev-share, you mean percentage of profits, or something. That won’t work. The current royalties might be a little high, but from the perspective of the rights holders, it’s better to charge a fixed price and let the market sort it out.
I like Pandora, but why should the music industry have to lower their rates, just so Pandora can keep giving music away for free? If you can get all the free music you want from Pandora, that means that fewer people are listening to the radio, and fewer people will subscribe to satellite radio. If Pandora can’t make money by giving music away for free, maybe they should start charging $5 a month. If users love Pandora so much, then paying $5 shouldn’t be a problem.
As far as iTunes goes, they’re already on a rev-share model in that they get to keep 30% of every sale. That’s a lot higher margin than Best Buy or Walmart makes on selling physical CDs. If the rates go up and iTunes has to cut their share of the profit to keep prices at $1 per track, that’s fine with me. If 20 cents per song isn’t enough for them and they want to stop selling music, that’s fine with me. Amazon will still be there.
If you have high utility for the income (ie it’s your living as a songwriter), it makes more sense to take a fixed price. You also might benefit from a simple revenue model, where sales volume verifiability and easy math make it harder to get cheated out of your payments. If you want real revenue sharing as an artist, start your own label.
It´s the same story for years now and the biggest problem in this digital transformation process… and the reason why the music industry drove the thing in the ground.
The copyright owner are in the digital business not realistic when it comes to pricing.
Why? They didn`t want to cannablize there still very important brick and mortar business.
Well that was the short term view decision… sorry guys.
The “dark market” built a lot of alternatives… to get your customers back will be hard…
I fully agree with Michael: A rev. share model is the only chance…
sorry, the article is by Eric, not Michael.
sorry! The record companies are screwing Apple. They make all the money. Apple and copyright holders earn a penny. And now Apple and copyright holders fight. Machiavelli would be proud
$.30 to apple, $.09 to copyright holders, $.60 to record labels??? I don’t agree with that. In the case of digitally distributed music, there is no packaging being manufactured. There is no mass production of compact discs being pressed in a factory. There is no mass shipping of those pressed discs to retail outlets around the world. Record labels should get significantly less on digital download media. I think apple should even get less money per track downloaded, they already make a killing from selling ipods, in which case people who have purchased an ipod are the only people shopping at itunes anyways. Give $.25 to the copyright holders, $.20 to apple, and $.54 to record labels. Even that sounds like a lot for the record labels, they should get the least for not doing any work.
$.30 to apple, $.09 to copyright holders, $.60 to record labels???
Apple is a little high but not unreasonable. They have to deal with the public, hackers, credit cards, complaints, etc.
$0.60 to the record companies is the problem.
No sane person is going to spend $1,000 to fill an iPod that can be lost or broken. $20-30 is a more reasonable number.
Try $20/month for a subscription plan. In ten years people will be screaming for an option to “own” their music again.
I think it’s pretty atrocious that those same fees are in effect for streaming. Streaming music and allowing those to get a taste of new artists, only HELPS the industry more. Pandora for example…I have discovered numerous artists on there and have then downloaded their albums. Something needs to be done.. quickly.
They definitely require a different system to monetize music…Completely agree to this post
I know for sure that a cd costs a $1 or less to record, manufacture, distribute and pay copyright holders. Record companies are just screwing everyone. They continue to damage and taint their product, burning everyone but themselves. Instead of embracing a selling opportunity they continue their anti-social macho posturing. Selling an mp3 on iTunes cost them even less because their is no physical product. They claim to develop the market, it’s not true. It’s only about power and money. There are no genuine music guys left on the top of any major.
How much does an iTunes, Napster etc. cost to develop, Is it worth doing? Not yet. The new vision of Muxtapes is one way forward. Radiohead, NIN and others exit from the majors is also the way to go. They need to be made insignificant. The problem is they are still too significant for the markets good. They control the value and the copyright holders and customers lose out.
But their base is rapidly melting. Sales continue to go south. We will have the last laugh.
I agree with ‘Nick Stamoulis’. It costs me so much money to legally stream music on my internet radio station. The profit out of music driven radio is getting smaller and smaller due t orecord companies being total music hogs. Talk is the growing radio format because of crazy prices record companies deman. A little more on the subject; itunes would probably loose alot of buyers if they increased the song prices.
I agree and would expand this same model to all digital content - news content, video content, images etc. Rightsholders can attempt to bottle up their content at their peril - the reality is that it gets re-used far and wide and it is monetized.
Case in point, we loaded the TechCrunch RSS feed to see how widely it is copied over the last month. We found 45 matches across 8,500 sites. Of the 5,000 commercial sites copying TC’s posts, 1,000 of them are copying TC’s entire posts word for word. 2k are copying more than 50% of each post. Why shouldn’t TC share in the ad revenue made off of the content they create?
Sure, some of these are splogs who deserve to be banished from existence, but most are legitimate blogs who create their own original content (which also gets copied) and most fail to give TC a link.
Ack - above comment should say “45k matches across . . .
For 99% of the artists on earth, MP3s are not, and never will be a moneymaker.
It’s nearly impossible to justify investing in the creation and promotion of music if you plan on recovering your investment through the sale or streaming of MP3s, and if multiple hands are dipping into your MP3 pot, forget it.
The companies selling and streaming MP3s are the only ones really making…a truckload of money.
Artists will soon generate much more profit from non-MP3, bundled digital music products.
Artists can’t sell anything, including these new products, unless they obtain exposure.
Getting on the radio is just about the best way to obtain mass exposure.
iPods, mobile phones, and MP3 players in general, ARE THE NEW RADIO that everyone carries in their pockets now.
Every artist has to obtain multiple spins on the NEW RADIO to convert listeners into paying fans.
When most of the artists on earth reach these conclusions/assumptions, what happens next? What happens next is the only logical alternative, and it’s exactly what consumers’ want: FREE MP3s - no ads, no DRM, no strings attached!
Music is becoming like blogging - anyone can do it, so everyone does, and audience attention is spread so thin that nobody makes any money. It won’t bother me any if music goes back to being something people do for enjoyment instead of money.
You say that the owner of the copyright is usually those creating the music. That’s not true. The record labels own the copyrights to the music. The artists are being scammed. Radiohead and others have formed a group actually to combat that and get the rights back to the creators, not the labels.
It used to be normal to spend several hours a month at the Tower Records listening stations, buying whatever you liked as an impulse purchase. Today the listening station is Pandora and Myspace, and the “purchase” is downloading the torrent. Nobody’s going back to stores for physical media. Gift cards for iTunes, maybe.
Eventually Pandora will insert audio ads and charge a monthly fee to escape them. The extra revenue will let them pay the licensing fees to permit creating your own playlists, listening to whole albums, etc. We’ll have what we really want and the old business model can rest in peace.