Industry information that you can actually use

  May 2003

Record clubs get slammed with potential $100 Mill payout to songwriters

Clear Channel fools the Fed in Payola shuffle.

Computer companies buying Major Labels? Cool, but how will artists ever get paid now?

Kudos to: Bill Miller/ClubNashville.com and John Braheny for info and leads in this issue of Moses Supposes.

Artists and songwriters trying to track "lost sales" might want to look carefully in flea markets. This past month saw several busts at neighborhood swap meets. Vendors, using fake names and addresses, join record clubs, (the buy one CD and get 10 CDs for a buck companies) and take the 10 "premium" CDs and resell them at flea markets. Think this is small potatoes? This month a New Jersey scam was busted and confessed to redistributing almost 50,000 units in this manner. Most were from BMG and Columbia House Music Club (owned by Sony Music), the very same companies that lost a second important defeat in a class action suit by songwriters. (Ory v. Columbia House Music Club, Case No. CV 02-02342 SJO. Los Angeles)

On April 22, 2003, the U.S. District Court based in Los Angeles, dealt a serious blow to BMG and Sony, deciding that the two major-label-owned "record clubs" had no leg to stand on to get the case thrown out of court, and would have to attempt to prove to a jury that they just "forgot" or were really going to pay songwriters "when they got around to it." (note: Sony sold most of it's ownership of Columbia House last year, but maintains a 40% state in the company.)

The court found that the record clubs failed to pay for mechanical licenses on the premium records given away. (Roughly 6-8 cents per song, per copy sold.) Songwriters' lawyers estimate that the record clubs ripped off their clients to the tune of about $100 million dollars a year.

All this makes you wonder why the RIAA (who is funded by companies who own both major publishing houses and record clubs) scream bloody hell over Kazaa and Napster, and yet ignore this? Could it be to distract us from the fact that their constituents were actively involved in collusion that was costing artists and songwriters far more than the file-sharing services? Or were they just jealous that file sharing services were ripping off their artists better than the majors were.

Glass houses, people. Glass houses.

A trial has been set for January 13, 2004. Stay tuned. This is one to follow.

HOW WILL ARTISTS EVER GET PAID ONCE COMPUTER COMPANIES BUY MAJOR LABELS?
Or
APPLE TAKES A BYTE OUT OF VIVENDI AND CHIPS ITS TOOTH

It's a garage sale over at Vivendi Universal, the world's largest media conglomerate and owner of UNI distribution, one of the Big Five Record labels.

In a time when nationalism is on the rise and yet 80% of all major labels are owned or distributed by foreign entities, US owned Apple might seem like a welcome buyout of the French's Universal Music (UNI) for a paltry 5 Bill.

It makes sense. The RIAA has named piracy as the magic bullet of declining sales over the past two years. Well, one way to stop downloading would be to make it unnecessary by giving an entire catalogue of music away whenever you buy a computer. No need to steal the music anymore if it's bundled in the purchase beforehand. It would effectively turn you're computer into a jukebox. Something technology companies have been working towards for about a decade. But is it a good idea in the long run for the people who create the music-- artists and songwriters?

My inside sources are rarely wrong and they tell me that the Apple/UNI deal is practically a non starter. Apple simply doesn't have the scratch. But even if Apple can't make the deal bear fruit, there is always Microsoft or about a dozen other computer companies, like Dell that could.

And what would stop any of these potential acquisitions from bundling a vast music catalogue into the hard drive, much like the Microsoft software you get when you buy a PC? Nothing. And why does this really suck if you are an artist on Universal or one of its fifty-some-odd sub-labels? Well, mainly because it can not be decided how the label will treat this distribution in terms of paying the artist. Artists' and most songwriters' royalties are based on "records sold," not "records distributed." There are several ways a "sale" is calculated in most contracts, but, none of them would provide a clean method of payment for this type of bundling.

For example: is it a "new technology sale?"

No. There is no actual "sale," the records are being deliberately given away.

Is it a "premium?"

It might be, if an indirect relationship existed between the computer buyer and the artist. Premiums are done between two companies, again in furtherance of the sales of records and for promotion of the CD sales as an end product. Computer bundling is better categorized as a support function between two departments of the same conglomerate. So, no, it's not a "premium."

Is it a "license?"

Na. See the above. Besides even if it was a "master license," there is nothing in most contracts that says that the labels have to share licensing money for the master with the artist. (Check your contract)

Is it a "public performance?"

No. There is no streaming or downloading involved. It's bundled.

Is it a "free good?"

Well, labels will try to claim that it is, I'm sure, as this is the easiest way to avoid paying the artist and writers. But this would be a fantasy that most artists' lawyers would agree does not even pass the laugh test. "Free goods" are records given away to instigate further sales. Artists are not paid for these distributions, for obvious reasons. Usually, a proven artist is capable of getting this removed from his contract, as it seems silly to suggest that you need to give away free CDs to get HMV to "take a chance" on an artist that is already selling millions of units. Hit songs bundled in computers will replace normal sales through stores and the internet. Plus, the computer company doing the bundling will be counting on the proven track records of these artists to attract buyers. So it is, if anything, the opposite of a "free good."

Well, we're out of road for royalty paying formats, and there's no check to the artist or songwriter in sight.

This past month at the California Copyright Conference in Los Angeles, some of the industry's top auditors were gathered for a most informative panel, hosted by esteemed LA attorney Cheryl Hodgson (The Kingsmen). I asked this panel, who collectively between them have about 50 years experience in auditing record labels for artists, how this new distribution will yield money for the artist and the songwriter. No one had an answer.

And we may not find out so quickly. The Apple/UNI deal is far from a lock. Their offer of $5 Billion, is laughably low and there are several other contenders: General Electric (GE), Viacom, Liberty Media and Marvin Davis, who has offered $13 billion for 65 percent of Universal's assets.

Why a large military contractor like GE would want to own a record label is too frightening a prospect to contemplate, but Apple's interest is laterally integrated into their current business plan: tying to conquer the world with the iPod (and doing a good job). In the past, however, they've faced issues of copy protection and the fact that ALL of the major labels on-line music sales sites support only PC platforms. Thus, Apple's acquisition of UNI could actually provide them with a potential monopoly over online music sales to Mac users which represent an estimated 15% of the computer market.

Clear Channel announced in a press release that they will not use IPs any longer. So all this is about to change.

Or is it?

In their press release they claim they are ridding the industry of these Indi piranhas by refusing to accept money from them, effectively killing the pay for play scenario.

In case the transparency of this agenda is not clear to you, I'll spell it out. This "bold move" comes right on the coat tails of the threat of federal regulation in this area. Clear Channel is already skating on thin anti-trust ice by basically owning about half the stations in the US. So, the timing of it suggests, at least to me, that it is nothing more than a PR campaign to satisfy lawmakers.

REALITY

While the money pipeline for larger indi promoters will have to be a bit more creative, this "bold move" will do nothing to the status quo. Y'see radio stations get 1000s of calls a day about new releases. They don't have the man power to field all of them. Record companies need to make 100s of calls a day to radio stations to promote. They don't have the staff to do that either.

Both sides need the Indi promoters and consultants to handle this menial work. The only difference is that record companies pay IPs based on placement, like a publicist; get a placement in a rotation and you get a bigger bonus. Stations pay consultants to get the inside track on the hottest releases FIRST, before their competition, and to separate the crap from the hits.

Given the current state of the economy, I can not see either side getting rid of this necessary service. Truly "cutting out" the IPs, and consultants (who are "tempted" with incentives of ALL types) if it was sincere, would require both labels and radio stations to hire scores of in-house people to handle this function.

Labels will definitely not do this, because they are looking for ways to cut debt as they each scramble to sellout to computer companies and other media conglomerates. Plus putting the Indi on a salary would extend their liability for payola, something they created the Indi system to distance themselves from in the first place.

Clear Channel is not likely to hire 500 in-house consultants to deal with this either. They will probably hire a few from the current pool of usual suspects and continue to use an "outsourced fielding office" to handle the deluge of press kits that need to be reviewed. IP companies will disband and reform as new "consulting" companies. And the band will play on.

Senators, if you're really trying to kick up some dirt here, keep an eye on new outsourced contracts that Clear Channel enters into over the next year or two. However, loyal readers, I don't expect much. I think at the end of the day the real agenda for everyone is to look busy, but basically do nothing

Felice Bryant. She wrote or co-wrote more than 800 songs , including, "Wake Up Little Susie", "Bye Bye Love" and "All I Have To Do Is Dream." Her combined sales are estimated at more than 500 million units. She joins her husband and co-writer of many of her hits in the great gig in the sky. She was 77 years old.

Nina Simone Jazz legend. She was 70 years old. Her credits and influence in music is too numerous to do justice to here. It also seems somewhat in the spirit of her work she should pass as Nora Jones rises to fame.  

MO OUT

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