This Chart Explains What Is Wrong With Current Streaming Model (Sorry Generation tl;dr)

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(Sharky Laguna’s recent post on the problem with streaming got me thinking about the issue again. I decided to probe a little deeper into the matter at UGA this week.   This is still a work in progress but I think this goes a long way to explaining the internal conflict within the music business over streaming.)

Apologies in advance to “generation tl;dr”  there is not a simple explanation here.   This is the best I can do: In a free market specialty or niche products generally cost more than mass market products.  So for instance a semi-ironic american flag tank top from walmart can be sold for $9 and the manufacturer still makes money.  This is in part because the fixed costs can be spread over a large number of buyers.  Compare that to a  Rockmount Ranch Wear hand stitched western shirt.   It’s impossible for this maker to sell this shirt at $9 and stay in business.  Now if through a combination of government mandates and cartel price fixing all shirt makers were required to sell each of their shirts for $9 the Walmart american flag tank top would stay in business.  Rockmount Ranch Wear would go out of business.

I’m simplifying here but, on-demand streaming pays a more or less fixed rate to rightsholders per spin. For Spotify it’s around  $0.0049.  For YouTube (Content ID)  it’s on average less than $0.001 ( YouTube is a much bigger problem for artists than Spotify!!).   This fixed price per spin was the result of a combination of government mandates and cartel price fixing.

So what has happened?  I’m generalizing here, but niche market artists (and their labels), even middle class artists  have a difficult time recouping fixed costs of recording and are generally unhappy with this sort of deal (not all).    Meanwhile pop stars, their labels and managers are generally happy with this deal because it’s easier for them to recoup their fixed costs (but again not all).   Both groups of artists/labels and managers are acting rationally from their own perspectives.

But if you really look at my chart you see that something much more troubling is going on. Niche products should be more expensive, while mass produced products should be less expensive.   But here the reverse is true.  Because of the fixed price per spin, the most popular artists look like they are being overpaid.  While the the niche and middle class artists look like they are being underpaid.    So in effect this is a transfer of wealth from the niche and middle class artists/labels  to the biggest pop stars and their labels.

++++++ tl;dr stop reading here+++++++++++++++

Assumptions:

My curve is   Y= Average Fixed Cost Per Song ÷X

Y = fixed cost per spin.

How do I know what the average fixed cost per song is?   I don’t.  I was trained in abstract mathematics -and I realize this is gonna drive the applied math and engineers folks crazy- but you don’t really need to know that.

It doesn’t matter whether the average fixed cost per song is $500 or $50,000 dollars you are still gonna get the same shape in the curve.   You will still have the biggest artists being overpaid and the niche artists being underpaid.

Further because spins of songs appear to exhibit  non-guassian variation the “break even” point is still gonna be up towards the top tier of artists whether fixed costs are $500 or $50,000.   My “break even” point for this version of the chart was just subjectively chosen. Its where I thought the “pain” seemed to be kicking in.  Artists in the below 10 million spins seem to be complaining.  Artists above 100 million spins, not so much.

 

UPDATE 1

One side of the scale (X axis) is log scale compressed, because spins/sales exhibit wild variation and I couldn’t properly  draw the curve on the chalkboard.  Unless the chalk board was several miles (?) long.   This misrepresents the size of “overpayment” region.    But the “underpayment” region isn’t really represented properly either.   My intent is not to have you compare the “area” of these regions. Just that there is an aggregate underpayment to smaller artists and an aggregate overpayment to very popular artists.  If you look very very closely it says “log?” on the Y axis.  The Y axis is not supposed to be Log compressed, though i did make that note.  I’m not really sure it would make much difference either way since I’m asking the reader to NOT compare size of regions.  Not compressing the Y axis helps make the curve more “readable” but distorts the size of regions.   But I am open to suggestion on this.

 

UPDATE 2

Finally remember I am talking about the hypothetical average song and the average artist.  There clearly will be individual exceptions. Of particular importance is that many small artists some new, some  semi-professional, others hobbyists (no negative connotation implied) will happily offer their music for free, and the low per spin rate is not a problem.   New artists especially, have always given away their music for free. It’s a competitive advantage and a key part of any new artist marketing strategy.  I’m sure you can find any number of small artists that don’t feel underpaid and instead feel that streaming services offer them an opportunity to reach a mass market.  The odds are long for these artists as the consumer is faced with a tyranny of choice, but it is still a rational choice for many artists.  And I am all for artists choice.   What concerns me the most is that this streaming model seems to underpay the vast middle class of working artists that are really the backbone of the music industry.

Is the video below a glimpse of what the future looks like without this middle class of artists :) ?

I welcome sensible and polite comments. I hope this provokes a conversation that leads to a better and more accurate model of this phenomenon  and eventually that leads to sensible solutions.

MERLIN Wizardry: Caldas Position on Free Streaming Makes Major Labels Look Benevolent

Look MERLIN the industry consortium that represents nominally “independent” labels is often held up as a spokesperson for the independent labels and artists.  You see this in the press all the time. First a comment from a major label spokesperson then a representative from MERLIN to give the “indie” viewpoint.   At the Trichordist we’ve long held the view that in  actuality MERLIN represents the interests of a tiny minority of “independents” that have some of the largest artists in the world. They DO NOT represent the interests of what most people would think of as “independent” labels.   The economics for those that produce mass market products (like pop hits)   is totally different than those that produce niche products (like progressive metal or indie rock). Yet time and time again we have seen MERLIN advocate for models and ideas that only work for the biggest players. Not independents.

Our suspicions were confirmed earlier this year when we saw MERLIN cut a payola- oops I mean “steering” deal with the famously anti-artist Pandora.   The history of payola clearly shows that it is a tool by which the entrenched players with substantial resources and market share keep the upstart independent players off of major media platforms.  We don’t see how this “steering” deal ends any differently.

Further MERLIN was so (there really is no other word to report the facts correctly) STUPID that they fell for a trick that Pandora’s Chris Harrison had previously used at DMX.   That trick was widely reported at the time. It’s jaw dropping that MERLIN was not aware it was being played. And exactly as we predicted Harrison took this “steering”deal a to the Copyright Royalty Board in an attempt to lower royalties for ALL labels.   Just as he did with the DMX deal. The pure incompetence of MERLIN regarding this deal should make independent labels reconsider their membership in MERLIN.

But this weekend at the  “Spotify House” at SXSW Caldas and MERLIN went further and made it abundantly clear where their loyalties lie.  Their loyalties lie with Spotify.   Caldas accused the major labels of having a “Napster moment” in regards to the free platform of Spotify.  While we are happy to see Caldas compare Spotify “free” to the original unlicensed Napster (because like the original Napster it pays jack shit to artists)  it seems a very very odd position for Caldas and MERLIN to take.  Why the hell does Caldas care that the major labels want to move away from the free tier and move it’s product to the premium tier?  Who the fuck is he working for?

If Caldas is right and the free tier is better for indie artists and the indie labels that he represents,  won’t the fact the major label product is behind a paywall help MERLIN labels?   Let them go dude!  Bigger audience for MERLIN labels.  But Caldas wants them to stay on the free platform?  Caldas position makes no sense. The only way this makes sense is if Caldas and MERLIN have some vested interest in Spotify.  Emotional, religious, ideological or otherwise, that is at odds with the interests of independent labels.   (BTW can’t wait for that Spotify IPO.  I bet there will be some artist attorneys interested in the who got stock.  Hell might even get an Eliot Spitzer type investigation.)

What’s really freaking bizarre about this whole episode, is within a few months we suddenly have the major labels taking a position against free streaming and letting artists opt out of the platform (despite their ownership stake in Spotify),meanwhile the leader of the consortium of independent labels angrily takes the opposite position.   What the hell is going on?

Tomorrow:  The math on why the current streaming model is a net transfer of wealth from small and middle class artists/labels to the big artists and labels.   

 

 

 

 

Charles Caldas (MERLIN) Praises Napster, Piracy and Promises to Reform His 1990s Rap Metal Band

Ha Ha. Okay Charles Caldas was never in a Rap Metal band.  As far as we know of anyway. So maybe this was all a joke. Maybe the Spotify house party was actually a 1999 theme party. It’s entirely possible he could have been in character and we got this out of context.   But we think not.  We didn’t see many folks dressed in black cargo shorts nor was their a tribute to Limp Bizkit on stage.

For all you independent labels who are “represented” by MERLIN  and don’t know what I’m talking about?  At the Spotify house party at SXSW Caldas  helpfully compared free Spotify to the original Napster.  He said:

“The major labels screwed Napster and screwed the market by killing what was potentially the biggest opportunity the industry could imagine in getting into the digital space early. If they follow through with this (moving Spotify from free to paid subscription), they are going to do it again”.

Yeah that’s right Chuck,  Napster which paid zero revenues to artists and songwriters was such a great “opportunity.”  Well that’s not fair, it was a great opportunity for the Multi-Billionaire Sean Parker.   Not so much for the little people.

Who’s side is MERLIN on?  Shouldn’t we independent artists and  labels be represented by someone who isn’t so obviously a fawning sycophant for Spotify?

 

 

2014 US Recorded Music Revenue Per Capita Down 2.75% from 2013

The RIAA has just released recorded music revenues for 2014. Many commentators are taking the raw figures and declaring recorded revenue almost flat.  Not true.  Revenues are down another 2.75% in 2014.

When you adjust for inflation and population growth we see a continuing decline in revenue per head from $22.12 in 2013 to $21.51 in 2014.

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Sell T-shirts? Gigaom Goes Out Of Business.

As we have recently noted, we are all pro-digital, it’s just some of us do the math, while others seem to believe in magic unicorns.

The digital news site Gigaom has spent the last several years scolding songwriters, musicians and the rest of the entertainment industry for its “antiquated” business models.   These complaints seemed to largely center around around what they regarded as a quaint notion: payment for content.

Not to spike the ball in the end zone, but I’m still in business and Gigaom is not. Maybe they should have sold T-shirts?

Well actually that is spiking the ball in the end zone.  But hey, they deserve it.  Just google “piracy” and “Gigaom” if you don’t believe me.

My bands have been web-enabled businesses since 1993 (Mosaic).  They’ve been web-based since 1999 (Napster).  Artists like myself know as much (if not more) about the digital economy than your average tech journalist. We’ve lived it for over 20 years.  Yet we are often portrayed as technophobes or luddites.  Or portrayed as too stupid to understand the “new economy” which doesn’t rely on revenues but is instead somehow powered by Magic Unicorn Dust™  and TED Talks™.   I can’t tell you how tired I am of hearing this bullshit from people who have never made a profit.

The New York Times has an uncharacteristically sloppy article which tries (and fails) to make the case that somehow Gigaom went out of business because they had 4 extra employees in the research division, and that it’s downfall isn’t a bad omen for other tech oriented news blogs.

http://www.nytimes.com/2015/03/19/technology/personaltech/digital-media-darlings-unfazed-by-the-fall-of-the-news-site-gigaom.html?_r=0

The New York Times may be right, however as a profitable tech entrepreneur, I really don’t see many tech blogs like Gigaom surviving without ongoing underwriting provided by silicon valley venture funds.   I could be wrong.  But just to be safe  I suggest that these blogs begin to transition to other revenue streams like merchandise and T-shirts.

( a reader noted this was relevant:  Here is a recent article from Gigaom chiding the NYTimes for taking so long to “get” digital.  They were out of business three weeks later.)

 

Did Broadcaster’s Push For Payola Waiver Start in Under-Publicized FCC Meeting in 2012?

As we reported over the weekend, big broadcasters are now asking the FCC for a “payola” waiver on terrestrial and digital broadcast.  “Payola Lanes” if you will.

But now we realize that this push likely started in a 2012 with a very under the radar meeting between four clear channel executives and FCC chief.

Matthew Lasar at Radio Survivor reported the meeting  March 12 2012.  He also uncovered a summary of the meeting with a paragraph that made him as he says scratch his head:

“In addition, Mr. Pittman discussed several ways in which the FCC can help radio to improve its competitive position by increasing the flexibility that it has to enter into strategic partnerships that will enhance the listening experience, while ensuring that audiences receive sponsorship information appropriate to today’s digital environment.”

Matthew Lasar went  on to state:

“My rough guess is that it could have something to do with iHeart Radio and the FCC’s sponsorship identification (or payola) rules, which require broadcasters to let the public know when some kind of “valuable consideration” has been given to a station in exchange for air time.”

Now we know Lasar guessed right. We now know that the Broadcaster are looking for an exemption to the rules that require immediate disclosure of “payola.”  Looks like the push started in 2012.  What other documents are out there?

It just keeps getting uglier and uglier.  See FCC document below:

08-90 03-08-2012 Clear Channel Communications, Inc. 7021899350

Question: Is @CountryMusic Association’s “Project Music” Use of Classic Album Art Implied Endorsement?

Project Music looks to be a joint venture between The Country Music Association, Nashville Entrepreneur Center, Google and others. 

I’m not a lawyer but isn’t Project Music’s use of these classic album covers  “implied endorsement?”  Since this is some sort of music endeavor you might think these artists are lending their name to this commercial music oriented endeavor.  I mean I’m sure most of the artists here don’t need the money, but still it’s nice to be asked right?

I’m probably overthinking this. I’m sure this was cleared first with KISS, Led Zeppelin, The Beatles, Tom Petty, Booker T and the MGs, Pink Floyd, Sex Pistols, Daft Punk etc etc.

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FCC Payola Lanes: Big Broadcasters Ask FCC for Payola Waiver

You think internet “fast lanes” were problematic? How about “payola lanes”  on terrestrial radio and webcasting? Payola is back! And it wants to go Legit this time.  That’s right, broadcasters are proposing a payola waiver from the FCC.  Here is the document they filed with the FCC.  Read it for yourself. It freaking unbelievable.  PDF below or you can read it on the FCC website here.

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Paying for airplay is not actually illegal.  As long as a radio station announces to its audience that the track you are about to play (or just played) is”sponsored” and who has “sponsored” it, no penalty.

Although this requirement is weak,  it has largely ended (blatant) payola**.  Having to announce this puts label, artist and radio station in awkward and unflattering position.

So big broadcasters are asking for a waiver that would change the way this rule works.  They propose phasing out this requirement in two steps.  First they want to lump all the “we accepted payola” announcements into a single announcement broadcast 3 times a day.  The idea here is you wouldn’t really know you were listening to a payola song. Even if you heard the announcement you wouldn’t necessarily be able to put the sponsorship with the song.

The broadcasters helpfully provide an example announcement:

“Some of the music [and/or] sports programming that you hear on this station is sponsored [or paid for] by Interscope, Sony, Universal Records, or the Washington Nationals. For additional information, please visit our website at http://www.WXYZ.com or contact the station at 12345 Main Street, Washington, DC 20036, info@wxyz.com, or 202-555-1234.”

After a transition period  they would only do a single block announcement once a day.

If for some reason you might think I’m exaggerating and  you think that there must be some logical explanation for this waiver request? Check out the totally hilarious and lame reason the broadcasters give for moving the disclosure to their website.  No one with good or honest intentions would ever provide an excuse this lame:

Broadcast disclosures are fleeting, and can be interrupted by the honking of a horn; they can be interrupted when a car is in a tunnel, or when a driver receives a call on a mobile phone and mutes the radio. Unlike the spoken word, online disclosures will remain available long after a broadcast disclosure has disappeared into the ether.

Car horns?  Well if you are trying to look  at the Sponsor ID page on the radio station website while driving I imagine there will be a lot of car horns.

You see what’s happening here, right?  They are making it so it’s palatable for radio stations to accept payola and for labels to pay to have their artists promoted.  If you’ve read your popular music history you know that we’ve had several periods of widespread payola and it’s negative consequences. The net effect was that large established record labels were able to block independents and startups from getting radio play.  We already know how this story ends.

This is a very dangerous.  Don’t let history repeat itself.  All indie artists and labels should be very concerned by this.   Fortunately the FCC is forced to ask for public comments on waivers like this.  We dug up the comment page. Unfortunately they’ve only given a curiously short period for comments. 30 days.   Let’s all chime in.  Let’s make a lot of racket.  Let’s not let the bastards get away with this.

http://www.fcc.gov/document/media-bureau-seeks-comment-waiver-petition-re-sponsorship-id-rules

While you are at it.  The President seems to have taken a keen interest in the affairs of the FCC.  Tell the President what you think about this payola proposal.

https://www.whitehouse.gov/contact/submit-questions-and-comments

** Payola has never gone away. Currently it works in an indirect and convoluted manner. Things like contests for radio station staff or record label artists play for free at event sponsored by radio stations, record companies pay above market rates for advertising their artists, etc etc.  And it’s virtually impossible to get on the radio unless you hire “indie promoters.” I wouldn’t be surprised if  money is still changes hands directly but under the table.

Everyone is “Pro-Digital” It’s Just Some of Us Do Math, Others Believe in Unicorns

New Jargon:  Math Doers & Magic Unicorn Lovers

There is no digital divide in the music business.  There is no pro-digital music business and anti-digital music business.  This is the real divide, it’s between  those that do the math on the revenues, and those that believe in magic unicorns.

I’m in a band. Like virtually every performer, I’m pro-digital.   I’ve been running a profitable web enabled business since 1993 (built our first website).  A profitable web-based business since 1999 (Napster). And managing a transmedia brand campaign since 2005 (YouTube + WordPress).  Bands were the early adopters of social media, crowd funding and just about everything that the digital gurus think was just invented (and need to desperately explain back to the pioneers for a fee).

Ever heard of  The Well and the Grateful Dead?  Anyone remember the pre www days of AOL? The most popular “boards” were hosted by bands to interact with their fans. Yeah we had acoustic dial up modem cradles sloshing around in the back of the van. Websites?  I know we had a website before Coca-Cola.  It’s fun to laugh at this now but Friendster was revolutionary, and it really took off when bands discovered they could convert their email lists to networks of friends.   Myspace specifically killed Friendster because they offered band pages and music players to bands.  Overnight bands moved their interactions with fans to MySpace.  And yes that’s funny to think about now but remember in 2005 people in Silicon Valley AND Hollywood were proclaiming it the future of the music business.   YouTube?  to this day half their top 50 videos are music videos.  We wrote the rules on social networking and social marketing.   We took the old Grateful Dead/DIY/indie-rock/punk rock grassroots techniques and applied them online.  In 2003 the big players in Silicon Valley and Holly wood they were still thinking top down.  Thinking about how they could use the web to “broadcast” out to fans.  I think that’s why bands identified with the early social media startups and self publishing entrepreneurs.  We immediately saw that they could help us get around the gatekeepers. They were helping us stick it to the man.

I can’t tell you how many talented coders, web-designers, and generally tech savvy people I know that play semi-professionally or professionally in bands. I believe bands are quicker to adapt new technologies and more efficient at using these technologies than practically any other business.

And because of our long experience in the music business we have serious bullshit detectors.  We have spent our lives dealing with crooks, charlatans, shysters, snake oil salesman and people that promise us ever elusive riches if first we do them this one little favor….

Our skepticism towards the new digital services may be confusing to some outsiders and consumers, but it’s almost always grounded in reality.  Remember we get the royalty statements, we see the contracts and terms of service. We could tell the moment it changed.  Meet the New Boss, Worse Than The Old Boss.  Bloggers and journalists?  Not so much. They just see the press releases from the digital platforms or glowing statements from some manager who coincidentally is an investor in DigitalSnakeOil.com.   (Although this sounds like I’m talking about ScooterBraun and Troy Carter,  I’m not.)

So let’s all say this together.  Everyone in the music business is pro-digital.  There’s just those of us who do the math.  And there are those who believe in Magic Unicorns.

Or profit on the IPO.

 

Founding Father James Madison Weighs in On Consent Decree @alfranken @sendavidperdue

Founding father James Madison weighs in on the songwriter consent decree:

“[government] interference is but the first link of a long chain of repetitions, every subsequent interference being naturally produced by the effects of the preceding.”

Respectfully, I suggest that Madison could have been describing the Kafka-esque rate courts.  Remember the NAB and PANDORA are the repeat petitioners in the rate court/consent decree. Not Songwriters.  I suggest you admonish the wrongdoers not the victims of this process.

& NAB is lying about data, most television shows come with music cue sheets. Isn’t it illegal to lie to Senate?