This past week, Pandora sued the American Society of Composers, Authors and Publishers in order to lower the royalty rate it pays to music publishers and songwriters. And in the days after the election, analysts discussed how the exit of pro-music representatives in the House could affect the industry. Also, Rolling Stone laid out the challenges former major label artists face when they go the DIY route.
Pandora Will Continue to Fight a Royalty War
Pandora Media is continuing to fight royalty rates for streaming music online and Internet radio. Last week, the company added another target to its attacks on performance rights by suing the American Society of Composers, Authors and Publishers (ASCAP).
The music service has joined a battle that has been fought for more than a decade, recently rejuvenated by a bill presented to Congress – the Internet Radio Fairness Act – that could change the way royalty rates are set. Ever since Pandora went public and streaming music sites like Spotify have started to cut into its revenue, which is largely based on the size of the royalties it pays out, it has been lashing out at all those who make money off music and accuse the radio service of trying to get a break at their expense.
The Internet Radio Fairness Act was introduced in September and, if passed, would potentially lower the royalties Internet radio services pay to record companies. Pandora, Clear Channel Communications and many other technology groups are in support of it, because they feel the change it offers would finally align its royalty payments with other digital services like satellite radio that pay less. However, the music industry was disagreed.
Pandora sued the American Society of Composers, Authors and Publishers – one of the U.S.’s major performing rights organizations – on November 5 in an effort to decrease rates for itself yet again, this time the rates it pays to publishers and songwriters. Pandora’s license with the PRO ASCAP expired nearly two years ago. And in this most recent suit filed in the U.S. District Court in Manhattan, Pandora asked the court to grant it a new licensing deal that had “reasonable rates and terms.”
Once again, Pandora is asking for fair treatment, comparing itself to regular broadcast radio. Radio stations pay 1.7 percent of their revenue in publishing royalties, less the amount they pay for advertising commissions. But Pandora pays 4 percent without deductions.
A Pandora spokeswoman said, “ASCAP continues to seek rates higher than the current rates and above the agreement that they reached earlier this year with all of the major radio groups, which covers both broadcast and Internet radio usage for the majority of our competitors … As a results, we are initiating the process that has been in place for decades to resolve royalty disputes with ASCAP.”
While ASCAP did not weigh in, David Israelite, president of the National Music Publishers Association, was critical: “It’s outrageous Pandora would try to reduce the already nominal amount they pay songwriters and music publishers, when Pandora’s business model is based entirely on the creative contributions of those songwriters.”
The recently-filed suit is also tied up with the controversial issue of direct licensing. ASCAP provides blanket licenses that cover the material it represents. But because some publishers, like EMI, have decided to work with PROs to manage their digital catalog, Pandora wants to be able to “carve out” the cost of licenses it has to negotiate directly from that fee.
These “carve-out” deals have been proven to be sound by two recent court decisions in favor of DMX, a company that provides music in retail stores and restaurants. Those who support the deals feel that publishers can make more money if they are able to negotiate for themselves. But those against them feel this undercuts the strength of collective bargaining through organizations and diminishes the worth of music licenses, which hurts artists.
Did the Election Hurt the Music Industry?
The big news on November 6 was the re-election of President Obama, but the day also brought about the loss of one of two major music-business supporters, according to an article on Billboard.biz. Howard Berman lost his seat in the House after 30 years in office, and Mary Bono Mack, widow of Sonny Bono, was ousted after serving 14 years.
However, there were other friends of the music industry and those working on laws impacting webcasting royalties who were reelected and those that were already going to be in Washington in 2013. And the music industry could have pro-music-industry politicians acting as the chairs of judiciary committees in the House and the Senate, which will be important to continuing the conversation about copyright issues.
Berman’s loss was the result of redistricting and a top-two primary system when he was pitted against another popular Democrat, Rep. Brad Sherman and lost, only earning 39.5 percent of the vote. Berman has been a longtime advocate for content owners, supporting anti-piracy legislation and co-sponsoring the Copyright Royalty and Distribution Reform Act. He also co-sponsored the Stop Online Piracy Act (SOPA) and was in favor of the Anti-Counterfeiting Trade Agreement (ACTA). He is also on the Subcommittee on Intellectual Property, Competition and the Internet.
RIAA chairman and EO Cary Sherman said, “In his 30 years in Congress, Congressman Berman has been a shining example of leadership and public service … His ability to legislate and his keen intellect have left an important legacy that will benefit creators and the country at large for many, many years.”
Many in the music industry feel that the loss of Bono Mack will be felt by artists and the larger music business, especially since she is co-chair of the Recording Arts and Sciences Congressional Caucus and, being a copyright holder herself through her late husband’s works, understands many of the issues faced by artists, publishers and songwriters.
However, the music industry will still have friends chairing Judiciary committees in the House and the Senate. Sen. Leahy will be heading up the Senate Judiciary Committee because Democrats kept their hold. Although Republicans kept control of the House, the current chairman of the House Judiciary Committee Lamar Smith will run into term limits. And Rep. Bob Goodlatte, chairman of the Subcommittee on Intellectual Property, Competition, and the Internet is expected to take over chairmanship of the House Judiciary Committee in 2013.
On the state level, music industry proponents in Tennessee – Bob Corker, Jim Cooper and Marsha Blacburn – were re-elected. And Utah Sen. Orrin Hatch, a songwriter and member of the Senate Judiciary Committee was re-elected for a seventh Senate term.
Politicians at the heart of the raging war over digital performance royalties will also be in office next year. Jason Chaffetz and Jared Polis, who sponsored the Internet Radio Fairness Act, were re-elected to the House. And the author of a competing bill, the Nadler Bill, Jerrold Nadler also won his reelection to the 8th District of New York. His bill is backed by SoundExchange and the RIAA.
President Obama’s reelection also means that the two biggest people working on intellectual property law enforcement, Victoria Espinel (IP Enforcement Coordinator for the White House) and Director of I.C.E. John Morton will remain.
Major Label, to DIY: What Are the Real Challenges?
What happens when major label artists decide to go DIY? According to Rolling Stone, they face the same challenges as anyone else, and sometimes find the landscape of the music business more challenging than they expected.
Garbage is an example of a major label band that got a “crash course” in the new realities of the music business as they were recording their latest album Not Your Kind of People. After the members left Geffen, they started to investigate their options. Front woman Shirley Manson revealed, “We’re used to the old system … so we thought, ‘Let’s see what’s out there’ …” She and her band mates had been out of the game for so long that she admits they had little familiarity with the possibilities.
Because none of them wanted to sign with another major label, Garbage members decided to take a cue from Radiohead and Nine Inch Nails and release an album on their own. However, they quickly discovered how expensive the process of recording and making videos can be. Manson said, “The freedom it affords you is so amazing … but it’s nerve-wracking. We’ve put our own money into it. Bringing the record out on our own label poses some problems for us.”
Bands like Garbage that came to life in the music business’ profitable ‘90s as well as new bands that do not realize it has changed are learning the hard way that the industry is not even what it was five years ago, let alone 20. In the past, bands enjoyed sizable cash advances from labels to help them record albums and videos. And after their records were released, they would tour for anywhere up to a year. Mass outlets like MTV would promote them, and then the band would be able to take a break before starting the same cycle again.
But in the Digital Age, recordings and touring just are not making money for labels or for artists. CD revenue has declined, and to compensate, musicians have to go on exhaustingly-long tours, then find multiple ways – from licensing songs to TV shows or video games, to asking fans directly to contribute to their recording costs – to put together a modest living.
Dan Reed, music director of NPR’s World Café sees a lot of artists come through his studio. He stated, “I used to hear the word ‘overexposure’ more than I do now … In this crowded media market, I don’t think there’s such a thing anymore. Bands are vying for any spot they can where they can reach a sizable number of people. We’re all working harder. The music business is no different.”
And musicians have to keep pushing out new material at breakneck speed in order to keep apace of the rabid music fans that are used to the bounty the Internet provides. The band Tennis decided to release its second album Young & Old just 13 months after its first in 2011. Singer and keyboardist Alaina Moore shared, “The demand for music and output is so high … If you stop altogether, which bands used to be able to do, people will assume the worst and move on and forget about you.” She added that the band’s management will even call asking for new tracks when they are out working on the road.
The band’s manager, Rob Stevenson said that while Twitter and Facebook certainly brings about closer relationships between bands and their supporters, they provide an unfortunate distraction for artists that can take time away from honing their craft: “Fans expect things to come directly from the artist … You have to get yourself to the next gig and do a good gig and do all your social media stuff. And there are still only 24 hours in a day.”
Amanda Palmer echoed the ridiculousness she feels sometimes trying to connect to her fans via social media. She tweeted with fans while sitting at her piano and writing a new song for her latest solo album. She said, “I felt kind of silly, and my superego was saying, ‘Really, Amanda?’ But hundreds of people were writing, ‘I can’t wait to hear the song.’”
Of course, to get around shrinking recording budgets and the need for record labels, some artists have started using crowdfunding platforms like Kickstarter. Fans contribute, on average, $25 apiece to music projects. And some bands often raise around $20,000, giving contributors autographed records, concert tickets and other items in return for their support.
So, how do musicians really make money? Amanda Palmer made news when she raised over $1 million via Kickstarter to pay for and promote Theater Is Evil. While this seemed like a lot to many critics, she said she actually ended up with less than $100,000 after expenses: “People say, ‘Don’t you feel awful begging your fans for money?’ And I say, ‘You don’t get it – I’m doing my job.’ Musicians used to think if they worked hard, they’d be a star like Madonna. Hopefully we’re seeing a new understanding of what it means to be a working-class musician. It’s a job.”
The truth is record sales have never brought in major income for artists. The cost of creating and promoting albums was simply charged against their accounts. Today, artists can count on album sales even less than ever before. And digital streaming has not yet settled in as a lucrative channel for artists.
Touring is how a lot of bands are making ends meet, but making a living at it means spending huge stretches of time on the road. Party band Fitz and the Tantrums and the band Dawes each left home to promote their albums in the wake of dismal sales, and stayed out for almost three years, playing multiple shows per day at clubs and for online outlets. Lead singer of Fitz Michael Fitzpatrick said, “It’s really exhausting. You’re doing a performance for a website and you know they have almost no readership, but you do it anyway. You’re in somebody’s garage doing a taping and you know no one will see it, but you think, ‘OK, five more fans here or 10 more there.'” The band has to earn $3,000 per night just to earn its overhead. And it only consistently hit this amount after touring for two years.
Despite all the heartache, musicians say that the music business is giving them huge opportunities they never had before such as incredible creative freedom. Manson said that after enduring huge creative debates with Geffen, “We were immensely relieved not to have any major label influence whatsoever … I turned in some songs and they were met with unbelievable contempt. They were telling me that because they weren’t pop songs they were worthless, and I should make a record like Duffy.”
And selling music and tickets has become easier thanks to social media. The band Dispatch cut a deal with Facebook recently to sell tickets to shows at Madison Square Garden. The band spent no money and sold 58,000 tickets. Fitz and the Tantrums gave away free MP3s of their music in an effort to sell more tickets to their live shows and ended up increasing their album sales by 120,000 copies.