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How Will Artists Ever Get Paid Once Computer Companies Buy Major Labels?
Apple Takes a Byte Out of Vivendi and Chips Its Tooth
By Moses Avalon
(more articles from this author)
2003-05-01
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It's a garage sale over at Vivendi Universal, the world's largest media conglomerate and owner of UNI distribution, one of the Big Five Record labels.

In a time when nationalism is on the rise and yet 80% of all major labels are owned or distributed by foreign entities, US owned Apple might seem like a welcome buyout of the French's Universal Music (UNI) for a paltry 5 Bill.

It makes sense. The RIAA has named piracy as the magic bullet of declining sales over the past two years. Well, one way to stop downloading would be to make it unnecessary by giving an entire catalogue of music away whenever you buy a computer. No need to steal the music anymore if it's bundled in the purchase beforehand. It would effectively turn you're computer into a jukebox. Something technology companies have been working towards for about a decade. But is it a good idea in the long run for the people who create the music-- artists and songwriters?

My inside sources are rarely wrong and they tell me that the Apple/UNI deal is practically a non starter. Apple simply doesn't have the scratch. But even if Apple can't make the deal bear fruit, there is always Microsoft or about a dozen other computer companies, like Dell that could.

And what would stop any of these potential acquisitions from bundling a vast music catalogue into the hard drive, much like the Microsoft software you get when you buy a PC? Nothing. And why does this really suck if you are an artist on Universal or one of its fifty-some-odd sub-labels? Well, mainly because it can not be decided how the label will treat this distribution in terms of paying the artist. Artists' and most songwriters' royalties are based on "records sold," not "records distributed." There are several ways a "sale" is calculated in most contracts, but, none of them would provide a clean method of payment for this type of bundling.

For example: is it a "new technology sale?"

No. There is no actual "sale," the records are being deliberately given away.

Is it a "premium?"

It might be, if an indirect relationship existed between the computer buyer and the artist. Premiums are done between two companies, again in furtherance of the sales of records and for promotion of the CD sales as an end product. Computer bundling is better categorized as a support function between two departments of the same conglomerate. So, no, it's not a "premium."

Is it a "license?"

Na. See the above. Besides even if it was a "master license," there is nothing in most contracts that says that the labels have to share licensing money for the master with the artist. (Check your contract)

Is it a "public performance?"

No. There is no streaming or downloading involved. It's bundled.

Is it a "free good?"

Well, labels will try to claim that it is, I'm sure, as this is the easiest way to avoid paying the artist and writers. But this would be a fantasy that most artists' lawyers would agree does not even pass the laugh test. "Free goods" are records given away to instigate further sales. Artists are not paid for these distributions, for obvious reasons. Usually, a proven artist is capable of getting this removed from his contract, as it seems silly to suggest that you need to give away free CDs to get HMV to "take a chance" on an artist that is already selling millions of units. Hit songs bundled in computers will replace normal sales through stores and the internet. Plus, the computer company doing the bundling will be counting on the proven track records of these artists to attract buyers. So it is, if anything, the opposite of a "free good."

Well, we're out of road for royalty paying formats, and there's no check to the artist or songwriter in sight.

This past month at the California Copyright Conference in Los Angeles, some of the industry's top auditors were gathered for a most informative panel, hosted by esteemed LA attorney Cheryl Hodgson (The Kingsmen). I asked this panel, who collectively between them have about 50 years experience in auditing record labels for artists, how this new distribution will yield money for the artist and the songwriter. No one had an answer.

And we may not find out so quickly. The Apple/UNI deal is far from a lock. Their offer of $5 Billion, is laughably low and there are several other contenders: General Electric (GE), Viacom, Liberty Media and Marvin Davis, who has offered $13 billion for 65 percent of Universal's assets.

Why a large military contractor like GE would want to own a record label is too frightening a prospect to contemplate, but Apple's interest is laterally integrated into their current business plan: tying to conquer the world with the iPod (and doing a good job). In the past, however, they've faced issues of copy protection and the fact that ALL of the major labels online music sales sites support only PC platforms. Thus, Apple's acquisition of UNI could actually provide them with a potential monopoly over online music sales to Mac users which represent an estimated 15% of the computer market.

Related MusicDish e-Journal Articles:
» Re: How Will Artists Ever Get Paid Once Computer Companies Buy Major Labels? (2003-06-12)


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