Thursday, January 22, 2004

(Continued from Page 1)

The Music Industry's Bad Karma: Part II

The actual costs of recording an album have plummeted, and today the difference between an album that cost $200,000 to produce and one that costs only $20,000 "is barely noticeable to the general public," says Ben Jones, a guitarist and vocalist with the band Greystreet in Boston, Massachusetts. He adds, "a lot of bands get excited, blow their whole wad on making the record," and other costs, which often leaves the band deeply in debt.

The "wad" Jones is referring to is the often sizeable advance labels provide to new acts they sign. The music company recoups that advance on the royalties the band makes from their CD sales until the full amount of the loan is paid off.

Consequently, for most bands to make any real money on their CD sales, an album really needs to go "Gold", as Payne noted.

"Artists don't make much," says Payne, unless you make it big. Artists' contracts typically have them sign over a portion of their composition royalties, due to whomever penned the lyrics to the song, which provide per-song revenue each time a song is played on the radio or a CD is sold. The recording company retains the rights to the sound recording and reaps royalties on those (though radio is exempt from paying them). Currently, the statutory rates per song, called "mechanical royalties" and set by the U.S. Copyright Office, are 8.5 cents per song or 1.65 cents per minute of playing time, whichever is greater.

Every time a CD is sold, the songwriter and the band are due a percentage royalty. The American Society of Composers, Authors, and Publishers (ASCAP) says it ranges between 10 and 25 percent of the Suggested Retail Price per CD, after a whole variety of deductions and limits are taken into account. For one, the record company might set a maximum royalty per CD in the contract, so if the artists puts more than 10 songs on the CD, any additional royalty will go to the label. Sales from CD-clubs may be exempt or tallied at special reduced rates, and oftentimes artists record songs written by an outside writer and have those royalties deducted from their total royalty. ( More on ASCAP )

What's more, some artists do not even get paid for selling all that they've sold. "A fairly standard term in many record contracts," says Payne, "was that a royalty was only paid on 90 percent of net sales, and that was because in the days of LPs the claim was that 10 percent of them would break. And they just held that term over in the CD era and it had no applicability."

Because the record label recoups their advance on these royalties from CD sales until the entire advance is paid, "a large number of artists never make a penny from recording royalties," Payne says.

But unknown artists find themselves with no leverage to demand better terms.

The great artist swindle doesn't end there - labels bind artists to contracts requiring five to seven albums, which can easily span the life of the band, if not longer. If a band has the good fortune of becoming a hit, the band members often find themselves with little wiggle-room to negotiate a better deal.

A handful of artists have banded together and formed the Recording Artists Coalition, which is putting pressure on the recording industry to modify the way it signs artists. So far, the venture has met with little success.

Photo by Tanya Rosen-Jones Ben Jones at his Mac-based Recording Studio

However, technology will likely provide artists with greater leverage than quibbling with an intransigent music industry and their lawyers. Today, music recording, production, and distribution are cheaper than ever before, presenting an opening for talented bands to exploit.

Mr. Jones said that over the past few years he's sold off his original recording equipment and invested in his Macintosh computer, software, and a few microphones. "I have everything I had in the old racks of gear and then some," Jones said, "including editing abilities that were unheard of when I started home-recording 10 years ago. Technology is really amazing."

What's more, though the conglomerated entertainment industry still controls most radio and movies (Clear Channel Communications alone owns some 200 radio stations ), the prime outlet for music marketing (outside of live performances), that too is changing as web-radio and satellite radio gain in acceptance. There is no reason not to assume that, as with cable TV, radio will explode with options. Already via the Internet we have hundreds of radio stations at our disposal - soon they'll be available in your car.

"What [the music industry is] really worried about is that they've lost their iron-clad grip on the content creation, and distribution chain," says Payne. Up to now, "they could set whatever prices they wanted, they could dictate whatever terms they wanted, they could control the market. And now… the market has the potential to control them. And they don't like that."

When he's not playing gigs, Ben Jones runs his own web design company, Blue Coda, and his own virtual record label, Blue Coda Records. Despite his own online ventures, Jones remains skeptical when it comes to the idea that the Internet is going to help independents get much publicity.

"The Internet is great for independent bands and the distribution of their music," he said by email from his studio in Cambridge, Mass., "But with rare exception, the Internet is not going to lead to someone becoming a rich rock star."

"How do you get 50,000 people to come to your show?" Only by mass-marketing, he says. "The Internet can't do that for you."

That is likely why promising bands still gravitate toward the big-label stalwarts, or small labels with megacorporation ties, because they have marketing ability to get radio or club play.

Getting 50,000 people to show up at your next gig might be a bit hopeful, but that doesn't mean that the new bands of today can't take advantage of a multitude of services on the Internet that will burgeon their fan-base with guerilla marketing tactics and web-radio play. Just as the Internet itself is an untamed sprawling web of technodemocracy, diffusing our once hyper-focused attention on a few channels onto myriad sources of information, it may hold the same promise for music - instead of a relatively small contingent of big stars, we might end up with a much larger pool of well-known successful musicians, who find themselves much more capable of making a decent living.

To some degree, this has already happened - in the 80s, you could only find small-label music at independent record stores. Outside of college towns and the big cities, those stores have mostly disappeared, probably because much of the music is available at Barnes & Noble, which carries a decent selection of once-obscure music. Granted, today's independent sleepers are probably hard to locate there, but the "mainstream" has definitely widened to include a much greater variety than it used to.

All the evidence points to that stream expanding further.

Enter iTUNES. Now, iTunes is here, legitimizing digital distribution (DD) with its user-friendly interface and terms-of-use, and is reporting sales of 30 million songs since its introduction. Napster is back, similar to iTunes, though it offers users a monthly subscription service with added features like full-song streaming previews, instead of the 30-second previews on iTunes.

Sony is bringing up the rear, planning on releasing its DD software, dubbed "Connect", this Spring, and there are many other sites out there that offer music in Widows Media Audio format.

It just so happens that these "e-music services" are also looking to distribute independent artists' music - in addition to the popular mainstays.

What happens if you mate a service like iTunes with an independent CD-vendor like CDbaby? CDbaby is a website that has been helping artists sell directly to consumers over the Internet since 1998. Now you can find more than 50,000 artists on the site and CDbaby has paid out $5.9 million to those artists.

Now CDbaby has partnered with iTunes. Alex Steininger, Vice President of Marketing for CDbaby, said that CDbaby's DD program is free - CDbaby delivers the files to Apple in the desired format. CDbaby's cut is 9 percent of the sale, and the artists get the other 91 percent. iTunes is paying CDbaby the same royalty rate it's paying the big labels - between 60 to 80 cents per song, according to Eric de Fontenay, editor and founder of the Music Industry News Network (Mi2n.com).

Apple did not comment as to the nature of its partnership with CDbaby. Currently iTunes advertises that 200 independent artists are available through its service.

Alex said about 10,000 of the artists using CDbaby have signed up for the digital distribution program so far, with more signing up daily.

Another e-music distribution site, MusicRebellion, though not anywhere near as slick as iTunes, allows users to search for "College and Local" music by zip code.

Services like iTunes could quickly become the equivalent of user-driven radio stations as well as song stores: they still have the big artists and attract large audiences, but users might come across some independent artists' song by seeing them listed in the "Users who bought this also bought…" or the "Top 50 independent downloads this week" section. The services will certainly begin adding all kinds of features, like alerts that tell you when bands you've downloaded will be playing live shows in your area.

Today, you have to go to a band's website to find out news and information, and many label websites are downright worthless. iTunes and company are filling this gaping hole in the business, and could exponentially increase the impact of word-of-mouth and our knowledge of what's out there.

On top of that, single-song digital distribution could give a whole new meaning to "One-Hit Wonder". Small bands could awaken one morning to find that one of their songs has sold one million copies world-wide.

Think the fantasy far-fetched? Not necessarily, but don't expect to be a big hit unless you're one of the first - it could become a standard phenomenon. We can be sure, once consumers get used to the new system, and notice that they're spending a lot more than they thought they were at 99 cents per song, that per-song prices will start dropping. MusicRebellion has already instituted a pricing system based on the consumer demand for the artist.

Payne says that iTunes and similar services should be selling songs for "50 cents or less. I haven't run the numbers," he confesses, but "Obviously, there are still costs involved in digital distribution, but they shouldn't be anywhere near the costs of conventional physical distribution, and there should be fewer middlemen taking a cut."

Though Eric de Fontenay doesn't anticipate the recording companies reducing their royalties anytime soon, he still thinks we could see prices come down: "The question is, to what extent are companies willing to price below cost. And that's I think where you might see a lot of innovation." File-sharing, he says, has demonstrated that "music is a loss-center….but it is able to generate a lot of ancillary [consumption]. People are going to buy an iTunes song…and maybe an iPod, or a Mac."

"It's going to be interesting to see how it influences the development of new music," de Fontenay says of the entrance of consumer electronics manufacturers Apple and Sony into the music business, "for example, computer companies and tech companies might say we want a lot more diversity and go after all types of little niches…"

In the expanding sea of options marketing your music will be as important as ever. Mr. de Fontenay runs a music promotion service dubbed "Artist Express" which provides musicians with marketing of their releases throughout de Fontenay's MusicDish network, which claims 40,000 visitors per week, and on select web-radio stations - for only a few hundred dollars.

De Fontenay suggests that "a whole new set of actors are going to replace the labels, because the labels functions are going to be reduced to finding and developing acts, and especially marketing." Meanwhile distribution would shift to businesses like Borders Books and Barnes & Noble, who already have huge distribution infrastructure in addition to comfy café-stores that could hold, say, live band competitions - the winner getting a record distribution deal.

In the great transformations that are afoot, what we might see in the not-so-distant future are considerably more success stories like Ani Difranco's. Difranco launched herself into prominence the old fashioned way, playing live and cultivating word of mouth. Her great voice, unique talent, and brilliant lyrics probably didn't hurt. She opened her own label, Righteous Babe Records (RBR), which enabled her to net substantial margins on CD sales.

However, that makes file-sharing a threat to RBR's subsistence. "It's been killing us slowly," Difranco told NPR's All Things Considered, but she laughed melodically and then continued, sanguinely, "All the more reason to get a venue happening…because that's been my bread and butter from the beginning, just touring…"

Live performances still remain the key to entering the world of entertainment - there's nothing like a band that puts on a great show. But with new bands it's often just as likely that you'll be disappointed after paying your $5 or $10 cover, so it would definitely help to get the sound out beforehand, especially to penny-pinching college students who probably make up the bulk of the audiences of most small bands playing live.

Indeed, venues like Harper's Ferry in Boston, located right next to Boston University, where Greystreet played recently, might begin to coordinate with its bands to provide clips of songs of upcoming acts on its website. It would certainly put their club websites to better use, and serve as advertising for the club.

Many of the ingredients necessary to give birth to a musician and consumer-friendly world of music are already here. "Illegal" file-sharing and iTunes have catalyzed the transition, forcing the industry to make some changes. Still, forging a more democratic music industry will require the widespread adoption of wireless Internet and satellite radio. Certainly, megacorporations will always maintain some level of sway, but just as the original television networks NBC, ABC, and CBS have watched cable and satellite television overwhelm their oligopoly, companies like Universal Music Group and ClearChannel will eventually experience a similar fate.

Finally, technology is throwing the music industry a curve ball that it can't hit.

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