9/13/13: Even without specific terms, no shortage of opinion of milestone CC/WMG royalty deal

Paul Maloney
September 13, 2013 - 11:55am

Yesterday the nation's largest radio broadcaster announced a deal with one of the big-three label groups to pay for the on-air use of sound recordings (see our coverage here). The Clear Channel/Warner Music Group agreement isn't the first, but it's the largest so far, and the first involving a major label group.

Performers and copyright owners have long fought for compensation for the use of their work by broadcast radio. On the other hand, it's pretty clear that the biggest obstacle to the growth of Internet radio has been this very compensation, which online and satellite operators do pay. So, one interpretation of the deal is that it's a start towards bringing this situation into equilibrium.

When Clear Channel Media Holdings CEO Bob Pittman began making these deals with independent labels and label groups like Big Machine, some observers felt it was actually simply a ploy to turn down the heat from Congress, as more and more lawmakers clamored to make on-air performance rights a law. But with a royalty pact with as significant a player as Warner, some feel perhaps Pittman is indeed fully committing to a digital future for radio. Pittman himself said this deal (and the previous indie deals) are about building a successful digital broadcast business -- which isn't possible under the current royalty structure.

The actual terms of the WMG agreement aren't public. Thirty Tigers' David Macias writes he's heard press rumors of 1% of advertising revenue for on-air plays, 3% for digital plays. Billboard sources say the earlier indie deals were for 1% of terrestrial/2% of digital -- terms all three majors, including WMG, turned down (Economist David Touve has some "back of the napkin" calculations of "the value of a radio performance" based on these numbers here). The Wall Street Journal Corporate Intelligence blog says whatever the percentages, "Clear Channel will pay Warner Music close to $50 million over the next three years... including a portion of that upfront."

Entercom, a broadcast competitor to Clear Channel, has made on-air/online royalty deals with independents as well. Entercom President and CEO David Field applauded Pittman's agreement as "smart, bold and visionary," calling it "another important step forward in establishing a new business model that aligns the interests of artists, labels, consumers and broadcast radio." [Programming note: David Field will keynote Tuesday's RAIN Summit Orlando, more here]

The RIAA, which represents major and some indie labels, seems more skeptical. "It’s important to understand that there is no substitute for actual legislation establishing a legal performance right," spokesman Jonathan Lamy said.

Another music industry lobby, MusicFirst Coalition, called on Clear Channel to break with the National Association of Broadcasters and its opposition to a federal law estabishing a broadcast right for sound recordings. "Unfortunately, Clear Channel and (the NAB) have been the principal roadblocks to ending the loophole that allows AM/FM broadcast radio alone to take music without paying artists or labels," said executive director Ted Kalo.

David Macias, co-founder of indie label Thirty Tigers, wrote in an op-ed in Hypebot that he's worried deals like yesterday's may simply make it even harder for independent artists and labels to get on the air. He worries over "a future where the exposure via public airwaves and public bandwidth for music will be in large part governed by the financial relationships between media companies and larger content providers. This will have a chilling effect on the independent music community from a business standpoint and will increase the likelihood that most of the music that you will hear on the public’s airwaves will be music that a corporation feels can be commoditized."

Like the RIAA and MusicFirst, he feels a "compulsory license" -- where broadcasters could license any music simply by paying an industry-wide mandated rate -- is a better solution. He also brings up the fact that "direct deals" like this circumvent the legal requirement that copyright owners split royalties with performers 50/50.

"Hey artists. So when those payments for non-interactive radio streaming start going to your label through negotiated deals that you’re not a party to because you don’t own your master, rather than going through Sound Exchange, what percentage of those payments do you think you’re going to get? You should call your label now and ask," Macias wrote.

We're looking forward to analyzing this deal further, when/if its terms leak...

Read more in Billboard here, Touve's Rockonomic here, Corporate Intelligence here, and Hypebot here.

Brad Hill
September 13, 2013 - 11:55am

Being a first-mover can be dangerous.

No music service is more aware of the perils of pioneering than Rhapsody, the subscription listening platform that has been operating since 2001. CEO Jon Irwin, in his RAIN Summit West 2013 keynote, remarked: “We’ve been around for over 11 years. Sometimes that’s a good thing; sometimes that’s a bad thing.”

Rhapsody’s market position seems to be an uneasy thing, at least, if you give credence to this week’s rumors of an executive shakeup underway. Nothing has been substantiated, but Rhapsody’s business realities, combined with whirlwind change in the internet listening landscape, make the rumors plausible.

If nothing else, putting a question mark over Jon Irwin’s bio reflects light on larger unanswered questions about Rhapsody’s service model and future.

Rhapsody was a farsighted startup in 2001. Launching with a small and esoteric music catalog, consisting entirely of classical recordings to start (largely provided by specialty label Naxos), the platform established major-label agreements within about six months. Along with early competitor eMusic, Rhapsody committed to the subscription path -- there is no free listening and no ads. (Google’s All Access service is going down that path, too.)

Many observers believed that Rhapsody’s access-as-ownership model was the future, implying as it did that ownership of a product unit (CD or track) would be rendered unimportant by an always-on celestial jukebox of a vast recorded catalog. That scenario is closer to playing out now, but it took a long time (in internet years) for it to manifest. The iTunes Music Store launched in 2003, giving labels a way of leveraging the album/track paradigm in the online realm, while coaxing consumers into the digital age with a store model they could relate to. iTunes revolutionized music buying by keeping it familiar.

The mobile internet changed consumer demand more radically than Apple’s iPod MP3 player could service with its hard drives of bought and stored songs. Alongside the sea change of mobile, new services introduced free listening, supported by advertising and usability restrictions that most people were (and are) willing to tolerate. While Rhapsody continued to supply a feels-free access to a long tail of music, Spotify and its ilk furnished actually-free listening, discovery, playlisting, and social sharing.

If that didn’t pressure Rhapsody’s steadfast subscription model enough, the big sluggers are now coming to bat -- the ecosystem giants Google, Microsoft, and Apple. These collossal tech/media brands engage in primary businesses (advertising, software, hardware) that can easily float loss-leading divisions that sell music. Apple’s music-specific ambitions are probably the most distinct, and certainly backed by a monumental history of shaping consumer habits, but all three companies (plus Amazon) own immense user bases whose casual exploration of built-in music services can take share from established indies like Rhapsody.

So, whether Jon Irwin remains Rhapsody’s leader or not, the unanswered questions remain the same: Can a subscription-only service provide compelling value against free-listening platforms? For that matter, can any streaming-music business hold its own against content costs?

Investor valuations can soar in certain cases, but nobody is turning a profit quarter after quarter. (Rhapsody’s most recent year-over-year quarter was down eight percent.)

The most visionary music service is rewarded for its far-sightedness by owning the longest track record of profit futility. Hundreds of thousands of dedicated users hope Rhapsody can remain buoyantly afloat in increasingly rough waters.

Paul Maloney
September 13, 2013 - 11:55am

Entrepreneur Jeff Yasuda -- of Blip.fm and "people-powered" online radio Fuzz fame -- has launched a new company with the aim of taking "all the complication out of music licensing" for webcasters, online retailers, and more. 

Feed.fm (we last reported on Yasuda's Feed Media, parent to Blip.fm and Fuzz.com, here) will handle the regulatory and payment issues for entrepreneurs and site owners looking to license music online, such as Internet radio.

TechCrunch writes that for a monthly fee, Feed.fm will "add the service’s stations to their site or app. They can also build stations from their own personal collections. And Feed.fm offers an analytics dashboard and A/B testing so publishers can quantify that the music is improving engagement and see how their visitors are engaging with the music."

Yasuda told TechCrunch early testing reveals sites that use music from the Feed.fm service got a 20%-400% bump in average time-on-site, and some e-commerce sites saw sales increase as much as 20%.

Read more in TechCrunch here.