Monday, July 14, 2008 Launches new Royalty Scheme: Activism or Confusion?

This week launched a new royalty scheme. What makes this royalty scheme new and original is the fact that unsigned artists (i.e. artists that are not affiliated with a label or collecting agency) now have the opportunity to collect royalties.

To be sure, there is a positive message here. The largest collection agency - SoundExchange - has been widely criticized for only paying royalties to 31,000 artists through 3,600 labels. It is worth noting that there are tens of thousands of artists that do not get any royalties. There are also questions of transparency (to be fair, some of these restrictions have been mandated by the Copyright Act)

However, it's one thing to criticize the shortcomings of an existing scheme, and another to do something about it. When all is said and done it is worth asking: Is this this new scheme beneficial or detrimental for artists and radio at large, or does it even matter? Time will tell of course, but that's not going to stop an amateur pundit like myself from throwing his two cents in.

Some relevant background: is an automated Custom Radio service that builds playlists based on what music you already listen to and by extension, what others who also like the same music also listen to. It works reasonably well, but I've argued that human DJs can do a far better job. Because utilizes the Wisdom of Crowds (or tyranny of the masses depending on your perspective), it is important to note that artists (or anyone claiming to be an artist) are now in a position to game the system to boost their music's popularity - in much the same way Google is constantly being gamed to boost a site's PageRank. While this has always been a possibility with, it's not as likely given that artists receiving royalties through collection agencies are confirmed artists. Now, it may be possible for an enterprising hacker to create a song and game its popularity, and get paid for this. That said, the damage is not so much that this hacker is bilking for royalty cheques. Rather if it ever got out of hand, it could undermine the integrity of the system from a listener's perspective.

Getting down to the nitty gritty, what is being paid out here? To simplify matters, I'm going to ignore the on-demand download service (which pays out higher royalties), and focus on the radio royalties. If you read the Terms and Conditions, the payout for radio is divided into two categories: Premium and Free. I'm going to attempt to figure out what the payout might look like, but it would be nice for to publish some actual numbers to give us a clearer idea of what to expect.

Okay, so for the free service, artists receive:

10% of the Share of’s Net Revenue from the free radio service

For the personalized premium service, artists receive:
the greater of 10% of the Share of’s Net Revenue from the personalised radio service or US $0.0005 for each complete transmission on the personalised radio service of a track which forms part of Your Content transmitted on the service.

Let's contrast this to the royalty rates set out by Copyright Royalty Board (payable through SoundExchange): For this year, 2008, SoundExchange is entitled to collect $.0014. Next year, it will jump to $.0018, and in 2010 it is $.0019. Furthermore, SoundExchange states that it pays 45% of their collected royalties to Featured artists, and 5% to non-featured artists. I'm not quite sure what happens to the other 50%. I think it has something to do with the split between performers and song writers (but don't quote me on that one). The language used in their 2007 annual report is confusing, and no concrete examples are provided. Furthermore, since there isn't much transparency we don't have any concrete examples to go by. Beyond that, it's not clear how much a label hands over to the artist at the end of the day. The whole thing is utterly confusing. SoundExchange could clear this up by providing a few examples of how a dollar is divided up when it's collected, and what an actual artist is getting. But they're a slipperly bunch, and won't even tell you what constitues Fair Use (rather listing a bunch of things that are possibly NOT Fair Use). Aaarrgh!

In an attempt to simplify things more, I'm going to focus on featured artists and the premium service. From what I can tell, a Featured Artist (e.g. an artist like Moby or Eminem) would still get more through SoundExchange than through's royalty scheme. So, Moby and Eminem would be crazy to forfeit SoundExchange's deal and go for's scheme.

However, once you start crunching the numbers a subtext emerges: Namely, (and I'm not going to pretend this is breaking news) you are either a Featured Artist (like Moby or Eminem) , in which case you can earn a living making music. If you're not, then you're probably working towards becoming (or working with) a Featured Artist. Looking at Last.FM's model I have to wonder if a $10 cheque once a year is really going to make a difference for anyone (and as an artist, you need your track to be played in full at least 20,000 times to get just that!)? Of course life is not so cut-and-dry and there are other options still on the table. But realistically you better be prepared to hustle your ass by continually marketing yourself and/or showing up for live performances, even if that means swallowing your pride from time to time and doing weddings and Bar & Bat Mitzvahs.

I came to the conclusion ages ago that the music business is both fun and insane. As a career path I don't recommend it. However, if you can find the time, and you enjoy it, go for it. Don't expect to make very much money though - there are too many people willing to work for nothing. Coming up with original sounds and lyrics is also harder than it looks. However, if you're one of the few that's been blessed with a combination of talent, luck, and a strong work ethic, and you can find a respected label to back you you may be in a position to go full time and pursue music as a real career. At this point, you're going to want to protect this privilege. Hey, it's good work if you can get it.

As for this royalty quagmire. I'll let you know if I ever figure it all out.

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