Artist Compensation in a New Music Marketplace

It’s no secret that the music industry is embattled. Record companies, reeling from declining cd sales, are fighting to get new legislation passed that would require broadcasters to pay royalties for songs played on air. Online music services – both download and streaming, are attempting to find a workable business model, but remain at odds with record companies over reasonable rates. Of course, all of this has a negative impact on investments in the online music space.

Musicians are not much happier with the labels. While the record companies may be getting paid from all the new online music services, those payments are not necessarily making their way to the artists’ pockets.

fomc2To address growing concerns over payments to musicians, The Future of Music Coalition (FOMC), a non-profit organization that advocates for musicians, has recently created Principles for Musician Compensation in New Business Models. The guidelines are designed to draw attention to their concern that the ongoing evolution in the way music is distributed and listened to is spawning new sites and services;  they want to make sure that musician compensation is adequately considered in any new business model.

Some new online music services have formed innovative partnerships with the record companies, and these new deals may not be fairly addressing artist’s compensation. For example, the labels entered into a joint venture with MySpace Music, allowing MySpace Music to stream songs on demand in an ad revenue based business model. In exchange for licensing the music to MySpace, the major labels received equity stakes in MySpace Music. However, the value of that equity stake is undefined and there is no model for sharing that equity with the artists. That’s a big undefined asset that the labels acquired by licensing music, it needs to be defined and shared with the artists.

Other “unattributable income” that labels receive includes bulk payments for licensing catalogs to music services, and “experimental” deals that some services have with labels which are based on sharing ad based revenue. On demand site Groove shark recently told me they have such a deal. The labels are sharing the revenue with the services, but according to FOMC, it’s unclear how or if the artists will receive their share of the revenue.

The FOMC wants musicians to be paid directly by the services for their share, they want more transparency with accounting, and they want a commitment to accurate reporting and best efforts to find and pay performers. There are other legal-related guidelines covered in this comprehensive statement as well.

It’s interesting to read between the lines of this statement and understand that there’s a significant struggle brewing between record labels and artists, which has become aggravated by declining cd sales and new online music business models.

As Tom Lee, President of the American Federation of Musicians of the United States and Canada, A.F.L.-C.I.O. says “Fair and transparent compensation to musicians and songwriters is the best way to insure the growth and vitality of the music industry. If we want great music, those who make it must be paid.”

Artists, music services, radio stations and even the record industry want the same thing: to grow their audience and be profitable. It’s possible all the parties will have to settle for less profit than they became accustomed to when music was sold as cds, and access and pricing were more easily controlled by the record labels. Access to music is diverse now, which has greatly increased the choice and power of the consumer. The labels, driven by desperate attempts to increase profit, are strangling innovative business models and worse, they’re playing games with their artists. The end result of games like those can only be a diminished product, and guaranteed demise.

2 responses

  1. Transistor Radio

    Tough situation for all, but the music industry depends on radio and now the Internet to sell their products. And lately their products aren’t that good! It seems the labels have lost their passion for great music and just want the money! Where have we heard that before? Radio and records are both stuck, they’ve forgotten how to innovate. Raising rates and raping your best friends will only go so far, so then what?

  2. […] scanning through my RSS feeds on my phone this evening, I came across a good article over at audio4cast. This article then led me to another excellent article at the Future of Music Coalition’s […]

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