GRAMMY TOWN HALL
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Our Government Thinks We're a
Bunch of Douchebags

While the general public sits home watching wrinkle rock on parade, to those actually in the music biz the Grammies is a week-long affair. It's parties, yes, but it's mostly important meetings. The crown jewel of which is the "Town Hall." This is the place where NARAS (National Academy of Recording Arts and Sciences) members and journalists get to ask select politicians, who are supposedly guarding our interests on the Hill, the tough questions; the legislative questions; the questions behind the issues that are going to shape the next 20 years.

Question one was posed by NARAS Vice President of Advocacy & Government Relations, Daryl Friedman, and let me tell you, it had the senators squirming: "What song do you think best describes Washington?"

Ouch! What a sting. For a second it occurred to me that NARAS might take this gathering about as seriously as they seem to take their other so-called "advocacy efforts." Which is to say, it's a great way to gather a bunch of rich, music folk and make them feel outraged enough to bring a checkbook. But then I realized that while NARAS could focus a bit better on the education and advocacy part of their mission statement, few others are doing even half what they have done for the music biz.

After the levity of smug answers like, Fool on the Hill, and You're so Vain got us all in the proper mood, the agenda quickly turned to something relevant: "What the hell are you clowns doing about stopping P2P (peer-to-peer file sharing) from destroying our industry and what are you doing about getting performance royalties for artists on terrestrial radio?"

Marsha Blackburn, lead with a hollow simile that completely misstated the legal issues at hand: "I liken piracy in radio to piracy on the high seas."

Okay...

Darrell Issa, Micheal McCail and Linda Sanchez followed with comments that were far more on-point, but no more reassuring, and it was not long before the dialogue turned to the controversial solution to all the Music Biz's problems: an IPS tax as compensation for infringers using the internet to rob music makers.

The basis for this already exists in the form of a tax on blank media collected every time consumers buy a CDR. Could this concept be legislated for the internet? Panelists steered away from responding directly. They know that ISPs butter their bread far more lucratively than record companies. Instead they suggested the music industry make the subscription model "work better." "Remember," one senator said, "legislation doesn't make good business models. Business people make good business models." (Sigh...)

At this point, one frustrated mega record exec (whose privacy I'll respect in this piece) stood up and retorted that the numbers for subscription services "Just don't add up," that the industry is competing with free and no amount of clever models are going to replace a solid piece of law. He made a comparison to the porn industry; that even they have better protection under the law than record companies and added "Maybe it's time we started licensing some good music to that industry." Which received a thunder of applause and laughter.

All-in-all, I left the room thinking, my God, if we're relying on these politicians to protect us, NARAS and the RIAA better start making some serious campaign contributions.

ACROSS THE UNIVERSE
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I don't go to the movies these days. I have a home entertainment system I'm quite proud of and I subscribe to just about every movie service there is. I figure, if the movie is any good at all, it will come to me. So, when Across the Universe came out in DVD this week, I leaped at the chance to consume it.

If you are a Beatles fan and you have not seen this movie, well... then your life is basically a pathetic, empty hole. Even if you're not, this movie is one of those perfect pieces of production, blending superb and uniquely original renditions of songs we've heard a thousand times before (hats off to T Bone, Teese Gohl, and Elliot Goldenthal who produced the soundtrack) with a new treatment of the 1960's peace movement. Despite the fact that it did not win an Oscar for best soundtrack, or anything really, it is probably the best movie in the past few years and a testament to how music will be sold in the next decade.

After only the first thirty minutes I went to my Amazon one-click account and bought everything to do with the flick: the soundtrack, the special collector's DVD, and just for fun I also bought the DVD for Backbeat, the best bio-picture ever made about the Beatles or just about any rock band.

Between the movie rental and my three purchases, costing me a total of about $40, I generated around $25 in royalty revenue for the so-called beleaguered music business. It took me less than 5 minutes to do this from my home computer. I will own these forever, enjoy them, time and again, plus, labels, publishers and artists got paid. Best yet... no crime was committed.

So, for those searching for new business models in the music space, I have a fresh suggestion... stop whining and produce something truly great. See what happens.

360 DEALS: PART II
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How Will the Industry Fight Back Against
The New Indentured Servitude?

Part I, if you missed it: http://www.mosesavalon.com/mosessupposes/jan08.html#pay

The word from on high is "360" or "all in" deals, as they are becoming known. In these deals record labels participate in not just revenue from record sales, but in every aspect of the artist's career, from movie and TV appearances to branding opportunities. They claim to offer higher splits than traditional deals, but if you believe that labels are interested in giving more to artists because they feel generous--you are higher than the artists. Like many record company proposals, this one gives with one hand while reaching into the back-pocket with the other.

Mega music executive Jimmy Iovine has told his minions that EVERY new deal on Interscope must be an "all in" deal. Will this work? In the past major labels have ruled through the "no alternative" strategy. Will asking artists for more money be the magic elixir majors need to stay relevant, or will it be their final undoing?

Alternatives to this deal do exist--things like The Radiohead scenario, which suggest that one-to-one sales directly to a fan base are a viable substitute. Radiohead realized 100,000 downloads with the average fan paying about $9 US. Other examples like the Eagles/Wal-Mart deal and the Madonna/Live Nation deal show us that super stars do indeed have an alternative. But what about new artists, or even the mid-sized ones of the present?

I've run the numbers and I think what we have in a 360 Deal is a typical rich-get-richer scenario. For artists who have crossed that platinum threshold this deal is a sweetheart. Instead of making $1.50 a record they will now make $3-$4. Even if it means giving up some publishing rights this will net out to a better deal for anyone able to sell 1,000,000 units.

However, if you are just starting out and you haven't hung that first plaque on your wall, this is bad news. Yes, you'll be making $3-$4 bucks a record, but you're not likely to sell enough to recoup, which means you'll get zero from record sales. Meanwhile the label will get big chunks of publishing, merchandising, and other streams that were once considered untouchable by the labels. Artists who don't meet the tipping point will be in recoupment hell. How will they get out of this trap?

To find out, I bounced a few legal theories off some lawyer friends and workshopped the topic when I spoke at the Los Angeles Bar Association this past month. The consensus was that artists may begin exploiting some very alarming weaknesses in the 360 deal that will leave labels wondering, once again, how they painted themselves into a corner.

Mainly, now that labels have total participation, they may also have a "fiduciary" responsibility to the artist. This means that they are legally responsible for helping them make decisions in the artist's best financial interest; which might mean NOT signing a 360 deal. Ironic, bizarre, but very possible.

Being a fiduciary is something labels have been trying to avoid and have spent gobs of lobbying dollars persuading magistrates of their position. So far, they have won, but all that may change now.

Another area is "conflict of interest." All of the revenue streams that the label participates in under a 360 deal would qualify them as a manager: but by law, you cannot be both a manager and a label to the same party. In many similar cases, judges have de-compartmentalized and sometimes completely dissolved the contracts.

Case three: if the label starts booking acts (and they will) they'll bump up against California's famous Talent Agencies Act; which prohibits anyone other than a registered agent from booking gigs. And if the label doesn't book gigs or get them movie roles to sidestep this, the artist could then claim that the label has "abandoned" these rights, and get them back.

The labels' defense is obvious--they will claim that they are not really managers or agents or fiduciaries; they are simply enjoying revenue from these sources without actually contributing to their value. If this happens artists can claim "unjust enrichment," a complex but completely viable cliam.

Now, it's possible that labels have thought this out and are ready for these claims, but I doubt it. If they are as unprepared as I'm guessing, there will be some very intriguing sparks in the years to come. What if an artist, say a wholesome girl-next-door pop singer decided that after three albums that she wants to pursue a career as a porn star. Can the label stop her? In the old days no. But under the 360 model they might be able to have say in every aspect of the artist's decision making.

If an artist becomes unsatisfied, instead of threatening to audit their label, they will simply threaten one of the actions above. These have greater legal teeth than the old actions of simple "breach." I predict that labels will do anything, even give back some of these new rights, rather than debate the integrity of their new 360 model in front of a court.

Imagine investing millions in an act only to have a judge say that the deal is off. Then imagine every artist using this ruling to get out of their record deals, years after they have taken large advances.

An old Chinese proverb goes, "May you live in interesting times." Oh man, are we there.

Mo out