There’s a ton of information (and mis-information) out there, and it’s confusing. Here’s a condensed version of what’s going on, as I see it.

Background
Broadcasters in the U.S. have traditionally only paid royalties on the public performance of a composition to the appropriate performance rights organization (ASCAP, BMI, SESAC). This money is then paid to the writers of the compositions. Unlike most other western nations, broadcasters in the U.S. have never compensated the artists themselves for any public performances. The same holds true for bars, restaurants, and retail stores. For the past 80 years, the record industry and the broadcasters have lived in harmony. The record industry worked the broadcasters, songs were played on the radio, records were sold, and everyone made money.

Players
On the side of radio is the NAB (National Association of Broadcasters), represented by spokesperson Dennis Wharton. Mr. Wharton is trying to build momentum for his cause by referring to the group he represents as “America’s hometown broadcasters,” which is not the first phrase that comes to mind when I think of Clear Channel, a massive radio conglomerate and NAB member. Two members of congress, Reps. Gene Green and Mike Conaway (both from Texas, the corporate headquarters of Clear Channel) have also introduced an anti-royalties bill called the Local Radio Freedom Act, which has been gaining support in Congress.

Those in favor of the royalty include the MusicFIRST Coalition, who was represented last week by Frank Sinatra’s daughter and recording artist, Nancy Sinatra. Marybeth Peters, the Register of Copyrights, also supports the bill, as does the RIAA (who incidentally back MusicFIRST). Sound Exchange, who has close ties to the RIAA, apparently will be responsible for collecting these new royalties, similar to their current role in collecting digital performance royalties.

Details
As submitted by Rep. Howard Berman of CA, the Performance Rights Act will:
(1) grant performers of sound recordings equal rights to compensation from terrestrial broadcasters;
(2) establish a flat annual fee in lieu of payment of royalties for individual terrestrial broadcast stations with gross revenues of less than $1.25 million and for non-commercial, public broadcast stations;
(3) grant an exemption from royalty payments for broadcasts of religious services and for incidental uses of musical sound recordings; and
(4) grant terrestrial broadcast stations that make limited feature uses of sound recordings a per program license option.
(5) provides that nothing in this Act shall adversely affect the public performance rights or royalties payable to songwriters or copyright owners of musical works.

Arguments
The artist’s (and the RIAA’s) point of view is simple: the old ways of doing things no longer work in the new music economy. The artists have made significant money for the songwriters (and broadcasters) of radio hits, but have received nothing from the airplay of their music. A performance right in sound recordings has been imposed on digital services since 1995, including the controversial royalty on Internet radio. It is unfair that U.S. terrestrial radio gets a free ride when all the other radio platforms, as well as international broadcasters, are required to pay the artists for public performances.

The NAB contends that terrestrial radio has always been a partner for the artists, responsible for millions of dollars in record sales. Commonwealth Broadcasting President/CEO Steve Newberry, speaking on behalf of the NAB on Wednesday, thinks that “…local radio provides to the recording industry what no other music platform can: Pure music promotion. Radio is free, radio is pervasive, and no one is harming record label sales by stealing music from over-the-air radio.” He went on to mention that if the bill passes “…the value of this extraordinary promotion, and all of the financial benefits that come from it, will be harmed. Ultimately, less music will be played, less exposure will be provided for artists — particularly new artists — and music sales will suffer.” The NAB also believes that the blame for dropping revenues in music is misdirected, and that the real problem for artists is restrictive recording contracts.

My Opinion
The NAB and the RIAA (the jury is still out for me on Sound Exchange, who have a heavy RIAA affiliation) are not organizations that have the artist’s best interest in mind. Their job is to represent the best interest of their member companies. And although the NAB is framing this as a battle between the “local broadcasters” and the RIAA (taking advantage of the RIAA’s terrible PR problem), this issue affects artists at every stage of their career, signed and independent. Although income is falling, the broadcasters are still making money (radio revenues came in at about $20 billion in 2007, according to ICBS Broadcast Holdings President/COO Charles Warfield, who testified on behalf of the NAB) based on the content these artists produce, and to say the artists should not be compensated for this is the embodiment of the old-school record business.

For me, the real question is if terrestrial commercial radio is still effective at selling music. Fewer and fewer people are tuning in to the large commercial stations that make up a large part of the membership of the NAB, and the play lists at commercial radio are so tight that the number of artists that commercial radio “breaks,” in terms of converting radio play to mechanical royalty sales, is miniscule. While I think non-commercial radio (in particular college radio and NPR) and some commercial Triple A stations are good promotional options for independent artists (radio play helps to get folks to shows where they can buy merch, it provides some legitimacy for a press campaign, and also could work to help a licensing pitch, for example), I’m not convinced that radio works to move records anymore at such a significant rate that it pays for itself. Promoting to radio is expensive, even to non-com radio (see my earlier post on this), and of course there is no guarantee you’ll get spins anyway.

Lastly, terrestrial radio is no longer in the position to say that the promotion they wield is far superior to these other non-terrestrial radio outlets that do pay a performance royalty, in particular for developing artists. I think there needs to be parity between all forms of radio: satellite, online, and terrestrial. I’m confident that non-terrestrial radio will continue to gain market share over the coming years, and I think it’s likely that terrestrial radio will continue to lose listeners, too.

My only major concern with the Performance Rights Act (other than reservations about Sound Exchange and possible collection issues) is the effect it might have on the small non-commercial terrestrial stations that work to promote local artists. The bill does stipulate that these smaller stations will pay a smaller annual flat fee of $5,000, but profit margins are so razor-thin at non-commercial radio, that even this could cause a problem.

Would love to hear your thoughts!

The major problem with digital music for me has been playing my music at home. I’ve been using the Airport Express to wirelessly stream my digital collection to my receiver, which is a huge step up from listening to digital music on tinny computer speakers, but even then it’s still inconvenient to have to control my music selection from my computer using iTunes.

The Slimbox Duet solves this problem for me. The Duet is a two-part (hence the name) digital music solution consisting of a receiver, and the thing that really makes this product special, the remote control device. Modeled after the iPod interface (but with a slightly less responsive scroll wheel), the remote control component hooks up to the digital music library on my external hard drive, allowing me to stream anything from my collection to my home stereo – without getting up from the couch. Also, the system is compatible with streaming radio services like Pandora, Rhapsody, podcasts, and other online resources like the incredible live music archive found at www.archive.org. I’ve had the duet set up for a week, and it’s like a whole new world to me.

While the Slimbox can play virtually all audio formats, it cannot play DRM files – including almost anything purchased on iTunes (which uses Fair Play DRM). All the more reason to purchase from DRM-free online retailers like Amazon, eMusic, or the new Napster mp3 store!

Following up on this, aniBoom is now in the semi-final stage of their In Rainbows Animated Music Video Contest. The contest invites folks to create animated videos to In Rainbows tracks, with the winner of the competition (who will be chosen by Radiohead themselves) receiving a $10,000 cash prize and a shot at having their video air on the Cartoon Network’s [adult Swim]. Below are some of my favorite semi-finalists:

Viva user generated content!

watch more at aniBoom

watch more at aniBoom

watch more at aniBoom

watch more at aniBoom

“As part of our ongoing transformation, we are committed to examining all aspects of our business that are not directly related to our core,” said Howard Schultz, chairman, president and ceo in a press release here. “We have had numerous successes in music and books including eight GRAMMY® Awards and three No.1 books on the New York Times bestseller list. However, now is the appropriate time to restructure our Entertainment business to better align our efforts with our overall business strategies.”

Hear Music, founded in 1990, was purchased by the Starbucks in 1999. In 2007, the company partnered with Concord to release Paul McCartney’s Memory Almost Full, record, his first non-major label recording. Hear Music has also released music by Dave Matthews Band, Joni Mitchell, Paul McCartney, James Taylor, Simon & Garfunkel, and Wilco.

I’m a fan of alternate retail and distribution outlets, and completely targeted niche-marketing campaigns. But I tend to agree with Mr. Schultz in that perhaps managing Hear Music has interfered with Starbucks core market, and the resulting changes are designed to refocus what they’re good at: selling high priced coffee. The fact is that Starbucks/Hear have done some great things for developing artists (including being an instrumental partner in breaking Antigone Rising, whose members are current Berkleemusic students!), but the sales from Starbucks were marginal at best. The New York Times reported last month that on average each Starbucks location sells only two CDs per day!

Some interesting points:

• The major’s entire catalogs would be available.
• The labels will stream their music for free, and be paid through advertising dollars (MySpace apparently makes $70 million a month in advertising revenue currently).
• Tracks will be available for download DRM-free, so they can play on any MP3 player.
• The labels will also use the outlet to sell artist’s merch, ringtones, and tickets (which, thanks to the 360 deals the majors are going for now, will provide additional revenue streams for them).
• There is also a possibility of a subscription-based component that would allow users to pay a monthly amount for unlimited downloads (likely through subscription DRM).

It looks to be a real win-win situation for the labels (as well as consumers), apparently made possible through Universal settling their 2006 lawsuit against MySpace for roughly $100 million (which is rumored to be part of the deal).

The only wild card is if folks can be convinced to actually purchase music through MySpace. Shawn Fanning’s Snocap, which folks can currently use to create an online store on MySpace, has not been popular (check out what Derek Sivers, CEO of CD Baby, said about their past arrangement here).

From my old contact there, Jake Flack:

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I am very sorry to tell you that, effective March 20, 2008, I will no longer be the Associate Publisher of Harp. Because of the declining revenues and increasing costs related to print publishing, Harp is discontinuing publishing as of that date. The March/April issue (with Dave Grohl on the cover) will be the last issue printed and distributed. The company is shutting down operations and will not be publishing the May issue.

It’s been my distinct pleasure to work with all of you. For the past five years I’ve been very fortunate to work with so many wonderful people who are dedicated to putting out and promoting great music. I’ve always felt that Harp provided a first class platform for giving independent music a voice that otherwise might not have been heard. We were able to do that because our advertisers shared that vision.

I apologize for the mass email but time dictates this rather impersonal notice. Best of luck to everyone and thank you so much for everything!

Jake

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It’s always a drag to see another positive entity in the music business go down, but I suppose I am not incredibly surprised. When I think of the parties and folks at SXSW that made an impression on me, much of it was online focused: Ioda’s party on 6th and Red River, Imeem’s event, the Ourstage folks, and so on. Similar to mid-level indie labels, I think mid-level music print mags are in for a tough haul, in particular those that are not making a serious push for online business. Online businesses with marketing dollars prefer to spend it on online advertising: certainly keyword buys, but also newsletter affiliation, banner ads, and contextual marketing. With online marketing, you can pinpoint exactly how successful a particular campaign is, and more importantly, online marketing folks know that it is easier to attract someone that is already online than it is to to attract someone that is offline. To survive these days, Harp and others need to monetize their online efforts by creating an online community, that A) folks want to be part of, and B) advertisers see value in.

Those that are not evolving are going to be left behind…