9th CLASS -INDEPENDENT
LABELS
A. Definition of an Independent Label:
‘A small record company or “label” that
finances and controls its own record production, marketing and distributes
through a variety of independent distributors’
Record labels are commonly owned by
Artists, Producers, Managers, and Entrepreneurs.
B. Functions that the record label
should be able to finance and provide:
1. identify talented artists
2. negotiate and sign artists to
recording contracts, and finance and record Masters; hire producers; obtain all required clearances from side artists and sampled material
3. create artwork
4. prepare product for physical and
digital distribution; register for copyright and with soundexchange; add metadata about releases into digital masters
5. market and promote artist and
product through use of various avenues: videos, press, ads, radio, tours, etc.
6. find distribution, both physical and
digital, for the product
7. pay publishing, artist, and producer
royalties and render statements
8. design, construct, and maintain
websites that manage all the digital property of the label and artists such as
masters, videos, photos, tour schedules, bios, press clippings, merchandising
inventory, fan emails, etc.
C. Problems with independent labels and
what can be done to address them
1. Lack of financing for promotion
Artist needs to inquire up front if the
company has resources to carry out reasonable promotion; If not, Artist should
be wary.
2. No obvious physical or digital
distribution partners
Artist needs to ask label to identify
how they intend to distribute the product
3. Lack of experience in music industry
Artist needs to inquire how Label will
handle; hire someone who has it?
4. Lack of staff
Owners can use their own time and
talents, take on partners, enlist volunteers
5. Poor Accounting Practices
Owners can hire professionals or learn to do it themselves
5. Poor Accounting Practices
Owners can hire professionals or learn to do it themselves
D. Advantages of independent labels
1. They are willing to take a risk on
local talent
2. They can be more flexible
3. They may have access to talented
producers
4. They may have distribution and media
contacts
E. Types of Independent Artist Royalty
Deals
Artist Compensation: Retail Royalty or
Net Profit participation?
A small Label may have more creative
ways of approaching compensation of artists willing to sign, such as paying
them a percentage of net profits of their project rather than a royalty. This
can be good and bad. If the company is honest and has good record keeping and
pays, it can be very good if the record sells. But if not, the net profit won’t
be ever paid. If a company does pay net profits, generally they will deduct the
following expenses before calculating the profit to be shared with the artist:
“Recording expenses, manufacturing,
producer’s fees and advances, artist advances, promoting, mechanical payments,
publicity, legal, tour support, graphics, advertising, and any other third
party expense associated with the project.”
Profit splits range from 50/50 (if the
artist delivers a completed record) to 15% to the artist and 85% to the label
and everything in between. Many independents still utilize a traditional per
unit retail or wholesale royalty. See this section under Recording Contracts
above for discussion.
F. Types of Relationships Established
Between Independent Labels and their Physical Product Distributors;
1. Major Record Company Performs All
Distribution, Manufacturing and Marketing Services, Digital and Physical
This is most difficult deal to get
because it has the most upfront costs for the major record company
(a) Label receives a royalty of around
18-20% and pays the artist from that royalty
(b) Label receives recording advances
and pays recording costs out of that money
(c) Label can keep what is not spent on
project, but that figure has to be recouped by the label
2. Major Label Provides Physical
Distribution only, No Manufacturing Marketing or Promotion
(a) Label pays 20-30% to the
distribution company. All marketing and manufacturing costs are paid by the
label
(b) Under a typical deal, Distributor
gets 25% of wholesale price; Artist royalty, publishing, marketing and all
profit to label are paid from what is left over.
Assume Net to Label after 25%
Distribution Fee is:$7.50
Manufacturing - $1.00
Artist royalty: - $1.25
Publishing - $1.00
Promotion - $1.00
Administrative -$ .50
Profit: $2.75
$7.50
3. CD Deals for Pressing
(Manufacturing) and Distribution of the Record
As in the straight distribution deal
above, the Distributor receives 25% distribution fee, plus reimbursement for
all manufacturing costs incurred. Label still has to pay for marketing
Label’s Challenges:
(a) Managing the manufacturing and
promotional co-op charges that are incurred by the Distributor and charged back
to the Label
(b) Label Accounting to artists for
their royalties in a timely fashion
(c) Managing ‘cross collateralization’
issues. Income and expenses for all label’s releases are combined by the
Distributor on one statement which can result in no income even where one
record sells but others do not. If other records do not recoup costs of
manufacturing, label must pay artist, publishing, and producers without the
cash flow necessary to do so.
(d) Finding promotion money for new
projects
4. Physical Distribution Agreement with
Label –Contract Terms and Issues
(a) Exclusivity is by territory
usually. US only or US and Canada
(b) Digital Sales’
Are digital sales included or excluded?
This is a key point. From the point of view of the Artist, it is better to
exclude the digital rights and enter a digital distribution deal independently
of the physical distributor. Otherwise, all the Artist’s income streams are
tied into one company, which could be a problem if they are not viable. See
below on Digital Distribution of Sound Recordings below for more detail.
(c) Term
Options for one to three albums
(d) ‘Escape clauses’
(1) right to terminate if royalties not
paid or accountings not received or records not recorded, released, or
distributed as agreed
(2) identify services to be rendered
bydistributor, such as:
- warehousing of records
(insured by them)
- solicitation of orders from retailers
- use of sub-distributors
(where permitted)
- manufacture of vinyl, singles, etc.
(e) obligations of label
number of albums to be delivered
specific lp or artist to be delivered
promotional budget per album
(f) fees for distribution- how
calculated
Percentage of wholesale price paid to
distributor vs payment of certain wholesale price to distributor amount
to label. Important to have clause requiring mutual agreement on determing
wholesale price
(g) statement frequency
Monthly or quarterly
(h) discounts for prompt payment
(i) reserves
What percentage of sales are held back
and how long are they held until liquidated?
(j) inventory handling charges
How are application of stickers, re-
packaging, shipping of promos, and freight charges to be handled?
(k) disposition of end of term
inventory
Destruction of product or return to
Label at Label’s cost? Length of sell off period is usually six months.
Define responsibility for processing
returns after term. Are returns to
owner from prior distributors agreed to be accepted by new distributor?
(l) ownership of trademarks and
copyrights
Should rest with the label
(m) manufacturing issues
(1) who will do it?
(2) who has control of product pricing?
(3) who has right of approval of new
orders for manufacturing?
(4) does label have right to audit
accounting for manufacturing charges to insure accuracy of billing?
(5) artwork creation addressed?
(6) are terms of purchase of units by
label at wholesale addressed?
(7) must the name of distributor on be
on the product?
(8) are the label’s own bar codes being
placed on the product?
(n) any clauses allowing distributor to
have the right to cross collateralize income and expenses between different
albums should be carefully reviewed
(o) who has responsibility for payment
of publishing monies? (mechanicals)
Usually it will be the Label’s
responsibility.
(p) what is the indemnification
language?
G. Digital Distribution of Sound
Recordings
1. Reaching the Digital Marketplace
There are hundreds of websites selling
digital sound recordings on the Internet. I-Tunes has the lion’s share of
sales. Major websites such as I-Tunes are reluctant to offer distribution deals
to artist or labels with one or two albums. They prefer to deal with companies rather than individual artists. In addition, independent labels usually don’t have
the staff to negotiate with hundreds of separate online music retailers providing streaming and music downloads.
2. Use of Digital Distributors
Given the number of websites and
reluctance of major sites to negotiate with small artists, a number of digital
distributors have arisen who will contract with small labels and use the
leverage of the size of their independent roster of labels to negotiate with
all reputable world wide internet retail music sites for the placement of their
digital catalog. Currently, the best known digital distributors are as follows: The Orchard, Tunecore, CD Baby, and InGrooves. Recently the majors have
bought all or portions of several of the formerly independent digital distributors. Tunecore and CD Baby will deal directly with artists.
Typically a digital distributor will
expect an exclusive agreement with an independent label for a period of 1-3
years for a percentage of the income collected that ranges from 10% to 30% or it will charge an annual fee per release distributed. It
will take the label’s CD’s, format them as needed for it’s digital outlets, and
will insure that all of the label’s catalog will be made available to all of
the commercial websites that it has agreements. As is the case with a physical
distributor, the label is still expected to promote, publicize and create the
demand for their recordings. However, they will sometimes provide assistance
with digital promotion opportunities to varying degrees.
The distributor will provide monthly
statements to the label showing the source of digital sales, a detailed list of
songs downloaded, and other income generated by the songs in the catalog.
Usually the money is wired into the account of the label and the statements are
available on line. There are no need for reserves or manufacturing charges
which makes the accounting much more simplified.
With the exception perhaps of sales
through Emusic which traditionally pays publishing separately, practically all
the other commercial websites have historically paid one sum to the label which
is expected to pay publishing, artist, and producer royalties to the royalty
participants.
The typical payment arrangement for a
downloaded track that a home customer downloads for $.99 cents nets the label
in the area of 62 to 67 cents after the payment to the internet retailer such
as I-Tunes. If an distributor is representing the label, this amount will be
reduced by the amount of their commission.
Publishing payments for Downloads in
the US
(“Digital Mechanicals” )are currently
9.1 cents per download for all songs recorded after 1995 regardless of the
existence of any controlled composition agreement in effect. If the song was
recorded prior to 1995, a reduced rate clause will be given effect if agreed
upon by the writer. The digital mechanical is paid from the balance to the
label, leaving the remainder to be shared between the artist, producer, and
label according to their contracts.
Some internet services offer
subscription services that allow the customer to stream an unlimited number of
songs during the subscription period or have tethered downloads.
Although the unrestricted download
price is not used in such circumstances, The service will still pay a fee to
the label based on the number of times that their songs are streamed which will
in turn be passed on to the label minus their commission.
3. Label Management of Digital Assets
What do independent labels need to be
aware of to successfully take advantage of the digital music opportunity?
(a) First, labels should make sure that
they have complete authority to distribute any masters that they control digitally.
That would include the DPD licenses from publishers on these masters. It is
quite common for physical distributors to attempt to secure digital
distribution rights as a condition of distributing the label’s product in
physical form. This should be resisted. In most cases, the physical distributor
that secures such rights will simply turn around and assign them to a digital
distributor, taking a percentage in the process. In addition, the royalty
stream from digital and physical is tied up in one company. If that distributor
runs into financial trouble and cannot pay its royalties, the label’s entire
income stream is eliminated. There is no advantage to the independent label in
this arrangement when they can enter into digital distribution deals directly.
See above for a discussion of digital distribution and digital aggregators.
(b) Take steps to properly digitize all
masters, videos, and artwork according to contemporary technical standards.
(c) Create professional website that
can offer digital music and ringtone sales, CD sales, group touring
information, videos, promotional releases, webcasts, promotional content,
merchandise sales, track inventory and handle accounting, and track visitors to
develop email lists of fans.
(d) Get software help to pull all your
digital marketing efforts together. For example, Topspin is a
professional-grade software for artists and their managers. It is a complete
technology platform for creating the Label’s own retail channel, effectively
promoting its music and connecting directly with your fans over the internet.
(e) Take courses in Direct-to-Fan
Marketing. Understand the tools that are available and how to use them. Courses
in Direct to Fan Marketing are taught at Berkelee School of Music's on-line course called On-Line Music
Marketing with Topspin. There are many other internet-based companies offering
some form of Direct-to-fan tools and education.
H. Joint Ventures between Independents
and Major Labels
Although not as popular an arrangement
as it was once, a joint venture occurs when a new record company is set up with
funding from a major label. The resulting “Joint Venture’ is owned 50/50, but
profits are split after recoupment of the investment by the Major. The
investment consists of sufficient money to cover overhead, artist signings, and
recording. The Major distributes the artists and receives a distribution fee
for distribution of the product.
I. Foreign Licensing of Distribution
Rights to CD Masters
This is commonly done in order to get
CD’s released for sale in foreign territories where there is sales potential.
It is too expensive to ship CD’s manufactured in the US in large numbers
overseas. Accordingly, the American Label provides a copy of the Masters and
the Foreign distributor manufactures and distributes in the territory. The
Territory is defined by either one country or a group of countries. Agreements
usually call for an advance against an agreed royalty based on manufacture and
distribution of the titles for a term of two to ten years in the agreed
territory. Common issues that arise are what under what terms will the American
company permit use of music videos by the foreign company and whether they will
require payment for same? Which currency is payment to be made? It must be
specified in the agreement.
Artists who Make and Sell their Own
Recordings
With the dramatic drop in recording
costs due to advances in computers and recording software, making the cost of
recording within the reach of practically every Artist in the United States.
When an Artist seeks to make and sell their own recordings, they are acting as
an independent label with only one Artist. Depending on their level of
activity, all of the points that pertain to independent labels above could be
applicable to the Artist who sells their own recordings.
Elements in the process that are
relatively easy to control:
1. finding a producer and recording the
material
2. getting the artwork done
3. manufacturing the record
4. distributing the master digitally on
line for sale or promotional purposes
Elements that are difficult
1. getting exposure for the music
2. raising marketing costs for digital
and physical
3. getting record played on the radio
4. finding distribution with a major
Advantages to an Artist Making and
Selling their Own Records:
1. touring provides the opportunity to
sell records at full price instead of wholesale
2. internet distribution can be made
readily available at both the artist’s website or sites such as CD Baby.
Tunecore, or My Space
3. provides professional example of the
capabilities of the artist for artist promotion and possible relationships with
managers and other labels.
CURRENT PRACTICES IN INTERNET
DISTRIBUTION OF MUSIC
A. Current Models in the Digital
Distribution of Music Over the Internet.
Here is a list of the current methods
of delivering digital music over the internet and an example of a provider of
the method used.
(1) Unrestricted download – The basic
and well-known delivery of an encoded, compressed copy of a sound recording,
these downloads (in formats such as mp3, Windows Media Audio, etc.) are
generally easy to use with a wide array of freely available computer players or
portable digital music players. They're ubiquitous, permanent, and can be
freely moved around and copied, lacking any control mechanisms for tracking
ownership and file trading. The quality of the audio is usually good but not
quite CD level (though many services consider 128kbps encoding "CD
Quality"), and the user must wait for the file to download to the local
computer before listening to it. Downloads of mp3’s are available on many sites such as Emusic, Amazon, Walmart and Itunes.
(2) Restricted download - These
downloads include DRM (Digital Rights Management) Technologies that place
restrictions on copying the file. Typically, restrictions involve the number of
computers, digital music players, or simply the number of times a file can be
copied. They usually do not restrict the user in terms of CD burning. In terms
of sound quality and download wait time, there is virtually no difference from
typical mp3s. Apple iTunes, Napster, Real and most download stores with major
label content put this DRM on their files. There are a number of DRM
technologies, with varying degrees of limitation; these translate to different
rights and license rates. In recent years, these technologies have been used less than in the past with Apple for example abandoning their use.
(3) Tethered download – A type of
delivery similar to renting, with users having access to the file for a limited
amount of time. The limits are enabled by various DRM technologies that track
information such as where files are moved to and how many times they are used.
Again, the quality is usually the same as mp3 or other common download formats,
as is the download wait-time. Services such as Napster and MusicNet offer this
type of download. Microsoft is currently toying with this idea as well.
(4) On-demand interactive streaming –
streaming delivery of music over the network "on-demand," or when the
user requests it. Most services advertise "CD-quality sound" and
there is typically no download wait-time — the music begins playing immediately
after the user clicks (although bandwidth and network limitations may affect
this). On-demand streams are available from services such as Rhapsody, Spotify, MOG, Rdio, and Youtube.
(5) Non-interactive streaming (Internet
Radio) – streamed delivery of songs over a network strictly adhering to radio
programming rules. The DMCA (Digital Millennium Copyright Act) created a
compulsory (or statutory) license that allows webcasters that meet certain
conditions to broadcast non-interactive radio stations without obtaining an
explicit license from rightsholders. The Library of Congress arbitrated and set
rates for these webcasters through negotiations with the RIAA and the
webcasting community, and millions of dollars have been paid to rightsholders
for these licenses. Sound Exchange is the organization appointed by Congress to
collect and distribute these royalties to rightsholders. Non-interactive Radio
services that don't meet the DMCA compulsory license requirements for a variety
of reasons, such as radio stations that promote or advertise a product or brand
do not qualify for a statutory license. Separate licenses to address the
specific features and value for each product or service are required.
(6) Interactive streaming -streaming
delivery of music over the network like traditional radio, but allowing the
user the ability to skip songs or rate tracks and artists to influence the
experience. No download time or wait for access with quality ranging from lo-fi
to "CD-quality" depending on bandwidth limitations. Can be
subscription or non-subscription offerings, and separate licenses that address
the specific features and value provided by each product are required.
Interactive radio is generally a service that allows the listener to skip
songs, rate songs to affect your playlist, build custom stations based on your
artist preferences and otherwise influence the listening experience.
MusicMatch, Yahoo! Launch, Rhapsody, Napster, and Pandora all offer such
services.
Payment Structures Used To Compensate
Record Labels, Artists, Songwriters, And Publishers For The Digital Performance
And Sale Of Music Over The Internet.
Royalties due to stakeholders in the
distribution of music over the internet has been a subject of much legislation,
negotiation, litigation and controversy over the past 10 years. Rates change on
a regular basis as the result of new settlements, negotiations between major
industry groups, legislation, regulations, and rulings by the Copyright Royalty
Board. The resulting scheme of both delivery methods and payment for music is
quite complex to say the least. Each type of distribution has its own royalty
structure, with payments required to both recording labels and music publishers
for every type of distribution model. The rates and method of computation seems
to be constantly evolving as the internet distribution of music matures.
To simplify the task of deciphering the
royalty payment system, it helps to look first at the history behind the
current payment matrix as viewed from a publisher and record label perspective.
(1) Music Publisher Income
Prior to the internet, the Publishers’
two main sources of income were (1) Mechanical Royalties for sale of
compositions on records, and (2)Performance Royalties for performance of
compositions over the radio and television, collected by BMI, ASCAP, and SESAC
and paid to writers and publishers directly. Audio-visual uses of music and
ringtones were a third substantial source of income.
Following widespread use of the
internet, in 1993, the copyright act was amended in part to specifically
recognize the rights of copyright owners to control digital phonorecord
deliveries and performances of their songs over the internet. Ever since,
publishers and websites owned by the users of their materials have struggled
over what should be charged for the two types of uses over the internet –
performance (streaming) and downloads. Complicating the process was the introduction of various
types of music streaming models. Some were non-interactive with the consumer
having no control over the songs played, while others were interactive allow
the consumer to listen to specific songs. The continued popularity of ringtones
also created a need to resolve conflicts over how their publishing fees should
be calculated.
Industry groups such as the National
Music Publisher Association and the RIAA have fought constantly with the
internet websites over royalty rates. In 2008, a major decision was reached by
the Copyright Royalty Board which set the following fees:
Mechanical License for Records:
9.1 cents per copy paid to the publisher
Digital Mechanical:
9.1 cents per copy paid to the publisher
Ringtones:
24 cents per ringtone paid to the publisher
In addition, negotiated settlements
were reached between Performing Rights Organizations, the National Publishers’
Association, and the Digital Music Organizations that produced the following
rates:
Digital Performance of Compositions:
2.5% of Gross Income generated by
streaming compositions over the internet (ASCAP’s rate)
Digital Streaming of Compositions:
On Interactive-sites and Limited
Downloads:
10.5% of annual revenue, less allowed
deductions
(2) Record Label Income from Master
Sound Recordings
Historically, Record Labels’ main
source of income was from the sale of records bearing their Master Recordings
at wholesale or retail. Since there is no statutory scheme that regulates how
much a label can charge for its music, licenses or fees for the use or sale of
their music is arrived at through voluntary negotiations. Fees for the use of
music in film were arrived at in the same voluntary manner, requiring
synchronization licenses.
(a) Permanent Downloads
When I-tunes launched, it required all
labels who desired to have their songs sold over their website to accept the
same wholesale price, thus effectively setting the industry standard ever since
of approximately 99 cent per download. Other websites have more or less followed this model
for downloads. From the 99 cents that the customer pays to the online service,
50-70 cents is paid to the Label (or Artist if no label is involved)The amount
paid to the Record label usually pays DPD publishing ‘mechanical’ from it’s
share of revenue.
(b) Performance Royalties for Sound
Recordings
Due to a quirk in the US Copyright Act,
Record Labels were not entitled to performance royalties for airplay of their masters by radio
and TV stations, even though Music Publishers were entitled to such performance
royalties. This was modified when the Copyright Act was amended (Digital Music
Copyright Act) in 1993 to provide among other things, a new royalty to be paid
to the copyright owners of sound recordings (typically labels) for digital
performance over the internet. Eventually, an organization named SoundExchange
was formed for the purpose of collecting these royalties. Legislation
has been introduced in Congress to require the payment of performance royalties
to record labels for use of their masters on traditional over-the-air, analog television and radio
stations, but it has yet to pass.
Performance Royalties collected by
Soundexchange are collected from webcasters and paid out as follows:
50% to the owner of the master
recording
45% to the featured artist
2.5% to the non-featured vocalists
2.5% to the non featured musicians
All parties must be registered with
Soundexchange to collect their share of the royalties, but registration is
free.
Soundexchange collects and distributes
royalties from statutory licenses payable, including: Digital cable and
satellite television services (Music Choice and Mood) Noninteractive
"webcasters" (including original programmers and retransmissions of
FCC-licensed radio stations by aggregators)Satellite radio services (XM and
SIRIUS). The amount to be paid by webcasters has been recently agreed upon with
Soundexchange as of 2/16/09. Under the agreement, rates for simulcasts or web
channels operated by local radio stations increase through 2015 – from $0.0015
per streamed sound recording in 2009 to $0.0025 per stream by 2015
(c) Record Company income from
Interactive Streaming
SoundExchange does NOT administer
royalties for the Interactive performances of sound recordings (e.g.
"on-demand" services that allow the listener to select the tracks
they wish to listen to and/or the order in which they wish to hear them).
Websites wishing to stream recordings on an inter-active basis must negotiate
voluntary licenses directly with the Labels who own the Master Recordings, or their Digital Distributor.
The payment for streaming has ranged
from .01 cents per stream to .0011. Alternatively, websites pay a percentage of
their income, divided amongst the owners of the streamed recordings, after
deduction of overhead expenses.
(d) Record Company Income from Customer
File Sharing of MP3’s
Websites that facilitate peer to peer sharing of MP3 files of copyrighted sound
recordings pay nothing to the record labels or music publishers. While illegal
to do so in the United States and all developed countries, illegal downloading
still persists but the percentage is dropping with the presence of convenient legal alternatives such as Spotify.
In the US, organizations such as the
Recording Industry Association of America have targeted excessive illegal
downloaders by filing Civil suits in Court. While receiving much publicity,
rates of piracy are largely unchanged. New methods of forcing internet service
providers to take action may have more success according to industry surveys.
C. The Delivery of Music on Mobile
Phones
1. The increasing popularity of a variety
of mobile devices in our contemporary culture is evident. Those devices include
laptops and netbooks, mp3 players, and of course, the ubiquitous cell or mobile
phone. Today’s high end cell phones are increasing their capacity to perform a
wide variety of functions fueled by the rapid ascent of the I-phone. In
addition to making and receiving calls, this new generation of phones feature
GPS navigation, MP3 music players, video playback, radio receivers, alarms,
memo pad, recording, personal organizer, ability to watch streaming video or
downloaded video, video calling, built-in cameras and camcorders, ringtone and
ringbacks, games, solid state memory card readers, USB, Bluetooth, and Wi-fi
connectivity, instant messaging, email and internet browsing, and the ability
to serve as a wireless modem for PC’s using Bluetooth. While delivery of music
to cell phones is a relatively new feature for cell phone users, it has quickly
become popular and generates hundreds of millions of dollars annually in sales
in the US annually. Much of the discussion above regarding digital delivery of
music in general also applies to delivery of music on mobile devices. However,
there are unique aspects of the mobile phone market which deserve special
attention.
2. Mobile Music Downloads and Streaming
There are several ways in which songs
may arrive on a mobile device.
(a) Individual songs may be downloaded
or streamed to your cell phone over the air (OTA) through your cell phone
carrier.
(b) If the cell phone has an internet
connection, songs may be downloaded or streamed from a web based music retail
websites and internet radio sites.
(c) The cell phone manufacturer or
carrier may pre-load songs into the phone’s original memory as seen by such mobile carriers such as Muve Music (Cricket).
(d) Applications containing music can
be purchased and downloaded to the phone.
(e) The cell phone user may manually
transfer songs from the hard drive of their computer to their cell phone using
a USB cable.
(f) Purchase of Pre-paid content cards
Purchase of Memory Cards and SIM Cards
with Music
3. Mobile Downloads of Songs: Who Pays
What?
Downloads of songs from popular
websites such as Itunes are normally paid for by the buyer at 99 cents per song
or 9.99 for an album. Itunes has secured the digital sale rights either
directly from major record companies or from aggregators representing the
catalogues of many independent labels. From the payment that the buyer makes,
Apple, owner of I-tunes, keeps 29 cents and remits the rest to the digital
distributor of the record. The distributor deducts their fee, and pays the balance
to the record label who controls the master, who in turn pays the artist,
producer, and publishers from that payment.
4. Masters Rights Required for Internet
Streaming: Interactive and Non- interactive
Non-interactive services are those that
do not allow the customer receiving the digital music signal to have control
over the content being played. Digital Radio stations usually fall into this
category. If a webcaster is non-interactive, they are entitled to a compulsory
license to play any songs they wish under the copyright act as long as they pay
the required performance fees to the Performance Rights Organizations.
Interactive streaming services are
those that give the customer the ability to determine which artists and
recordings they wish to hear do not. Rhapsody, and other internet music sites
that give their customers this ability fall into this category.
Royalties for the digital performance
of music are paid to both the copyright owners of the musical compositions
through their performance rights organization (ASCAP, SESAC, and BMI) and to
the master rights owners and performers through Sound Exchange. Rates for
non-interactive performance of music are set through negotiations with these
respective organizations representing the copyright owners for performance
rights.
5. Music Subscription Plans for Mobile
Phones
Mobile phone companies are offering a
variety of mobile subscription plans to phone customers to provide access to a
wide variety of musical content.
D. Artist Development Utilizing
Commercial Websites
MySpaceMusic.com was one of the first
popular sites for musical artists who may lack their own website but desire a
web presence. Facebook has now provided artists with an even greater audience.
Both are free and offer tools to give the public access to just about any
content the Artist wishes, whether musical or visual. It can also be a source
of fans that can be directed to the artist’s own website. YouTube.com also is a
key site for artists to showcase their video content.
While few Artists have leveraged such
sites to reach national “star” status, there have been notable exceptions whose videos took off virally creating a
national fan base with no record label
assistance.
E. Artist Owned Websites
The ability of independent Artists to
own, manage, and control their own websites is one of the most valuable
marketing opportunities available. Sophisticated software tools are available
that can give the Artist the ability to house all of their digital content and
offer it for sale to the public. Orders for physical merchandise such as CDs,
LPs, Ringtones, and Merchandise can be either taken and fulfilled by the
Artist, or seamlessly routed to or an off-site fulfillment house.
All touring activity can be listed, as
well as Podcasts, photos, and articles. Email lists of fans can be captured
through various means. Downloads can be sold from the site directly to
customers through appropriate ecommerce arrangements.
If a website is formed by a label for
an Artist, the Artist should be careful to secure the rights to the site upon
expiration of their contract with the label.
The major challenge for the Artist is
how to draw the public to their site. Paid internet marketing is cheaper than
print, radio, and television, but still costly for under financed artists.
Since having their own website is now within the reach of every Artist, there
are so many Artists vying for attention to their websites, that the competition
is enormous. Building traffic is easier when the Artist is already well known
and has an existing fan base. The Artist must employ the same direct-to-fan
marketing techniques as listed above for the Label to be successful.
