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Let's Get Real -- The Sequelby George Ziemann -- March 31, 2008 I previously offered two basic principles as a starting point for solving the music wars. Today, I'd like to outline the complete solution, which fully and logically explains why the record labels want to run it, as well as why they should not be allowed to. Step One -- Build the LibraryCreate a music repository with the goal of including a high quality copy of every song ever recorded, with lesser quality offered for those who can't hear the difference and just know they can get more songs on their iPod if they're 128k than if they're 256k. Start it with a source copy of everything from all of the major labels, independent labels and every other artist who submits their music and works from there. Step Two -- The Library Becomes Primary SourcePart 1 -- Reprogram p2p software to look at the repository first and, if the song is listed, return no other results. Since the p2p makes a primary effort to find an authorized copy, this reduces their legal exposure significantly. Part 2 -- Musicians point all the links to their songs to the repository instead of hosting them themselves or paying others to do so. Even if we never get to the "pay them fairly" part, every artist, big or small, would save money, thus providing an incentive to throw some more tunes out there. Step Three -- Library ReportingEach month, the library compiles statistics of how many times each song has been downloaded/streamed plus the total number of songs downloaded/streamed. The statistics must be accurate, reliable, and provided in a consistent, timely manner. SummaryThe above would define the system that needs to be at the heart of this solution. The purpose is to provide a trusted source foe music, and track all music downloaded and shared across the Internet. The library should function as a separate entity that neither belongs to or answers to a major record label. As evidence by their historical behavior, neither the government nor a major record label can be relied upon to produce accurate, reliable and timely statistics. The record labels have a vested interest in the results. Therefore, they should not be trusted to provide them. This avoids the appearance of impropriety and many of the opportunities for it. It also alleviates many of the antitrust concerns that are sure to pop up when all the labels work together on one distribution idea. To my knowledge, none of the publicly released "ideas" have addressed the problem of accurate and comprehensive tracking. This data will be the basis for determining how any fees collected will be distributed, but the fees, their collection and disbursement are outside the scope of the library's function. Phase Two -- Money Changes EverythingBefore we collect a dime to support this service, it is necessary to make a determination on who will be paid from such income. This is a multi-level calculation, but still pretty easy. Song Earnings The available money is first approportioned out to the songs which were downloaded, based on how many times each song was downloaded compared to the total downloads for the period. That sound complicated in words, but it works like this. Hypothetical -- There's a million dollars to pay out. Pay what gets played. Users download a million songs. Every song earns $1 per download. If they download two million songs, each download is only worth 50 cents. At four million, it's down to a quarter. At 400 million, you'll need four downloads to earn a penny. Song Earnings Disbursement This part is not rocket science but it will seem like it when the industry starts talking about it. We're going to take the money each song has earned and divide it amongst the appropriate parties. It'll go something like this:
That's the breakdown SoundExchange uses to pay royalties earned from webcasting, possibly the first and only collective music licensing process that doesn't pay the songwriters. You can add, change or delete categories and play with the percentages until everyone is happy. Ideally, each song would have its own unique set of payout percentages. For instance, if the song has no background vocalists and no non-featured artists, that five percent could remain with the featured artist or maybe, be used to fund choral education, or maybe pay the songwriter. Artists could donate their share of a specific song to a cause, or give the non-featured performers on that cut a bigger share. If the record label is defunct or an American recording ever becomes public domain, those proceeds could be used for whever purpose is deemed appropriate, or rolled back into the fund for the following month. I expect this part to take a minimum of two years and reach almost the same result as the example Phase Three -- Building the FundThis brings us to the unpleasant task of determining a reasonable user fee for access to as much music as they want, from a reliable, legal source, without the prospect of being taken to court for using it. The most commonly introduced scenario involves a monthly fee tacked on by the internet service providers (ISPs). The most commonly discussed fee is $5. A recent article at Conde Nast's portfolio.com reflects this approach. After pointing out that the industry's reported value has slipped from $15 billion annually to $10 billion, we are informed that "Warner (Music)'s plan would have consumers pay an additional fee - maybe $5 a month - bundled into their monthly internet-access bill in exchange for the right to freely download, upload, copy, and share music without restrictions." We are also given the opinion that "those fees could create a pool as large as $20 billion annually to pay artists and copyright holders." The Value of the Music IndustryToday is March 31. It is 3:45 p.m. in the Mountain time zone. The RIAA has yet to release any statistics for 2007. So much for timely. Turning to 2006 results for data, the RIAA makes it very clear that the value they put on things is the suggested retail value of what they shipped out. It is not a reflection of how much money the record labels bring in. Let's start with the most obvious example -- digital downloads. The RIAA says that in 2006, they sold 586.4 million downloads for a total price of $580.6 million. I didn't get the calculator out yet, but I'm pretty sure that's going to work out to 99 cents per song. The labels get 70 cents, which brings their share down to $410.5 million. Digital albums -- Same math. They claim a value of $275.9 million, but they only saw $193.1 million of it. CDS -- Shipped 614.9 million. Their average suggested retail works out to about $14.90. Their current average wholesale price is about $11. Instead of the reported value of $9.16 billion, their cut was closer to $6.8 billion but probably not quite that much. So $6.8 billion in CD sales, pull in the downloads and we're up to about $7.5 billion. That was in 2006. 2007 sales were reportedly down 15 percent, which would put last year's record label income from CD sales and digital downloads at less than $6.5 billion. The entire record industry is built around inaccurate, unreliable information, which they share grudgingly. It is usually accompanied by a self-serving statement which often misrepresent the facts. All the major labels are under perpetual audit by their artists, who have to wait in line as much as two years to determine how much they have been underpaid according to the terms of their contract. It's not a question of if they have been underpaid, just how much. This is another valid reason not to let them run the library, or the accounting system. And they're really, really bad at math. The Value of the Service"...maybe $5 a month ...those fees could create a pool as large as $20 billion annually..." To my knowledge, this is the entire substance of the Warner plan and the goal of the new company they just created -- "How much money can we get?" That's the only question they seem to be asking, to which the only reasonable reply is, "For what?" They gave someone a three-year contract to head up this brainstorm, and are starting an entirely new company to figure out how much they can possibly get paid for something they haven't built. The fee is the last detail which needs to be decided. The size of the payout fund is irrelevant to the function of the system, other than requiring the number before you can distribute funds based on it. Regardless, that's what they're working on it first. Apparently, it's going to take $20 billion a year to replace the $6 or $7 billion they're making now. They wouldn't have to manufacture or distribute a physical product to earn this money, drastically increasing the profit potential of a popular song. A more realistic goal would be $5 billion a year, without taking into consideration how much it costs to staff and run the library. But that's only if the goal is to completely finance the music business through the library. This would not only eliminate the manufacturing and distribution expenses, but the entire retail market as well. Don't need a sales staff. There will be nothing for lobbyists to lobby for. Expecting $20 billion a year is obscene greed. It becomes more offensive when you realize that the most efficient and profitable approach for a major label with a huge catalog would be to stop making recordings for an extended period of time. Fire everyone but the accountant, sit back and collect three times as much as you did selling plastic, with no real expenses. You don't even need an office. Set up direct deposit and you don't even have to get out of bed. Sure, it's pretty mercenary, but we're talking billion$ every year with no further investment, no salaries, no artists, no audits, no marketing. Pure profit with no further effort ever required. This can happen, and will, even with with a fair and honest system in place. For the first couple of weeks, it would actually be good common sense not to release anything new, unless you want to compete with everything ever recorded by the Grateful Dead, Led Zeppelin, Beatles, Rolling Stones, Pink Floyd, Frank Sinatra, Elvis, Britney Spears, Madonna, Hannah Montana and everything in-between that has been previously recorded and released. A "money pool" that is too large reduces the incentive of owners of large catalogs to release new works until the cash flow shows signs of waning or they decide the accountant needs a raise. There is an entire tangential discussion about how long a label could maintain their income stream without releasing anything new (or as little as possible), what happens after everybody that wants one has a copy of the White Album and the artists realize that if they skip the record label, and write and record their own songs, without back-up vocalists or extra musicians, they get 100% of the song's earnings. I'll save that for another day. I tried to find out how many internet connections there are in the U.S. Couldn't find that, but found an estimate of 200 million internet users. The number of connections is certainly less but 200 million is an easy number to work with (and it's the only one we've got), so let's use it as a starting point to examine the monetary yield of various rates. If there turn out to be fewer connections than users, the rates would all have to be adjusted upward to compensate.
ConclusionOther than deciding on the payout percentages and the monthly fee, there's not a whole hell of a lot to figure out. It shouldn't take three years. Even if there was only $1 million collected in a month, that would be $1 million more than anyone is getting now. I've heard a wide range of responses to the Warner idea and many people would pay $5 a month to make the lawsuits go away. Others see it as a form of taxation, or even extortion. Some have no desire to put any money into the hands of the record labels, based simply upon the labels' actions over the past 8 years. Acts like Radiohead and Nine Inch Nails have recently demonstrated that the same fans might not be so stingy if they know for a fact that they're putting the money into the hands of the artist. The audience is no longer convinced that this is what happens if we buy a CD. If a record label manages the system as described above, we are back to the familiar situation where all the money flows through the labels before it gets to the artists. Historically, they cannot be relied upon to accurately and fairly disburse those funds to the artists. The last I heard, after decades of perpetual auditing, the industry total for audits which found that they had paid the artist fairly and completely, according to the terms of their contract, was two. Two. There is no reason to expect them to suddenly become proficient at math (or maths, if you're in the UK). This is the final and most compelling evidence that the record industry must not be trusted with this responsibility. This brings me to the end of this presentation. There's the solution. We're just missing the value of five or six variables. Let's see how long it takes. |