All figures approximate, but based on numbers provided by Morgan Stanley and IFPI.

1. Berklee College of Music/Rethink Music report on fair pay and transparency in music business primarily focuses on “black box” at traditional music industry players like labels, PROs and publishers. Ignores black box at the digital services.

2.  The Berklee College of Music/Rethink Music report derides the NDA (non-disclosure agreement) culture that pervades the digital music business, but implies that this is a problem with the labels, publishers and PROs.  But it is a well known fact that it is the digital services that demand the non-disclosure agreements.

3. The Berklee College of Music/Rethink Music report was funded by Kobalt Music which is a Google Ventures company. And Google owns YouTube.  Rethink Music was started by The Berkman Center.  The Berkman Center is an “academic” institution that has close ties to Google.  For this reason we believe this report to be a damaging piece of propaganda that distracts artists from the bigger problem: Low pay and no accountability from the digital services like YouTube.  At best Berklee College of Music is “fighting the last war” and in effect protecting those who exploit their students.

The “transparency report” from the Rethink Music Initiative at the Berklee Institute of Creative Entrepreneurship has a number of real howlers in it.  As one might suspect from an organization backed by the Google-funded Berkman Center, the “transparency report” contains recommendations that are both highly beneficial to the tech industry and entirely out of touch with reality.  The Berkman Center was founded by Charles Nesson, the bizarre Harvard Law School professor whose catastrophic losing representation of p2p defendant Joel Tenenbaum in an absurd file-sharing case yielded a resounding thud.

The Berkman Center is home to a lot of strange ideas.  Who can forget Nesson and fellow-Berkmanite Lawrence Lessig‘s backing of the Harvard-based “Global Poker Strategic Thinking Society” (an apparent astroturf operation) right about the time that Creative Commons got big bucks from one of the founders of online gambling company Party Gaming who pleaded guilty to violating U.S. gambling laws  and paid a $300 million fine.  (In a strange coincidence, Party Gaming was also an early ad partner of Megavideo alongside Google and AdBright.)

We could go on, but you get the idea.  Very Googley.

Take this passage for example.  Not to speak ill of the dead, but as we noted last week, the Berklee report admiringly recounts some business ideas that demonstrate that the late Mr. Dave Goldberg may have been a great tech executive, but had no clue about artist development.  None.

Also released in the Wikileaks emails [from the “North Korea” hack of Sony Pictures] was a memo requested by the Sony [Pictures] CEO from recently deceased Dave Goldberg, former head of Yahoo! Music, about how to pivot the company into a revamped all-digital enterprise. “The record company needs to act like a music publisher for new releases—putting up very little money but not trying to hold artists for long contract periods or to keep as much of the revenue. Advances would be $50,000 with a 40 percent revenue share after the advance… Most fixed headcount in new releases will need to be eliminated, artists will need to be paid quickly and transparently, deals will need to be simple and fair and catalog replenishment is the only goal of the new release business. Artist contracts that have large fixed marketing costs will need to be restructured or sold off as there will no longer be headcount to do the work. New releases will be tested on consumers before added money is spent to ensure that it isn’t wasted. In short, the new release business will become like an independent label.” To date, these recommendations have not been implemented.

Perhaps we can all agree on the premise that if it were that easy, everyone would be having hits.  Or if you lower the bar far enough for what a “hit” means, then everyone will be doing it.  As one commenter noted, this sounds vaguely like one Guy Hands, another who thought that because he went to a nightclub and bought a CD, he could tell everyone how to run the music business as he ran EMI straight into the toilet.  And we never hear anyone saying, what would Guy think?

So consider these excepts from Mr. Goldberg:

1.  “The record company needs to act like a music publisher for new releases—putting up very little money but not trying to hold artists for long contract periods or to keep as much of the revenue.”  This one is, of course, absurd on its face.  Publishers pay artist/songwriter advances based on (A) competitive forces and (B) their projection of the future earnings of artist-written songs on a current album plus songs that don’t exist yet.  It is ridiculously out of touch to act as if music publishers “put up very little money” as a matter of business practice.  “New releases” are valued in part by taking the temperature of the record company spending the marketing dollars to sell the records and earn mechanicals, performances and hopefully syncs for the publisher.  So you can see that this sentence is essentially a nonsense statement and has serious causal flaws of logic.

Like a record deal, term artist/songwriter co-publishing agreements are usually a series of options.  Granted, the typical co-publishing deal may be for fewer albums than a record deal, but the exploitation term is usually for the life of copyright with some contingent reversions.  Is that all that different than a recording artist agreement?  Not so much.  While a major label record deal may have a term of 4-5 albums, those are still usually options.  Given the drop rates at major labels, staying signed is not that big a problem anymore.  Most artists hope they stay signed long enough to get their first album released.

So “long contract periods” are something of a red herring in reality.

Publishers paying an advance will typically keep 100% of the song revenue until recoupment (other than the writer’s share of PRO monies), so how is it that they don’t “keep as much of the revenue”?  Labels don’t keep the artist share of SoundExchange royalties, either.  And by the way, publisher advances are often tied in large part to the release of the album by the record company.

Is this the statement of an informed person?

2.  “Most fixed headcount in new releases will need to be eliminated, artists will need to be paid quickly and transparently, deals will need to be simple and fair and catalog replenishment is the only goal of the new release business”

If “most fixed headcount” is “eliminated”, exactly what will be driving the sales that are to produce revenues that will recoup advances and result in payments to artists (aka Berklee students and grads)?  And by the way, good luck getting anyone to sign to a label that proudly announces it has “eliminated” “most fixed headcount” for the personnel necessary to break new artists.

Particularly if you tell the artist that the reason for their existence is for “catalog replenishment”.  We can understand why “catalog replenishment” might be the goal of the tech company wishing to commoditize all music, but that’s not the reason that artists get into the music business.  Send the intern out for some fava beans and a fine Chianti.

3.  “Artist contracts that have large fixed marketing costs will need to be restructured or sold off as there will no longer be headcount to do the work. New releases will be tested on consumers before added money is spent to ensure that it isn’t wasted. In short, the new release business will become like an independent label.”

This is the biggest howler of all.  “Artist contracts that have large fixed marketing costs will need to be restructured or sold off as there will no longer be headcount to do the work”.  Now there’s a selling point for artists, eh?  First of all, what they do if there’s an artist agreement with big marketing commitments for the next record that have become unrealistic is drop the artist.  And if that’s the case, exactly who is going to be the buyer if the contract is “sold off”?  Artists are not chattel, you know, the idea that a label can just sell off an artist agreement tells you a lot about the perspective of the speaker.

It’s just insulting.

But check this out: “New releases will be tested on consumers before added money is spent to ensure that it isn’t wasted.”  Right–because nobody does market research and the market research that is done is always correct?  And the new release business will become like indie labels?  That statement is so nonsensical it’s not worthy of comment.

Do you think that Ahmet Ertegun, Sam Phillips, Berry Gordy, Clive Davis, Chris Blackwell, Jim Ed Norman, Marty Bandier, Herb Alpert & Jerry Moss, Jimmy Iovine, Doug Morris, Russell Simmons or any of the great record guys did focus group testing to find hits?

By the way–here’s a significant part of that email that Rethink didn’t quote.  Notwithstanding Rethink’s best efforts to make him look like an idiot, the late Mr. Goldberg understood exactly what he was getting into:

If you still want to discuss this after you digest this, I am happy to find a time to come down to talk about it more. I think this amount of reinvention has rarely been done inside a public media company and it would be tough for Sony as a company to stomach the complaints from artists, employees and related parties (RIAA budget would be slashed, as an example). We would have to really decide if it was possible if you agreed with my thesis. I would also want to do a lot of actual work prior to implementing to validate the data behind the assumptions and understand the sequencing. I think it is a two-three year project to shrink the company down to the end state with a lot of noise in that period….With catalog providing the base profits, new releases need to be cut back dramatically to the point where the new business either breaks even or loses a small amount of money (justified by the long term catalog income stream of those songs).Thus, if the new release business is oriented towards building new deep catalog, it changes the entire process from trying to pick big hits to safely getting some good music out that has longevity. This will bias new releases to genres like rock and country that typically have had strong catalog. These also happen to be the genres that don’t have expensive producers so more music can be created for the same A&R dollars.

Mr. Goldberg clearly expected “noise” from artists.  He’s partly right about that–but the “noise” would stop pretty quickly as the version of Sony Music that Rethink Music wants to see would be the one that no artist would want to do business with and no songwriter would sign to.  So unless every record company followed the Rethink model, the one that did–and we predict there would be one–would lose every signing to the sane people.

If you want to read the entire email thread, you can find it here.