Why Some Mangers and Agents Love Streaming and Piracy.

Seems like every six months or so I have friends  forward me an article or interview with a manager or agent extolling the virtues of streaming (and sometimes even piracy.)  Usually this comes with some note that reads something like this “Agent/Manager  X thinks streaming/piracy is a good thing, Why don’t you?”  I am always  perplexed by this.   Of course some managers and agents love streaming and piracy! Less revenue from recorded music means their artists must play more and more live shows to make up the difference.  I thought everyone knew this.

You see managers and agents make virtually all their money from an artist’s live performance not from the artist’s recorded music.    However screwed up it might seem from an artist’s perspective it makes perfect financial sense (at least in the short term) for managers and agents to turn a blind eye to piracy and low payouts for streaming. Precisely because  it seems to result in more touring.  You can’t really blame them for this can you?

I teach a class on the finance and economics of the music business at the  University of Georgia.  I usually spend at least one lecture on the differing financial incentives for artists, managers and agents, and in particular how managers and agents are often incentivized to work against the artists long term interest.  Let me try to summarize that lecture here.  Especially how it relates to streaming and piracy.

First , have artists resorted to playing more shows to make up for declining revenues from their recordings?   In my case? Yes, absolutely. So have virtually all my friends.   There are plenty of  anecdotal stories of artists touring into their old age because recorded music royalties have dropped off.  Levon Helm of The Band is one tragic case and here’s Robert Hunter from The Grateful Dead spelling it out clearly.    But you don’t have to rely on anecdotal data as it is clearly reflected in the records kept by companies like Pollstar.  It depends on how you interpret the data but even the most conservative reading suggests there has been a 200%  rise in the number of shows since the advent of Napster.  Now this would all be great news except that average attendance has fallen and any gains in revenue appear to have gone to the top 1% of acts.

So why is this good news for managers and agents but not artists?   You have to consider the order in which people are compensated.   Managers and agents are paid first and off the top before expenses.  Artists are paid last and after expenses. Let me explain.

Agents.

An agent’s only source of revenue is commissions on live performance.  So if artists play more shows this is generally good for agents.  But dig a little deeper. Specifically agents usually receive 10% of gross.   Not net, but gross.  You get what that means, right?  Whether the artist makes a profit or loss on the show the agents commission comes off the top.  The agent always gets paid.

Example: a baby band gets a $500 club show but it costs them $465 dollars, in hotels, gas, rental vehicle, meals etc.   The agent still get’s his/her 50 bucks.   Off the top. Before expenses.  So the band would actually lose $15 dollars on that show.

A more subtle example is to examine what happens when a  band that normally plays 75 shows a year  suddenly starts playing 150 shows a year to make up for lost recording revenue. My wife is a concert promoter and books hundreds of shows every  year.  We see this situation all the time.  We are very familiar with what happens.    In order to accomplish this an artist may needs to play smaller rooms;  go into smaller markets and overplay and hence saturate some major markets.  The artists annual gross for live shows will not double as the result of playing twice as many shows. If the band is lucky they will see a rise in revenue of around 50%.   But unfortunately for the band, expenses may come close to doubling! As a result the artist usually only sees a small increase in their income since they get paid after expenses.  In some cases I’ve seen artists actually earn less by doing more shows!  I think this was the case for my band  in 2007! Regardless the 50% rise in gross revenues never turns into 50% rise in income to the artist.  But the agent DOES see a 50% increase in income.   As a result the agent has a much bigger financial incentive to see an artist play more shows even if the artists doesn’t see a substantial increase in income.

Managers.

Unlike agents, a manager typically does make money from recorded music revenue.  So you would think a manager might be more concerned about piracy and low payouts from streaming services.   But as it turns out managers make such a small percentage from recorded music revenues when compared to live revenues their financial incentives are no different than agents.   Again let me lay it out for you.

Like agents, managers are paid a gross percentage on their artists live revenues.  Typically a manager will get between 15%-20% of gross from concerts.  But it is customary that a manager take their cut of all other income after all expenses have been deducted,  i.e. they get paid when the artist (finally) gets paid.

So for instance if a band receives a recording advance of $70,000 and the band spends $50,000 recording the album, the manager only gets 20% of $20,000 not $70,000!

Similarly an artist is typically compensated for recorded music with an “Artist Royalty” of 10-20% of the wholesale price of a download, “stream”  or CD.  So a manager’s 15-20% of that means a manager only  nets 1.5%-4% of recorded music revenue.  And these royalties are only payable  after the artist has recouped it’s recording and promotion costs.  So in practice a manager receives very little money from these sources.

Finally a time-tested way for a manager to generate additional revenue is to get the label to pay for “tour support” and send the artist out on an otherwise unprofitable tour.  Stick with me  on this one cause this is brilliant scam.

Let’s say band X is planning a  tour and they have gross guarantees of $50,000 dollars but they have $60,000 in expenses.   The band would normally cancel this tour and the manager would get nothing.  Instead the manager requests 10k in tour support from the record label.   The record label hoping to generate sales agrees. The band then goes out on a break even tour but the manager still  pockets 20% of $50,000 which is $10,000.   Now where does that $10,000 in tour support really come from?  Does it really come from the label?  No.   It’s almost always configured as an advance against the artist’s royalties.   So in effect the manager has traded  20% cut of $10,000 in future artist royalties for 20% cut of $50,000 in live revenues.   The manager turned $2,000 potential commission into $10,000 actual bird-in-the-hand commission.

There are a zillion of these clever tricks that managers have dreamed up over the years, but that’s not really the point of this post.  The point is that managers and agents don’t really make anything off of recorded music revenues at least when you compare it to the amount they make off of live concerts.  Managers and agents have never really cared about revenue from recorded music and they have even less incentive to care about it now that streaming has obliterated what little revenue there was.

So managers and agents are free to say whatever they want about streaming and piracy.  But just remember  what’s good for managers and agents is not necessarily what is good for artists.  Keep that in mind next time you see an agent or manager extoll the “virtues” of streaming or piracy.   Heck some managers even own pieces of these low paying streaming services or worse unlicensed services that pay nothing to artists. No wonder they love  streaming and piracy.

 

 

 

 

 

 

 

Garth Brooks Says I’ll Take The 80, They Can Have the 20

trichordist:

Go Garth! Why choice for artists remains important.

Originally posted on MUSIC • TECHNOLOGY • POLICY:

When Garth Brooks was at his peak the last time around, I remember a story about him that stuck.  Garth visited the sales teams at some of the biggest retailers along with his label sales executives to discuss the set up for one of his albums.  After they’d all visited for a bit, Garth asked the label execs to leave the room and he stayed with the retailer’s sales teams.  “Now tell me what you wouldn’t tell me if they were in the room,” he said (or so the story goes).

That, you see, is a business-savvy artist.  This isn’t for everyone, but if artists are interested in their business, this is exactly the kind of thing you should do.

So it’s not surprising that Garth Brooks has held his records back from digital distribution all this time.  Apple wanted to commoditize his albums by forcing him to sell on…

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EFF’s John Perry Barlow is Wrong, says Google’s Chief Economist

Trichordist Editor:

just in case you missed it the fist time around…

Originally posted on The Trichordist:

What Artificial Scarcity?

John Perry Barlow is the outspoken EFF co-founder who wrote the sophomoric and nonsensical manifesto for the internet. Much of Barlow’s principal talking points regarding his complete disregard for the protection of artists rights in the digital age centers around the idea that “property” especially of the intellectual kind should not exist on the internet.

“Your legal concepts of property, expression, identity, movement, and context do not apply to us. They are all based on matter, and there is no matter here.”- John Perry Barlow

The fact that this is posted on the EFF website should be at the very least alarming, if not completely absurd for a policy group to display publicly as part of its mission.

There is much talk online by freehadist’s that digital bits are worthless and the cost of a copy is zero, therefore all content online has a near zero marginal…

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The Declining Utility of the ASCAP and BMI Consent Decrees: Music Licensing Study

trichordist:

Required Reading from Music Tech Policy.

Originally posted on MUSIC • TECHNOLOGY • POLICY:

The U.S. Copyright Office is conducting a “Music Licensing Study” as part of the government’s overall review of the U.S. copyright law with an eye to potentially overhauling the entire copyright system.  (See “The Next Great Copyright Act” by Maria Pallante, the head of the U.S. Copyright Office and the nominal go-to person for the U.S. Congress on copyright issues.)  The Copyright Office has received written public comments on questions posed in its Notice of Inquiry and is also holding public Roundtables in Nashville, Los Angeles and New York  (in that order).

I filed comments with the Copyright Office and this post is the last of a three part post focusing on each of the three points I made in my comments (see Songwriter Liberty and Audit Rights Under Section 115 and “Successful” Licensing Models and the Opt Out.)  This post discusses the out…

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Worth Repeating : Copylike.Org Artists Rights Postcards

Weatherley: ‘Cutting off ad revenue to illegal sites is key to piracy battle’ | Music Week

“Following the money is the key to shutting down the vast majority of websites that host illegal material,” said Weatherley. “This report explores a number of issues surrounding the piracy debate and I hope that it will spur further discussion both in the UK and, given the international nature of this problem, in other countries across the world.

“As the Intellectual Property Adviser to the Prime Minister, I feel that it is my role to highlight just how damaging piracy is to the UK economy. It is paramount that we curb advertising revenue that is going to pirates who are, in turn, seriously damaging our creative industries.”

Commander Steve Head, head of economic crime at City of London Police, said: “Disrupting revenue to pirate websites is vital to combating online intellectual property piracy and I therefore welcome the recommendations in Mike Weatherley’s report. We must take the profit out of this type of criminality and where legitimate companies, such as payment providers, are facilitating that profit they must be held to account if they fail to act.

READ THE FULL STORY AT MUSIC WEEK:
http://www.musicweek.com/news/read/weatherley-cutting-off-ad-revenue-to-illegal-sites-is-key-to-piracy-battle/058830

The Pirate Bay must be fought for the sake of exploited musicians | The Sydney Morning Herald

In Australia, there is very little that a musician can do to stop illegal streaming and downloading sites from using their work. These illegal sites make massive amounts of money from ads and nothing goes back to the artists who provide the content. Not one cent.

Sites such as the Pirate Bay and Kickass Torrents exploit artists in the worst sense of the word. These illegal sites do not support musicians’ careers. They deprive musicians of the right to have their work valued in a free and open market.

The success of these sites is predicated on taking without paying on a massive scale. In fact, that is their business model. They don’t create anything. I feel infuriated when I see my work and my friends’ work being used in this way by people who don’t give a damn.

READ THE FULL STORY AT THE SYDNEY MORNING HERALD:
http://www.smh.com.au/comment/the-pirate-bay-must-be-fought-for-the-sake-of-exploited-musicians-20140623-zsiqo.html

2.5 Million P2P Users Worldwide Illegally Shared The Top 60 Video Game Titles | Digital Journal

It’s not just music…

“With most of these games being $20 and $50 or more to download, the loss of revenue from this amount of piracy is huge,” said Kyle Reed, Co-Founder and COO, CEG TEK. “There’s been a lot of debate about whether or not piracy is really an issue for the massively successful video game business, but if publishers like Electronic Arts are losing nearly $30M a day in potential revenue on 13 of their hottest titles, that’s something to be concerned about.”

READ THE FULL STORY AT DIGITAL JOURNAL:
http://www.digitaljournal.com/pr/1983503

Songwriter’s Pie Anyone? | Shelly Peiken @ HuffPo

Financially, it’s less and less possible for a songwriter to make a decent living. I know of a few who have contributed to hit songs that are still having trouble paying their rent. I can’t help but wonder about the aspiring up and comer with big dreams and empty pockets, pockets that might still be pretty bare even after their dream comes true. Some reason that if they get their name on a few big hits it will open the door to bigger and better opportunities. They may be right about that but it remains to be seen whether the resulting royalties will allow them to make a down payment or put their kids through college.

READ THE FULL POST AT THE HUFFINGTON POST:
http://www.huffingtonpost.com/shelly-peiken/songwriting-hollywood-music-industry_b_5509579.html

Artists Take To The Streets to Protest Google/YouTube in NYC | NY Times

Last week, the dispute spilled out into the streets of New York. On Saturday afternoon, a few dozen supporters of the Content Creators Coalition, an artists’ advocacy group, picketed Google’s office in Chelsea, playing New Orleans-style marches on horns and carrying signs like “Economic justice in the digital domain” and “What YouTube pays? Nothing.”

Marc Ribot, a guitarist who has played with stars like Tom Waits and Elvis Costello, summarized how the larger conflict over streaming revenue affected artists’ careers.

“If we can’t make enough from digital media to pay for the record that we’ve just made,” Mr. Ribot said, “then we can’t make another one.”

READ THE FULL STORY AT THE NEW YORK TIMES:
http://www.nytimes.com/2014/06/25/business/media/small-music-labels-see-youtube-battle-as-part-of-war-for-revenue.html