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Artists Beware: You could be getting a raw deal w/ SoundExchange
Members of the Industry Speak Out on Digital Performance Royalties
By Margee Fagelson
(more articles from this author)
2000-12-06
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Over 5 years ago on June 28, 1995, Barry Bergman, President of the Music Managers' Forum-US (formerly International Music Managers' Forum) testified before the House Judiciary Subcommittee On Courts and Intellectual Property regarding H.R. 1506, the Digital Performance Right Act of 1995. Mr. Bergman testified "We cannot emphasize enough how essential it is that the artists' portion of royalties from this bill must flow directly into the artists' hands without any party being able to reduce this revenue for any reason whatsoever. Unless direct payment is made, all your efforts to protect the artists will be impaired." (The full text of Mr. Bergman's testimony is posted on www.mmf-us.org)

The Recording Industry Association of America just announced the advent of their newest baby, SoundExchange. SoundExchange is the RIAA's contribution to the collection of digital performance royalties. What is wrong (or right) with this picture? Bergman and others who more vociferously support artists' rights are not convinced that SoundExchange is the answer.

Scott Ross is the Director of New Media at Moonshine Music, America's biggest independent label for electronic music:

"I think that it is clear to everybody involved in the convergence field that what is needed at this point is clearer laws defining digital rights. Rather than let congress legislate this, the RIAA has stepped forth with a proposal that guarantees the cards will continue to be stacked in their favor."

And there are other questions regarding SoundExchange's agenda.

According to John Simson, SoundExchange's executive director, labels will not recoup the artists' webcast royalties against outstanding advances during a "trial" period of 3-5 years.

So the question many are asking is, 'What happens after the trial period?' After the trial period, can artist royalties THEN be held by the record label, toward recoupment? Add to that the 20% administrative fee charged to users and the confusion creeps in. If 'digital' distribution is inexpensive, and digital broadcast is less expensive, then why is the organization - positioning themselves to collect digital royalties charging a significantly higher fee than other royalty collection organizations? For example, ASCAP is a one-time fee of $10 or $50 for artists or publishers. BMI and SESAC are similar. Even now they are looking to partner with webcasters and tracking software like Audiosoft which can identify the general demographic information in order to decipher the correct royalty dissemination. Though some in the industry may have their gripes with one or the other who doesn't have a gripe with someone these organizations have been collecting performance royalties for some time and doing it respectably.

Peter DiCola, economist, Future of Music Coalition:

"From a labor economics perspective, artists have been offered an unsatisfactory bargain. What SoundExchange has done is serve as something like an arbitrator between the major labels and signed major-label artists, who can be construed as employees to some extent. The offer on the table is one year of direct payment of their 45% without recoupment, two to four additional years of indirect payment without recoupment, and uncertainty after that. Clearly, the deal is structured to provide an initial incentive to join, with a worsening deal afterwards. Artists are being invited to place short-term gain above long-term fairness in their compensation.

"Why they should do this is unclear. The long-term economic well-being of artists is important to society, in addition to the artists themselves. This seems like a highly unfavorable deal to major-label artists, and should not be accepted. One obvious step toward a better deal would be to eliminate the aspect that increasingly disfavors the artists over time.

"The fact that the deal is so skewed towards the major labels, from an intertemporal perspective, demonstrates which side of the bargaining table is more important to SoundExchange. I would add that from the perspective of independent artists, this deal is also undesirable. If one's independent label participates in SoundExchange, it is simply unclear what your label's stance on the issues of direct vs. indirect payment and recoupment will be, since the press coverage has entirely concerned the position of 4 of the 5 major labels. If one's independent label does not participate in SoundExchange, then the fate of one's webcasting royalties is entirely uncertain. A better deal from a prospective royalty collection agency - whoever that agency is; SoundExchange should have competition for this role - should be deemed necessary by the artists."

How can an organization owned by, staffed by and housed in the offices of the lobbyist group for the big 5 recording labels be relied upon to fairly distribute payments to the clients of their clients? In the instance of a dispute, should the royalties revert back to the label toward recoupment or any other instance...whose side should SoundExchange be on? Everyone would agree that they should be on the side of the labels, their clients.

Noah Stone, Director of Artists Against Piracy:

"If you believe, as I do, that five to ten years from now, you will sit on your couch and type in the name of the movie or TV show you want to see, or the album you want to hear, and it will appear on demand, then you will agree that performance royalties will make up a substantial portion of artists' revenues. It is imperative, then, to ensure from the beginning that the statutory rate for the DPR [digital performance rights] is set appropriately and the royalties are collected responsibly and fairly by an independent and neutral entity. The labels have earned the distrust of the artists; perhaps SoundExchange can be structured to fulfill the task appropriately, but we must be skeptical.

"John Simson deserves respect for the work he has done to ensure artists their fair share. He has succeeded in convincing four of the majors (BMG is the holdout) to agree for a limited time to disperse the DPR directly to artists and not have it go towards their recoupable balances. However, the fact that labels can choose how to pay this money to artists and for how long hints at a potential conflict of interest. Will the labels be able to use a controlling interest in SoundExchange to supercede the statute? This is a question artists need to know the answer to."

And if you are an independent label, with no major label distribution, or an independent artist with no label affiliation, whatsoever, or anything in between... why would you want the RIAA in charge of your money? Although the MMF and others agree that this is an admirable gesture, it doesn't seem kosher for the bulk of the population.

Scott Ross:

"The fact that the RIAA is only offering to pay money generated by the internet direct to artists for a year should be considered consistent with their emerging policy of placating artists during this critical time. However, once the laws are passed it will be back to business as usual - do you really want the major labels controlling what will very likely be a huge chunk of the overall music industry? You shouldn't - unless, of course, you work at a major label. Then SoundExchange looks pretty cool."

Mark Roemer, All Indie, artist development company:

"It is a scary proposition for independent artists and established artists alike, to have an arm of the RIAA representing their financial interests and collecting, accounting, and administering their digital royalties. The RIAA exists to protect the financial interests of its member labels. Unfortunately, it is not in the Major Labels' interest to see to it that artists on any level are being fairly compensated. The Work For Hire scandal is evidence enough that artists as a collective need to be represented. The labels have the RIAA to protect their interests and ensure compensation for use of their works. Artists' interests need to be represented as well.

"An independent third party should be appointed to collect digital royalties on behalf of both artists and labels. As long as the labels are rightfully compensated, there is no reason for argument on this matter. The RIAA should stick to its mission: 'Our mission is to foster a business and legal climate that supports and promotes our members' creative and financial vitality. Our members are the record companies that comprise the most vibrant national music industry in the world.' (Taken from the RIAA mission statement)

"The RIAA should most certainly represent their member labels' interests with regards to the collection of what is rightfully theirs, but they should do so by working in conjunction with an independent third party assigned to administrate collections and payments of digital royalties."

One thing is clear. The concerns expressed by MMF and Barry Bergman are not unsubstantiated nor unsupported. Neither are his praises for the RIAA and their efforts. Mr. Bergman, if you're listening...you are not alone.

Linkography

All Indie - www.allindie.com
Artists Against Piracy - www.artistsagainstpiracy.com
ASCAP = www.ascap.com
Audiosoft - www.bmi.com
BMI - www.bmi.com
Future of Music Coalition - www.futureofmusic.org
International Music Managers' Forum - www.immf.net
Moonshine - www.moonshine.com
Music Managers Forum-US - www.mmf-us.org
RIAA - www.riaa.com
SESAC - www.sesac.com
SoundExchange - www.soundexchange.com

Related MusicDish e-Journal Articles:
» Sole Source Licensing For Indies? (2000-10-23)

Related News from Mi2N:
» Music Managers Forum Challenges Substance Of RIAA And SoundExchange's Intentions In Distributing Webcast Royalties Directly To Artists
» Recording Community Launches The 'SoundExchange'


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