“HOW WILL I GET PAID?” Music Industry Execs Discuss Payment Models, Pirates, and Monetization at the CMJ Music Marathon

Four days of CMJ-sponsored panel discussions at NYU’s Kimmel Center last month saw musicians and music-industry professionals hashing out some of the most pressing issues facing the music business today. Not surprisingly, the monetization and piracy of digital music was a subject that came up in all panels, though (also not surprisingly) the issue was never fully resolved. Meeting one week before Google’s announcement of a partnership with MySpace, Lala, Rhapsody, and imeem to launch its OneBox music search engine, the panelists proposed a variety of remedies for the five-billion-dollar loss that the music industry has suffered annually, ostensibly due to pirating, since 2000.

Early on in the conference, the panel “But How Will I Get Paid?: Reimbursement in the Digital World” confronted one of the industry’s most nagging problems. The panelists started the discussion by defining the intellectual property rights due to different copyright holders: the songwriter (and publishers), and the performing or recording artists (and record labels). At the fore of the issue is the fact that currently only songwriters are compensated through royalties. Even then, the infrastructure for digital and terrestrial playback compensation is wobbly. As it stands, an “on-demand” music service like iTunes or LaLa must strike a licensing deal with a songwriter, an agreement to pay mechanical royalties per song play, with 9.1 cents as the starting point. This can be a massive expense when dealing with larger labels, and has led to the demise of more than a few internet startups who have failed to meet the demands of the “big four.” As for recording artists, the system of compensation for digital playback or terrestrial radio is still in its nascent stages, with payment generally available only if the song is played through a subscription service like a satellite radio station.

The subject of the controversial Performance Rights Act, which was passed by the Senate Judiciary Committee during this October’s conference but has yet to win congressional approval, was briefly touched on by panelists. The act, supported by the less-than-popular Recording Industry Association of America and SoundExchange (an RIAA associate and independent rights organization designated by the U.S. Copyright Office), faces much opposition from the National Association of Broadcasters, College Broadcasters Inc., and other advocates of royalty-free radio. Adding to the annual per-credit fees that community terrestrial stations pay to songwriting rights organizations like ASCAP or BMI, the act could require the stations to pay fees to performance artists and their record labels, on a sliding scale. What’s more, these fees could also apply to nonprofit webcasts. While educational webcasts are currently allowed to broadcast performances royalty-free so long as no more than 218 concurrent listeners are tuning in, newer versions of the bill have lowered the threshold substantially.

Though the panelists insisted it was possible for songwriters to get paid in the digital realm, they acknowledged that the current system has its flaws. The lack of a systematized means of paying out has many artists taking payments directly from sites without informing their labels, while the labels have no real way of tracking the income from individual streams. RightsFlow is a service whose existence provides a clue into the confusion that the transition to digital formats has wrought upon traditional systems of licensing. Taking advantage of the digital marketplace’s disorganization by facilitating “bulk” licensing deals for multiple albums, “RightsFlow exists because of data problems and figuring out how to pay people,” said Duncan Hutchison, the company’s chief acquisitions officer. Whereas in an analog world royalties were built into the purchase price of the physical product, today, especially in the world of independent music, a distributor can struggle to find out who owns a license for a song or who published it. Dealing with similar issues, panelist Dan Pifer’s company The Orchard is also an aggregator, but for music data: It acts as an umbrella group for independent labels, providing digital files from the two thousand labels (or ten thousand individual artists) that they represent, streamlining the acquisition of songs for mobile carriers, digital storefronts, and services like iTunes, Rhapsody, and PressPlay.

Though the very existence of their services depends on the inefficiencies of the current digital system, the panelists lamented the technical difficulties that they have to struggle with in tracking plays and payments. Improper digital “barcoding” of a song’s metadata, for example, often prevents artists from getting identified and paid per play. According to Pifer, “The lack of a centralized database and identifying code structure in this country is a massive problem.” Whereas European album (UPC) and track-level (ISRC) identifiers have proved successful, one side-effect of the chaotic U.S. system is that many royalties “pool” up unclaimed. “A lot of companies are now just this week paying for the last seven years of streaming,” explained the recording artist Richard Barone.

The panel casually titled “Hey Man, I Know My Rights!: The Future of Intellectual Property” featured John Simson, executive director of SoundExchange. Simson revealed SE’s efforts to fix the metadata problems outlined by the previous panelists. “We’ve been meeting with companies around the world to create an international performer database,” he said. “As it is, we match about 93 percent of the time...and we have processed seven billion performances on track level.”

Panelist John Giacobbi, CEO of the forbiddingly named Web Sheriff, a company that patrols leaked advance copies and apprehends both pirates and end-users, pointed to the early successes of embedded “transactional watermarking” as a punitive solution to profit loss. “If [an advance copy] turns up on a P2P in Australia we’ll know who leaked it,” Giacobbi said. He projected the possibility that internet service providers would enlist in the anti-piracy war, detecting watermarks in MP3s, and then charging for the downloads on their customers’ phone bills. But the outspoken Jim Griffin, a former Geffen executive and the head of Choruss LLC, cautioned that no model will spell the death of internet piracy. “To the extent that your business model relies on stopping other people from making copies of your work, you’ve got a problem,” Griffin said. Instead of focusing on DRM (Digital Restriction Management, a technology that can be used to prevent the burning or sharing of individual MP3 files), Griffin suggested that the industry would do better to “make a move towards tracking what you listen to.” He also offered a rather unusual analogy. Instead of merely supplying consumers the occasional track or record, he exhorted industry executives to insinuate their services into the lives of consumers: “We need to feminize the music industry,” he said, “starting relationships that never end. For example, Amazon.com is definitely a woman. It remembers the color of your eyes and sends you little notes on things it has for you.”

The discussion evolved into one on the future of music services. Which models—pay-per-play, subscription, P2P, streaming, etc.—would be the most successful? (Spotify, the European subscription-based P2P player whose imminent U.S. launch may finally give iTunes some competition, was mentioned as an exemplary service.)

“Indie Masters of the Universe” brought representatives of the independent music industry together to discuss their slice of the pie in the wake of the physical record industry’s collapse. While Amaechi Uzoigwe, co-founder of Definitive Jux, admitted that his vinyl-focused specialty record label made seventy percent of its sales from physical music, he was quick to acknowledge that the future was about “monetizing behavior, not the product.” Uzoigwe mentioned that the more agile indie labels were better placed to take the chunk lost from the larger labels. “I think ‘indie’ as a middle class is expanding rapidly,” he said. “You are seeing independents selling twenty to thirty thousand units.” Lucas Mann, president of the boutique Original Signal Recordings, predicted the return to a singles-based business. He urged artists not to sell themselves short: “Music has become this thing that’s ‘free with beer.’ As an industry we need to be more responsible with protecting our copyrights.” Predictably, all the panelists refuted the notion that labels were obsolete in an era of self-publishing, pointing to the services they could provide as artists’ representatives and as taste filters.

“Mobile Devices and Concepts of Tomorrow Here Today” differed from the other panels by bringing device manufacturers and even a representative from a carrier to discuss how portable music might be “consumed” in the future. No Apple or iTunes representatives were in attendance; instead the talk focused on iTunes alternatives. Jonathan Dworkin, head of Major Label Relations at Nokia, spoke of his eyebrow-raising “Comes With Music” device, a phone that is sold with prepaid access to music. Verizon’s Manager of Business Development and Partnerships, Tom Constabile, predicted that the coming 4G networks’ “seamless experience” of mobile streaming would make downloads obsolete. As mentioned in previous panels, for ISPs the cost of streaming could be bundled into service bills, but Constabile noted that it was up to the content-providers to innovate. “There’s no other way we can develop that network without letting the content industry take ownership.”

“Music Industry Myths, Gossip, and Predictions for the Next Five Years” proved to be the least predictive of the panels. Panelists working at traditional record labels acknowledged that their old business model needed to change from one focused on selling records to…something else. Despite the successes of certain gimmicky physical merchandise packages (Yep Roc record label rep Emily Bass cited a “deluxe” Reverend Horton Heat album that included free shot-glasses), panelists were in unanimous agreement that labels could not live on merch alone. After some talk about reaching fans through social media, publicist Ariel Hyatt suggested that labels would have to shift from moving units to profiting from licensing, and restructure their record deals accordingly: “As people move more into a licensing rather than purchasing model, many record deals involve control of copyrights.” If in the future the artist is to profit from copyright ownership, this leads us to ask, again, “But how will I get paid?”