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Artist Compensation in a New Music Marketplace

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It’s no secret that the music industry is embattled. Record companies, reeling from declining CD sales, are trying to get new legislation passed that would require broadcasters to pay royalties for songs played on air. Online music services – both download and streaming, are attempting to find a workable business model, but remain at odds with record companies over reasonable rates. Of course, all of this has a negative impact on investments in the online music space.

Musicians are not much happier with the labels. While the record companies may be getting paid from all the new online music services, those payments are not necessarily making their way to the artists’ pockets.

To address growing concerns over payments to musicians, the Future of Music Coalition (FOMC), a non-profit organization that advocates for musicians, has recently created Principles for Musician Compensation in New Business Models. The guidelines are designed to draw attention to their concern that the ongoing evolution in the way music is distributed and listened to is spawning new sites and services; they want to make sure that musician compensation is adequately considered in any new business model.

Some new online music services have formed innovative partnerships with the record companies, and these new deals may not be fairly addressing artist’s compensation. For example, the labels entered into a joint venture with MySpace Music, allowing MySpace Music to stream songs on demand in an ad revenue based business model. In exchange for licensing the music to MySpace, the major labels received equity stakes in MySpace Music. However, the value of that equity stake is undefined and there is no model for sharing that equity with the artists. That’s a big undefined asset that the labels acquired by licensing music, it needs to be defined and shared with the artists.

Other “unattributable income” that labels receive includes bulk payments for licensing catalogs to music services, and “experimental” deals that some services have with labels which are based on sharing ad based revenue. On demand site Groove shark recently told me they have such a deal. The labels are sharing the revenue with the services, but according to FOMC, it’s unclear how or if the artists will receive their share of the revenue.

The FOMC wants musicians to be paid directly by the services for their share, they want more transparency with accounting, and they want a commitment to accurate reporting and best efforts to find and pay performers. There are other legal-related guidelines covered in this comprehensive statement as well.

It’s interesting to read between the lines of this statement and understand that there’s a significant struggle brewing between record labels and artists, which has become aggravated by declining CD sales and new online music business models.

As Tom Lee, President of the American Federation of Musicians of the United States and Canada, A.F.L.-C.I.O. says “Fair and transparent compensation to musicians and songwriters is the best way to insure the growth and vitality of the music industry. If we want great music, those who make it must be paid.”

Artists, music services, radio stations and even the record industry want the same thing: to grow their audience and be profitable. It’s possible all the parties will have to settle for less profit than they became accustomed to when music was sold as CDs, and access and pricing were more easily controlled by the record labels. Access to music is diverse now, which has greatly increased the choice and power of the consumer. The labels, driven by desperate attempts to increase profit, are strangling innovative business models and worse, they’re playing games with their artists. The end result of games like those can only be a diminished product, and guaranteed demise.

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About Jennifer Lane

  • Nice work here Jennifer. Are you actually involved with the FOMC? If so, I bet BC’s readers would be interested in hearing more about the work they do. Anyway, nicely done.


  • Brian aka Guppusmaximus

    Great Article…

    Unfortunately, the record companies don’t see how it is becoming easier for artists to present their work outside of the standard business model. That mode of delivering music is becoming obsolete. Especially for the artists who already made quite a bit of money through the record companies. I feel that you may start seeing a more direct connection between these artists and the outlets…

    I like what Peter Gabriel has done in partnership with Bowers & Wilkins called B&W Music Club

  • Thanks Glen. Not a musician or member of FOMC, just an avid watcher of online music biz. I’ll keep an eye out for related stories.


  • Jennifer, thank you for bringing this news to my attention. While I knew that artists probably were not being compensated properly for all of these online ventures, I had no idea that the artists had done anything to try and remedy the situation for themselves. Although I think FOMC has done its intended job by promoting its issues, I wonder how successful they will end up being in changing the landscape to benefit artists. It may not be such an issue for new artists, but for the artists signed as short as three or four years ago, it may be a very real possibility that there is nothing written into their contract about splitting up monies from these kind of online ventures, and their may not be a whole lot artists can do about it. I imagine that if push comes to shove, the record labels would argue that all of these new digital media systems, online music streaming for example, are not for profit but promotion and that the opportunity cost of licensing their catalog is higher than the revenue they receive back from ad supports. I am not saying that this is correct or fair, but rather it really does seem like something that the record labels would try and do don’t you agree?

    Additionally, do you think that final goal of the FOMC should be to lobby for another nonprofit entity like Soundscan, or even Soundscan itself, to control the distribution of funds to artists and record labels? It would appear that the best way to make sure that musicians are getting their fair cut of the revenue is for the whole thing to be taken to a third party to reduce the amount of shenanigans that might occur when its time for the record label to pay out. Soundscan has proven to be quite effective for monitoring digital downloads so I think this is an idea that should be considered with some merit.

  • Thanks Jon – I believe some of the recommendations by the FOMC for direct payments are a result of dissatisfaction with the way SoundExchange has handled payments to artists. I do not believe that is what they want to see – although admittedly, I have not researched it thoroughly.

  • For your consideration – there’s a fellow named Bob Lefsetz at lefsetz.com who recently wrote an article about the new music reality. In a nutshell he basically said get used to having your music given away free on the net – but if you can get it out there you can make your money in gigs and merch, which includes music sales. The important thing is to make good music that makes people want to connect with you. A quote from a recent article:

    “That’s the game. How can you make the life of the listener better. Not how can you extract dollars from his wallet.

    The major labels have been preaching their model, speaking of their woes to an ignorant mainstream media for a decade. All the while, the game was changing, off the radar. The tipping point has been reached. The major labels have lost so much of their power, they’re never going to regain it. It’s about a bond directly between the artist and fan. The fan pays you, not the label, not the bribe-able gatekeeper. Be nice to the fan. Make it easy for him to check you out. Deliver something that will get him through the night. And the day after.” (Bob Lefsetz)

    I think he’s talking about music that’s important to people on a fundamental level – it speaks to your spirit or soul. Maybe he’s got something there – maybe that kind of soul is what’s been missing for quite some time, and maybe this is our opportunity to get it back.

  • Brian aka Guppusmaximus

    I definitely agree with you JC…

    I have always believed that “Word of Mouth” can be far more beneficial than standard marketing strategies. The internet is just a bigger mouth with bigger words. If you are creating music not just for the buck but because you love it & want to communicate your passion then you are not always going to be concerned with profit unlike the majority of the major labels. Distribution was always the key selling point in getting artists to sign. Now, The internet offers up the opportunity to showcase your material to a larger audience without all the red tape that goes with a recording contract.

    *There’s just so many thoughts that I have, I could go on & on*