I. A Needle in a Haystack – Getting Noticed:
- In the digital millennium, artists have better and greater access to fans, but unfortunately, so do millions of other “competing” acts.
- Retaining the attention of fans is often difficult given the flood of music, videos, games, e-books, etc.
- Artists are required to release more materials, quicker than before, in order to compete with the flood of new music.
- Whereas MySpace and Facebook at one time served as a centralized hub for artists, the change in formats (i.e. erosion of MySpace Music and Facebook’s focus on the user’s Timeline), has created a challenge for artists to continuously keep fans abreast of the artist’s career and projects.
II. Artist Survivability:
- The vast majority of artists cannot make a living wage on music (according to TuneCore). According to the Future of Music Coalition, less than 50% of artists are working full-time in in the industry. Moreover, artist salaries are still averaging less than $60k annually. It has been suggested that less artistic control, low payments, a shift in revenue toward tech companies and less copyright protections contribute to the same.
- The notion that great music will naturally and organically find its audience is long gone. Artists must invest in their fan base by continuously tweeting, updating social media with new content, managing Kickstarter campaigns and determining appropriate online sales strategies.
- Artists have been forced to provide more free shows in hopes of being offered paying shows in the future.
• The internet poses the constant threat of leaking unreleased, half-baked recordings and the sheer volume of information online makes it difficult for new releases to be timely noticed.
- Artists take the DIY approach, but often forget that they still need to register copyrights, enlist with the PROs and mechanical licensing organizations, create/preserve song files to establish proper chain of title, negotiate/draft and issue licenses, collect monies for exploitation of music, review royalty statements and payments received from various parties (PROs, mechanical licensing companies, sub-publishers, direct licenses, record labels, co-publishers) and to account to 3rd parties.
III. The Demise of Major Label Sustainability:
- The creative process has become increasingly formulaic and refined given the focus on financial pressures.
- Artists are arguing for digital downloads to classify as licenses and not “sales”, which provide for a much larger payout to the artist. Under typical licensing or leasing provisions of artist-label contracts, about 50% of collected revenue gets handed over to artists. Under sales provisions, it is usually not more than 15%.
- The once stable, exciting, interesting and lucrative role of A&R representatives now has an incredibly high turnover/depletion rate, which in turn makes it difficult to mold and develop new artist careers.
- The 360-degree model never quite generated the anticipated revenue, although labels still insist on broader rights deals with new artists (i.e. labels share in artist touring, merchandise, product endorsement, and sometimes, music-publishing revenues).
- Notwithstanding the decline in record company sustainability and increase in losses, music executive continue to receive large salaries. In turn, this sends red flags to potential investors.
IV. Monetizing Audio Releases:
- Recording revenues have been declining for at least the last decade and continue to do so year after year.
- Data illustrates increasing shift from purchasing music to own in the form of a downloaded track, CD, record or cassette to a world in which music is increasingly paid for with subscriptions for all-you-can-access or with advertising. The lack of revenue generated from physical album sales has dismantled the label system, once considered the most reliable and lucrative avenues for artist financing.
- Evolving formats have weakened the value of recording (i.e. streaming pays less than downloads, downloads pay less than CDs…what’s next??)
- There is little evidence of touring, merchandising and other non-recording activities making up for losses suffered from lack of physical album sales.
- Thus far, artists and labels have failed to establish a lucrative bundle to monetize recordings.
V.Loss in Value to Recordings Themselves:
- A voluminous, decade-long shift towards free or incredibly inexpensive music, means that many younger generations have never actually paid anything for recordings!
- Given the uncertainty in today’s economic climate, potential consumers are hesitant to pay for music.
VI.The Vinyl Comeback?
- Though vinyl sales have been steadily increasing, they still only represent a small fraction of purchased recordings.
- Producing vinyl is an expensive venture.
- Traditional record stores have essentially imploded. Instead, the largest releases typically go to the biggest brick-and-mortar stores and even they have dramatically reduced shelf space.
VII.Pros v. Cons of Streaming:
- Many streaming services offer very little transparency in terms of payout structures and therefore, are met with very low trust from artists.
- Indie and smaller artists generally receive lower rates that bigger acts/major labels. Although some point to various tiers of compensation, the explanation for the distinction is not concrete.
- Some artists have completely pulled their music from streaming services given the services universally low payout.
- Whereas labels are often paid in large advances, the labels do not pay their artists timely, if at all (sometimes for legitimate reasons).
- Streaming services do not skew towards the interests of content holders and the artists featured in the services, but rather, hone in on acquisitions, IPOs and other liquidation events.
- Because major labels share similar interests to the streaming services, large percentage shares are awarded to major labels by the streaming service.
- The percentage of people actually paying to stream music still remains relatively low.
- Downloads are still a more lucrative purchase for artists and labels as fans do not generally stream songs hundreds of times.
VIII.To Tour or Not to Tour:
- Fans are frustrated with the ever-increasing cost of concert tickets, service fees (likely brought on by artist advances and guarantees) and in venue items (food, beverage, merchandise).
- The drastic increase in concert ticket prices has coerced fans to attend live shows as a “treat” as opposed to a regular occurrence. According to Live Nation, fans now attend only 1-2 live shows a year.
- Thanks to bots, aggressive scalpers and similarly situated people and businesses, the secondary ticketing market is often fed before the actual market.
- Even with the emergence of services like Songkick and Bandsintown, attendance at shows remains relatively low.
- Classical orchestras and ensembles continue to struggle for lack of invigorating younger audiences.
IX.Radio – Mind Numbing Regularity & Advertisements:
- Terrestrial radio plays the same tracks in heavy rotation, and saturates listeners with a plethora of commercials.
- Playlists are essentially cloned throughout the U.S. given heavy ownership consolidation and formatting similarities.
- Terrestrial radio does not pay for the performance of recordings and if ever forced to do so, will likely play fewer songs or sign direct deals with labels more frequently.
- Terrestrial radio is a separate but related issue regarding the performance of sound recordings. Trade groups representing creators and rights holders are also pushing for a performance right for U.S. traditional radio stations. Unless a record label has directly negotiated a deal with a terrestrial broadcaster, no sound recording — regardless of the year released — generates a performance royalty.
X.Piracy – Gone or Disguised?
- Piracy – efforts or lack thereof, to reduce piracy across platforms, including Google’s YouTube. Although streaming seems to have lessened piracy, free MP3 formats and torrent sites remain a serious concern for rights holders.
- Many content owners are frustrated with the Digital Millennium Copyright Act’s unmanageable and dysfunctional process and now regard it as a highly-profitable, generally artist-unfriendly loophole for some businesses. (Under the DMCA, an Internet service that allows users to post content to that service is exempt from any liability for that content under two statutes. The DMCA insulates the service from any claims of copyright infringement contained in any of the user generated content, if the service has met several standards. These standards include the obligations for the service to take down the infringing material if given proper notice from the copyright holder. The Service cannot encourage the infringement or profit directly from the infringement itself, and it must register a contact person with the Copyright Office so that the copyright owner knows who to contact to provide the notice of the takedown. Section 230 of the Communications Decency Act, essentially insulates the service from most other types of liability for the contents of user-generated content – including from liability for defamation and for liability under most other laws where civil liability can arise. However, the statute exempts intellectual property claims, which most services believed were covered by the DMCA safe harbor.)
- The RIAA has exhausted astronomical amounts of money chasing defendants for illegal downloads, that have had little impact on file-sharing and piracy as a universal issue.
XI.The New Publishing World:
- Music publishers are diversifying and performing traditional record company functions – will this affect the notion previously supported by publishers that mechanical royalties should never be allowed to cross-collateralize against unrecouped record-royalty advances (since publishers are now becoming investors in the artist’s record career)??
- More artists are electing to forego selling their music publishing rights and instead opt for administrative deals (artist owns music-publishing deal and gets less money on front end).
- More common for co-publishing deals to contain a reversion clause (i.e. artist’s share of publishing is returned to the artist in whole or in part after certain period of time)
- More insistence by music publishers for a delivery requirement of a number of songs that have been written and released by a major label (huge issue for artists that are later dropped by the label) – agreements should have specific exit strategies in the event they are dropped by major label.
- Songwriter agreements generally include provisions where the publishers are more likely to finance and further the writer’s careers (i.e. travel, studio time, demo recordings) – treated as advance against writer royalties. Certain types of exploitation allow for approval by songwriter and more favorable royalty splits that allow parties to explore opportunities for music licensing that often leads to new ancillary streams of revenue.
By: Michelle M. Wahl, Esq.
Above image courtesy of fotographic1980 at http://FreeDigitalPhotos.net
Michelle is a Partner at Swanson, Martin & Bell, LLP and is licensed in Illinois and Indiana state and federal courts. With a Masters of Law in Intellectual Property, Michelle is the Vice Chair of the firm’s Entertainment and Media Practice Group and a member of the firm’s Intellectual Property Litigation and Transactional Services Practice Group. Her copyright and trademark practice focuses on intellectual property prosecution and related transactions, including performing trademark availability searches and providing advisory opinions, as well as preparing and filing trademark applications with the United States Patent and Trademark Office, and copyright registrations with the United States Copyright Office. Michelle also assists with the oversight of the firm’s extensive trademark docket and conducts required monitoring and maintenance of clients’ trademark portfolios, as well as provides clients with corporate counseling and innovative corporate solutions to address their respective needs. Michelle further provides comprehensive representation in the drafting, negotiating and executing of various entertainment-related contracts and licenses, including but not limited to band member agreements, artist management agreements, session player agreements, performance agreements, publishing agreements, sound engineer agreements, recording and personal services agreements, and licensing agreements. As a former artist manager, she has implemented many facets of national and regional tours, assembled benefit and charity concerts, communicated with various industry personnel, facilitated radio and internet publicity campaigns, arranged radio, print and internet interviews, and assisted in the development of press kits and websites promoting local talent. Michelle has also guest lectured on entertainment and intellectual property-related topics at The John Marshall Law School and the DePaul University College of Law, as well as served as a panelist on various other entertainment-related continuing legal education courses. Michelle has written for the ABA’s Entertainment & Sports Lawyer Journal and has also had numerous articles published by the Chicago Music Guide. In addition, Michelle serves as Chair of Swanson Martin & Bell, LLP’s Community Service/Pro Bono Committee and proudly volunteers her time as Vice President of the Associate Board and as a pro bono attorney to Lawyers for the Creative Arts, a non-profit organization that provides free legal services to eligible clients in all areas of the arts. She recently served as Chair of the Young Lawyers Division for the Illinois Association of Defense Trial Counsel, where she was recognized as the Rising Star recipient and received a Meritorious Service Award and President’s Commendation. She is currently serving on the Illinois Association of Defense Trial Counsel’s Board of Directors.
DISCLAIMER: The information contained in these articles constitutes general information and guidance and shall not be construed as legal advice applicable to or provided for any particular person or entity, and shall not be deemed to create an attorney-client relationship between Ms. Wahl and anyone who elects to read and/or rely, to any extent, on the material provided herein. In that respect, Ms. Wahl hereby expressly and specifically disclaims any such legal relationship, but encourages any person or entity seeking a legal advocate pertaining to the issues addressed and discussed herein to contact her directly for further information. Ms. Wahl may be reached at Swanson, Martin & Bell, LLP (330 N. Wabash, Suite 3300, Chicago, IL 60611 or via telephone at her direct line: (312) 222-8585 or e-mail at: firstname.lastname@example.org.