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« Reselling music, the value of music | Main | Go Straight to the Fan! »
Saturday
May242008

The Record Industry Innovation Prize 2009

 
iStock_000004124553XSmall.jpg

Here’s an idea: rather than cripple online music startups with royalties, or burden them with equity arrangements, why not give them a prize for for doing the one thing the major record industry has failed to achieve for itself: make money out of music online?

In Wired Magazine’s Listening Post, Eliot Van Buskirk asked the question ‘Should Music Startups Give Equity to Copyright Holders?’. The question was prompted by a white paper (PDF) by MCPS/PRS chief economist Will Page and PhD student David Touve, which proposes that instead of charging royalty fees to innovative web based startups, they should offer an equity arrangement.

In other words, give the startups the option of letting the record industry own part of your business instead of charging licensing fees.

It’s an interesting idea designed to get past the dilemma that music startups either ignore copyright (and live in fear of lawsuits) in their early stages, or they are entirely crippled by it.

The purpose of copyright is to incentivise creativity 

Fear of lawsuits is a disincentive for creative tech companies. Royalties that exceed income - also a disincentive.

But giving away a chunk of a company that you’ve put your body, heart and soul into to someone who has done no work in, on or for that company, but whose work could eventually benefit greatly from its inclusion - also a strong disincentive.

At the very least… 

I suggest a slightly different approach. NO royalty payments and NO equity on music startups. At least till they get going properly. Let them use the fruits of the industry to grow the industry.

A 12-month free ride (or, more realistically, 24) is a sound and fair investment in both the future of the music 2.0 businesses and the ongoing income of the copyright holders (by which we probably mean the record labels, rather than the artists) themselves.

In other words - stop trying to stifle growth. Genuinely support entrepreneurial activity, and agree to come back in a year or two to see how things are getting along. Then you can reap the fruits of that investment. If there’s no business, it wasn’t going to make you any money in the first place. If it’s a wild success, then you helped make that happen. NOW you can get involved and start reaping the benefits.

I’m going to take this one step further and suggest something that I’m guessing some people in the music industries might find to be radical. But it’s worth bearing in mind that there are no instances of this idea being applied to an industry where it hasn’t worked to everyone’s massive advantage. 

The Record Industry Innovation Prize

  1. New online music startups can register to innovate competitively.
  2. All registered startups are exempt from all copyright payments for the first two years of their operation, in order to facilitate and incentivise rapid growth.
  3. The best and most successful startup gets a ten million dollar cash prize from the record industry. 

After the two years, and the award of the prize, the record industry and their representative bodies can have the conversation about royalties or equity… but in a way that has actually resulted from some investment that has focused on growing the industry through technology and innovation. 

By actually using copyright to incentivise creativity, new and otherwise unexplored business models, frameworks and systems will be invented, tried and tested, risk-free. While it may be excruciating for some to sit and watch the most successful of these ventures earn massive amounts of money that they won’t be able to skim off the top for music royalties for a couple of years, the simple fact is that this is a necessary cost of survival at this point.

Attracting the smartest minds in technology and creative innovation is an investment in the future of the record industry. And offering an incentive to innovate is the way to attract them. 

But it’s not in any way a gamble. And nor is it lost money. It’s the allocation of resources, time and space to build the engines of the future of the recorded popular music industries.

It’s an embryo of an idea - but I think it has promise. What do you think? 

 

Reader Comments (33)

This is a brilliant concept that will sadly never gain support from the industry rights holders. Unfortunately, with the hard push for large upfront licensing fees being so prevalent, it's clear the major players are too busy trying to find innovative ways to make next quarters financial targets instead ofsupporting innovative business models that can create long term value for all parties.

May 24 | Unregistered CommenterDavid Rose

"But it's not in any way a gamble. And nor is it lost money. It's the allocation of resources, time and space to build the engines of the future of the recorded popular music industries."

I think it sounds like a great idea and I think the quote above is the key to "selling" the idea to the "Big Boys (and Girls)".

This idea invites innovation (a welcomed part of any kind of growth) and one other element that is a necessary evil; Competition. The competition end of it is only evil because there will always be a loser where there is competition...But, that is the nature of all things involving monetization.

I really hope that some Big Heads take notice of this idea. I think it would save money right now and make money in the future for all successful parties involved.

Cheers,
Milton

May 24 | Unregistered CommenterMilton

I think this is a dreadful idea. The musicians and the music industry would lose money for two years, while the computer programmers and venture capitalists would make money off of their creative work. How stupid is that?

May 24 | Unregistered CommenterTony

I think the prize is a good idea - but I think that some of the startups would try and push the barriers and give away entire catalogues of music to get as many people as possible to come to their site.

I mean, if I entered this competition, I'd be offering free downloads of all the albums you want from all of the major labels for free. Of course, it might cost me a bit in bandwidth... but just think how popular I'd be!

And exactly how much money are we making now?

They venture capitalists and programmers will always make the money first, accept that reality. Think about it: "Venture CAPITALIST" says it all...and as for programmers: You wouldn't be posting today if it weren't for them (not to mention record / mix music).

Necessary evils...un-escapable, inevitable and real.

Now, what is stupid? Stupid is as stupid does?....run Forest, RUN!

May 24 | Unregistered CommenterMilton

I think this is the start of a good concept. I agree the industry is shooting itself in the foot by charging such high upfront fees to those who could re-innovate the entire industry.

At the same time this plan essentially means that the labels must agree to the giving away of entire catalogs for at least two years. That would have to financially impact the copyright holders (singers, songwriters, producers) probably even more than they're being impacted now. I think that's a big pill to ask the labels, publishers, and songwriters to swallow.

I'm a big believer in learning lessons from other industries. However, I can't think of another industry where the cost of innovation so greatly affects the current bottom line.

What impact? There's nothing here that says that any new innovative offering would replace or attempt to replicate existing services. Online music startups can be about music consumption, music education, music promotion, music distribution, music production, music performance, music publishing... and so on.

New models would, in their own interests (especially if they want to win the money), be additional to what is already available. Successful innovative approaches would add to the SIZE of the pie rather than try and slice it differently.

There's certainly no shortage of music - mp3s are infinitely replicable - so no scarcity here. That means that the only thing that could happen is that in two years time record industry revenues could increase radically. In the meantime, no real money is being lost.

Surely we're all agreed by now that the 'lost sale' argument is a myth...?

The music industry surely needs innovation and it will have to come from startups that put a lot of time, effort and risk into it. I can speak for myself here and I recognize both the fear for lawsuits or the problem of accessibility of music resources.
The idea is about an Innovation Prize so I guess it will be organized by the industry itself, enabling them to select 10 ideas from trustworthy entrepreneurs that explain their plan and approach. It should be easy for them to set the terms that avoid abuse.

Facebook, Apple, Google have created similar initiatives. Why not the music industry or any given player with an interest (Amazon?) to stimulate innovation.

Who can take this to the board? :)

Text, video and photos are free. But most of the music isn't. Musicians need to be compensated? Why not compensating the writers, the videomakers and the photographers too?

Royalty's online, is that a good thing? I don't think it will work. And why for musicians only?

Here in Holland when your music can be heard on radio or tv you'll receive royalty's. Why's that? Those royalty's used to be meant for composers only because there used to be a time where you had writers of music and people performing it, 2 different groups. And the airplay on the radio was a good promo for the band, but the composer didn't gain anything from it, so that royalty system was created. But most bands today compose their own music and when they're on radio or tv they get compensation for that promo. A double bonus!

Let's say I want to sell some crackers. I am in the crackers business. Yeah, I mean that stuff you can eat. If I want my message to be heard on radio or tv I am paying big bucks. They are calling them commercials. But when I am a band and my music can be heard on the radio, I am promoting my band in the same way as the cracker company wants to be promoted. And those bands are receiving royalty's while the cracker company has to pay for the advertisement costs.

You can't Google songs or albums. This is strange. It's protected. It's not about innovation, not about the technical details, it's simply 'illegal'. Technically speaking that's easy to achieve, simply create webpages for albums and songs, index them and put some ads on them. People are willing to pay lots of money on iPods, new computers, headphone, hifi sets etc. In my opinion the income on ads can be a lot more than the money you can make on royalty's. Sure, most people will not click on those ads. Like most people listening to the radio will not buy that music or go to a concert of that band. Simply because they don't like it.

I want to go to Google typ in 'Miles Davis Kind of Blue' and find webpages about that music. All additional info and a simple player for listening to that famous album. Why hasn't the music industry done that? They are all about music? Why will I be able to find videos with the same music on YouTube but not be able to find the music in high quality online?

Let's zoom in what happens when a band puts their music online. I think it's simple. When you put your music online anyone can listen and download it and decide if they like it or not. Friends can also send that music to other friends. They will promote it if they like it. But if your music is not available that will not happen. Simply said: you put your music online because you want the music to be heard.

The big labels are having a problem right now. They are 'the industry' and people don't trust industries, they rather trust their friends. So if your friends like it, maybe you will like it too. Maybe you have a blog and put that music you like online, or maybe you send it to friends. The industry doesn't like that idea and will continue to fight it. But within 10 years that's the only way to do it: you have to put your music online.

Your idea might work Andrew, but I really don't understand why the music industry needs money. They made money with the reproduction of disks, but reproducing music can now be done at zero costs now, so I really don't know why I need to compensate them. For what? For the use of that music? Because they have offered us such great music? You can have a hard time finding some of the great stuff from the past. You be better of with a p2p system. Some of that music simply is not available in the legal stores. Only the pirates are providing it. Where have I heard that story before? Indeed: pirates always give the people what they really want. The pirate's dilemma :-)

When I am promoting music on my platform, my blogs for example, I am doing them a great favor: because I am offering them a advertisement for free! I put links the bands' webpages, concert info etc. I am their promoter. So tell me: why do I need to pay them? Wouldn't it be better if they pay me instead?

And lastly: I think the most innovative ideas are coming from people who are breaking the rules. Focusing on something people really want. And then the law changes, and everything changes. The industry is trying to protect us from something better and that protection system will simply fall apart in the coming years. It's just a matter of time.

Music wants to be heard.

I hear what you're saying Marco, and on the spectrum of opinion on this matter, we're broadly on the same end. You're just quite a bit further along it than I am. :)

I think there are still types of music that require investment in expensive production and mass distribution. I think those types of music are still quite popular. I believe that organisations like the major labels still have a role to play.

Some people are calling for the death penalty for the labels. I still hold out some hope of rehabilitation and reintegration into society. But it'll be a long, slow process and I think they're running out of chances.

This sort of investment in innovation offers the opportunity to be relevant, and therefore make money. Why do record labels need to make money? Because they are businesses. If they want to make money from music, then they have to contribute value to music. That's how capitalism works. You can't just demand money just because you say so. That's just called being a bully and a thief.

But I think if large organisations find a way to genuinely contribute value to music, then they should earn money doing that. Getting the innovators to help look for a way to do that might be a good investment. Otherwise, you might as well just take your large organisation and move into a completely different market - because this one's not doing it for you... :)

Oh, and by the way - I finished that Pirate's Dilemma book last weekend. Highly Recommended.

I finished reading the Pirate's Dilemma too :-) Great book!

Sure, some bands need a large space to record their album. I don't think you need a studio, you need equipment, lot's of mics, and a large room(s). And people who can operate that equipment.

But do you really need a record label for that?

Madonna has signed with a tour promoter. Does that mean she stops recording music? Or does it mean the tour promoter wants her to record music because this draw attention to her concerts? And pays for it?

You can ask your fans to make a donation and start recording. It's best to invest in equipment, any band can buy their own studio. It's not expensive anymore. The hardest thing is finding a room, recording space. Not the equipment. Equipment is cheap. Every studio is using computers. For 3000 dollar you can buy a computer, an interface and software. Maybe buy 10 microphones for something like 2000 dollar or more. 5000 in total, a little more probably. But for less than 10.000 you can have it all. But not the recording space.

If it's money, a bank can offer you the same thing. I am wondering loudly what a record company has to offer. They used to have a direct connection with the press, but that's no longer needed anymore. Sure, they can add MySpace pages for your band, but that will cost you some money.

Maybe I will make a list of things you need to record an album. Or maybe I should simply record one myself with a full band, without spending a fortune... hmmm, let me think about it.

Sure, I understand your point of view and lots of bands want to go that way. But in my opinion it's not needed that I offer them, I mean 'the industry', anything. Cool ideas for music are great, but I don't feel like the new music industry has to offer them any money because the old industry seems to be very non-creative. They haven't invented mp3.com, napster, iTunes, p2p, bittorrent. No, they haven't invented anything! They were against CD-copy machines and have been holding this new technology from their customers. And now they want our money?

I'm a bit of a fan of music being recorded in dedicated spaces with acoustic panelling, and people who know what they're doing in terms of microphone placement, recording techniques and production. Having been a record producer in a former life, I've experienced the difference between adequate recordings and great recordings - and I think the latter has value.

You don't need a studio. But there's often a good reason for wanting one. And just because it's possible to record an album for less than $5,000, I don't think that means that everyone should.

And let's not forget that recorded music is about more than just guitar bands. Let's get a choir or an orchestra involved. Or let's make something that pushes recording technology to its limits, as Sgt Peppers and OK Computer did in their day.

I think the same could be said for Hollywood. Just because anyone can make a feature film on home equipment, that doesn't mean I never want to go to a blockbuster at the cinema again...

We're basically on the same side, here Marco - but while I think it's true that the major labels haven't deserved our money for some time, I don't think that means they should be ruled out of ever trying to deserve our money in future.

Record labels used to offer expertise and contacts, marketing resources and capital. They had legal frameworks, people who understood rights and reporting, publishing, promotion, plugging, synchronisation, distribution and all sorts of other specialist areas of music business. Bands do not need labels any more - but they do need to be able to either handle all of those areas, or understand them well enough to decide that they don't need to handle them.

In other words, of course it's possible to do things without a label. But something needs to take its place. People who decide to go without a label still need something "instead-of-a-label". Whether that's knowledge and effort, a group of connected and informed friends, a team of your own - or just a hit and miss approach that depends on MySpace and luck, there has to be a strategy applied to the business of music.

And this gets me back around to the point of this discussion. If businesses want to make money adding value to music, then they need to update what they contribute. Because as you point out, all of these things are no longer enough.

People forget that record labels aren't music organisations that make money. They're money-making organisations that use music to generate profit.

There's nothing more inherently evil about that than being a money-making organisation that uses stuffed toy pandas to generate profit. That doesn't mean that selling music is just like selling toys. Clearly that would be nonsense. But if you're failing to make money selling pandas, then you need to do some R&D into how you make money next. The pandas themselves may be loved by the consumers, and that's how the money is made, but they are purely a vehicle for revenue generation for the corporation.

So - how can these large money-making organisations continue to make money from music? I don't really know, but if I was a member of the IFPI, I'd be seriously considering investing $10m on a cash prize to get some great answers...

This idea is a bit of contradiction to what’s happening in the marketplace.
The awards are already being handed out and the record labels are fully participating. If anything, the barriers to entry will go up, not down.

The Rewards
Recently, AOL purchased the social networking site Bebo for $850,000,000. Count up the number of social networking sites and digital music businesses that have been built upon or around artists, music and music fans. Just look what music has done for Apple. Look at Amazon. Why does Amazon cut Apple’s price? To acquire the ability (the reward) to up-sell and cross-promote other products. The rewards are clearly established and they are significant. The proof exists: music and music fans build billion dollar businesses.

The Labels Are Already Participating
Music 1.0 has already purchased an option on Music 2.0. Everyone running a major label is not a digitally challenged, and they certainly know how to create legal documents that create upside for their shareholders. I bet that it’s hard to find a significant Music 2.0 company that has not given some sort of an option (to purchase or acquire additional equity) to a Music 1.0 company. Those licensing and investment deals between the labels and Music 2.0 are eight inches thick. We only hear about the details that get pushed to us in a press release. We will all see who owns who, 24 to 36 months from now…

The Barriers Will Go Up - Not Down
An efficient market recognizes that artists and their fans have the power to rapidly build billion dollar businesses. Therefore, the market will efficiently bid for the right to acquire this power. If anything, somebody is going to come forward and offer to pay MORE, NOT LESS to rights holders. For example: Apple, Amazon, Microsoft, or ANY company that sells other stuff, could (and will) return 100% of the sales revenue back to artists and labels. It’s a fact; with $100,000,000 you can build a $1,000,000,000 business around music. We are already seeing this happen with the recognized brands (Madonna, 50 Cent, U2, etc.). It will just be a matter of time before the same market dynamic ripples down to everyone else.

Here's a crazy notion from someone who circulates primarily in the world of independent artists: Stop thinking about macro start-ups and think more about micro efforts.

For instance, a musician or music fan who starts a podcast that plays only a short list of indie artists who own their own copyrights. All revolving around a common theme (Americana, children's music, whatever). They give the podcaster permission to play their tunes without broadcast royalties, because they realize the value of the exposure.

Think smaller and niche, not bigger and corporate :-)

May 25 | Registered CommenterBob Baker

I think the following needs to be said: the recording industry does not need the Internet to function. It worked very well without it for decades. The main problem the industry is still facing is not how to make money off the net, but how to stop the illegal distribution of its products. If you couldn't download music off the torrents, people would still be buying CDs.

Frankly, I see little incentive for the industry to make any concessions to online businesses. I do however see much merit in demanding money up front - it sets a good precedent and weeds out the small-time players who wouldn't have been an asset anyway.

Andrew, I would love to see you devote as much time to considering how musicians can make money, as you do to thinking up new ways of giving it away.

Wow Andrew you've started something here. I've read the post and all of the replies and I agree and then I disagree with all of it. There is so much logical argument on both sides that it's easy to flip flop from one opinion to the next.

It's such a large issue for the industry (& I include musicians in that collective) and it's constantly changing. I just think we need to treat the online environment and those that create platforms to listen to, share & sell music as friends. Someone far more intelligent than me once said to keep your friends close and your enemies closer. I think we need to make friends with the 'pirates' and Andrew's ideas may be one way of doing that.

May 25 | Unregistered CommenterBrett Wood

"Product" - What is it? Is music a product? Or is the medium which it is delivered the product?

People / Fans will purchase products. They will purchase "collectible" items and if those happen to contain music then all the better for the musician.

Concert tickets, door cover charge, "Merch" items are all ways for the musician to make money.

I think the issue is recorded music as a product and how it will be a product in the future. To continually fight the "sharing" (often confused with "pirating") of music is inevitably a lost cause. Sharing music is good for the musician who has also developed / innovated a "product" to coincide with the recorded sounds he/she has made.

If that is a CD ROM, DVD, "data packet" type of thing...whatever, the thing to do is to provide something more than just the recorded music.

The Internet and the birth of digital distribution has made all parties involved in recorded music to rethink how their music can become a product again. Products require marketing and marketing requires innovation in order to continue to sell.

The actual recorded music is now much less a product and much more a piece of the promotion / marketing machine...a machine whose sole purpose is to sell a product.

So again the question becomes: What is the product the musician has to sell?...And, Who will help them sell the product? I suggest referring back to the multiple stages involved in selling a product...of which making the music / being a musician is just one part of the equation.

"Industry" (the devil that it is) is all the components needed to sell the product...and the product is your music combined with multiple other ways of adding value to it...and the ability innovate.

May 25 | Unregistered CommenterMilton

I agree Andrew, some bands needs a studio to record. But even for a band like The Roling Stones, most editing is done on a computer. And that editing can be done in a small room with a computer and a mouse. Not sitting behind a large expensive SSl mixing desk. Sure, some bands even want to go analogue, which is very expensive these days. But even my favorite engineer, Tchad Blake, can be found behind his Pro Tools setup with the Ion 'large mouse', check.

But sure, some productions are expensive. Indeed, Hollywood too.

At the same time I am thinking "superstars are slowly disappearing" and 'what was the last Hollywood blockbuster?".

More niches are entering the stage. It's not about large numbers anymore. Nine Inch Nails and Radiohead had online success with their new models to distribute music. But I don't think every world citizen knows about them.


Yes, superstars are slowly disappeasing. And it's not a bad thing. Who needs 3 swimming pools anyway?

With a small set of channels, exclusive contacts with the press, you can manipulate the world. You can manipulate the customers. You can create artists. You can filter them. I believe this is all changing. There's a lot more to choose from and the focus on superstars and blockbusters is simply a stupid way to do business these days. The Long Tail has a story to tell. The small numbers together are reaching far more listeners and customers than the superstars and blockbusters.

Brings me back to your question "So - how can these large money-making organisations continue to make money from music?"

I think the answer is simple. But therefore these large money-making organizations have to realize a couple of things:
- you can NEVER attack your own customers
- you KILLED your own products/formats by adding DRM or Copy Control which destroys the product
- you can ONLY connect to people when you have something interesting to offer them
- NEVER copycat music which was a success in the past
- NEVER fight new technology which the public loves
- REMEMBER that trying not to innovate has killed many companies
- REMEMBER that file sharing is a great thing for music, because it's about connecting people
- REMEMBER that Hollywood used to be a pirate group
- REMEMBER that when reproduction costs are zero, anyone will make copies
- REMEMBER that people don't like to pay for trying out something they might not like
- REMEMBER that people are connecting to people, not institutions, not anymore
- REMEMBER that you can only be in this business when you really love music

What has the old music industry done the last couple of years? Not much. They are loosing their market share and are crying out loud. Which businessman is able to do that? I mean: that's just business, if you're loosing your market share, it's about you, not about the markted. You're not smart enough.

You can make a living by creating great music, connect to your audience and offer them something they can buy. Money is not an issue when you connect to lots of people.

How can the music industry make money? Simply by connecting to people who love music and show them something they really like. But right now the music industry is fighting the new technology they will fully adopt within a couple of years time. They can make A LOT MORE MONEY right now when they stop doing that. Fighting, wars, cost a lot of money. If they were so smart as The Pirate Bay, all that money was in their pockets, but it's not. They start wondering, blaming and thinking. Why not simply DO IT? Create something new, be smart, be creative! Experiment. Money always comes your way when something really works, when people like it. Put passion in your business and have faith in your power. And do the never (thank you Seth Godin!).

Yep.

Those are the things that the large money-making corporations need to remember. But telling them that these are the rules and then telling them to just go and do it leaves out a step. They need to find ways in which those things can be done. Practical, useful ways that actually engage people and foster community.

And in order to do all of that from within a corporation, it's necessary to invest heavily in R&D and spend money in areas you traditionally haven't had to - like large scale web app development.

But R&D no longer has to be in-house. Tapscott & Williams's 'Wikinomics' (another highly recommended book) discusses how one of the ways to incentivise that invention of something new, smart and creative is to involve the new, smart and creative communities. And one of the best ways to involve those people is to incentivise them with cashy prizes.

Record industries have to own up to the fact that they don't know how to do this connecting to people thing properly. And they need some help with it. My suggestion is that you engage rather than go to war with the people who can make it happen.

And it's entirely possible. IBM made the shift from being one of the most demonised corporate entities on the planet to embracing the open source community, leveraging the minds and creativity of the world's tech community and turning that into a far more positive reputation - AND hundreds of millions of dollars in profit.

But Krzysztof is kind of right when he says that the recording industry does not need the internet. Just as the printed sheet music industry did not need radio. As long as people keep sitting in their parlour playing the popular tunes of the day on their piano rather than listening to them for free on their radiograms, things will be just fine.

And they are. There are still people who make a decent living printing and selling sheet music - but it's no longer the dominant way in which popular music consumption takes place no matter how much that industry demanded that people behave the way they wanted them to.

Remember that it was not only Hollywood that started as a "pirate" industry, but radio and television broadcasting too. History teaches us that it's only by adopting and adapting to those pirate techniques that industry can change, grow and thrive.

Legislation is always the last to catch up - and when it does, the ones who hadn't made the shift are left behind as the world moves on. This is what has always happened, and it still amazes me that there are people in the record industry who believe that this time it will be different.

With the RCs forcing Pandora to shut down it's UK site, I seriously doubt that the industry will go for this. It would be awesome, and I'm sure a lot of people would benefit from such a venture. It would be great for the industry to take it on board!

There may be a germ of an idea here ... but I think rights owners, and, more importantly, creators must be protected.

Here are a few thoughts ... though this list is not exhaustive.

Rates payable for the use of music must be established before launch and technology for tracking and accounting for uses must be designed into the application. For instance advertising based, unmonitored, P2Ps services would be ineligible.

Rates that have already been established such those for SoundExchance, ASCAP and by existing copyright laws, as well as rates that would be established by any governmental body or third party legal action during the 24 month period would apply after the moratorium.

So that creators could be paid as quickly as possible should a technology succeed, rates that have yet to be established for uses envisioned by the application must be negotiated prior to launch to insure no back end ambiguity that could take years to be settled between the parties

Royalty payments due from successful technology should be retroactive to the date of launch.

Technologies that fail to generate a profit (including the calculation of royalties due) should immediately pull the plug on their offering. A kill switch should be built into any downloadable technology to insure that there would be no further use of the product.

Should a product that reached the two year cut off period without generating a profit show that it has sufficient outside funding to continue, it may continue in operation subject to the immediate retroactive payment of royalties due and the assurance that royalty payments will be ongoing.

All rights owners (including those who own or administer the rights to the SONGS being used) must agree to this concept prior to any implementation - including rights owners outside the territory of launch - if applicable.

All 'contestants' must register their proposed products to be eligible in a form to me determined by rights owners. Those who fail to register would continue to be subject to possible infringement actions.

In all instances, without equivocation, the creators of music MUST be protected ... they are the ones getting their clocks cleaned by this stupid tug of war between technologists, record companies, online broadcasters and the public.

May 26 | Unregistered CommenterTonsoTunez

Here's what I think:
Online companies are run by internet executives, not music people. They are, in truth, distribution companies. They do not create music. They should absolutely pay royalties from Day One. Why not. If they can't pay for the goods they sell, why should they be in business? With so many companies on line selling music right now, clearly paying royalties is not the issue.

Venture Capital is not having problems paying sales royalties, they are having problems paying streaming royalties - and that's a completely different problem, relating to the Copyright Royalty Board. They need to rescind that decision for streaming royalties.

MySpace gave an equity deal to the four major labels. Let's see how that one plays out before we kill it. Meantime, go Amie Street, Go Emusic!

As it relates to innovation - focus on the price. Most would do it for the prize alone.
And consumers would definitely start playing in the race for the winner.

Independents are not the issue. This is a major label distribution problem. In the brick and mortar days, stores that couldn't buy directly from a major label, would buy stock from a "one stop", at a higher margin. In the digital world, there is no one stop for major labels. Either Major Labels open up their catalog to all reputable online retailers, or consumers will abandon all faith and go to Peer to Peer. It's that simple.

Hi Celia,

I've been giving your comment a lot of thought, and while I would probably agree with you if we were talking about music sales and distribution, I have a whole range of other types of services in mind.

Let's look at Last.fm for a moment. I don't think you can say that music is their product. I think their product is the way in which people can arrange, navigate, understand and connect through music using their service. They are absolutely a music startup - but they are absolutely not a distribution company.

So, in my head, we're not talking about sales royalties. We're talking about public performance. Airplay. And probably other ways of using music that don't fit into our existing categorisations.

I think there are ways that the music industries can leverage music consumption for greater reward, and this will be fundamentally different from the 'slice of retail' model that was the heart of the old world of music business. But we need some smart people to show us how it's going to work, and we need to give them a really good reason to bother.

A thought just occured to me while reading the last couple of comments (forgive me if this has already been addressed somewhere else)...

Is it that music sales are down across the board? Or is it that there is so much more music being made that the margins have merely shrunk?

Example: If "Super Band A" from the 1970's was used to selling X number of LP's per year for a couple of decades then along comes "Band B", "Band C", "Band D", etc. etc.

Wouldn't the tap run down to a trickle? As more and more music is made available...Doesn't that spread the cash a little thin (for all parties involved)?

Now this is not to suggest that file sharing and the digital environment have not had an impact on music sales...But just how much impact has "Saturation" had on music sales?

Again, forgive me if this has been addressed already or seems simple minded...It was just an idea that I can't remember being brought up before.

Thanks,
Milton

May 27 | Unregistered CommenterMilton

Andrew -
Last FM, Pandora and others stream music. The royalties question is a streaming royalties issue - the Copyright Royalty Board screwed up and created outrageous royalties for all internet radio. DIMA and Sound Exchange are trying to work it out.

Watch - terrestrial radio will be paying royalties very soon.

The argument that airplay = sales is 1) antiquated, 2) made its way thru congress in the 40s by politicians looking to get reelected via radio advertising, and therefore highly supportive of radio's request to waive royalties in the past. Labels were happy for the exposure on this super focused medium. Things have changed: 1) radio airplay is unlimited, thereby making saturation almost impossible, 2) labels are going to demand their share of the pie - - - radio stations sell advertising on the basis of the music they play - currently, commercial radio pays nothing for music.

Paying literally pennies to the master rights owner isn't really the issue here is it?
Or is it that these internet sites are attempting to become the new form of commercial radio? It never will I'm afraid. I think the game has changed far more than that.

If you're looking to let social networking and internet radio have a free ride, hoping for a center point, I'm not sure it's the free ride that's killing the goose, so to speak. Each of these social networking sites seem to have an arc of interest - fans come and they go. Last time I checked, the only folks making money were the internet companies, not the labels or artists who made the sites worthwhile to visit. I think splitting the pie of investment is actually not a bad idea - sweat equity is a good model to consider.

And stations like KCRW (who are non profit to boot) are happy to pay reasonable royalties so why shouldn't commercial ventures? The key is reasonable.

And while I'm on the subject, (and this will probably throw me off here forever but) if you earn income from this site, using my creative thoughts as one of the thought leaders, shouldn't I get just a tiny piece of your pie? Shouldn't everyone?

Let the fighting begin!

Lots to consider there. Some thoughts:

1) As far as I know, the United States is the only country in the world in which terrestrial broadcasters DON'T pay royalties. And it absolutely should. In fact, I'd go so far as to say that the fact that they've been getting away with it for 70-odd years is absolutely outrageous.

2) Just as I'm not talking about internet ideas that will replicate traditional retailers online, I'm also not talking about internet ideas that will replicate traditional broadcasters online either. The whole idea of an innovation prize is to come up with something new. Not just slice the pie differently, but expand the pie. Or bake a cake. Or something.

3) I'm not against commercial ventures paying royalties. Quite the opposite. But I'm in favour of conditions being set up so that new and interesting things can be grown that might not otherwise have taken place, by incentivising and encouraging tech companies to give some thought to the problem of how music can make money online that isn't just trying to be a web version of an old way of making money.

4) KCRW make some of the best music radio around. It's no surprise to me that they 'get' the value of music to broadcasting. I think they should be the model for all sorts of things. That goes for your show too.

5) This is probably a longer conversation for another time in another context, but I have no particular secrets about this as far as the MTT audience is concerned. So sure. Let's have this discussion in public: If I earn income off this site, and I use your creative thoughts as one of the thought leaders, then you not only SHOULD get a piece of the pie - you WILL. And I'll do my damnedest to make sure it's not a tiny one.

As you know, Celia, I think you're one of the sharpest minds in the online music conversation, and I'd pretty much do anything to get you posting as one of the regular contributors here on Music Think Tank. Your invitation to post as a contributing author on New Music Strategies still stands. You'd have to do something pretty outrageous for me to withdraw it, so I hope you're still considering.

I've made clear my intentions to use the site as a platform from which revenue can be generated, but I have not yet started to do so. I am certainly reluctant to place ads all over the site, and will refrain. You'll notice that there is no advertising or affiliate linking whatsoever on Music Think Tank, and I aim to keep it that way.

I have been busy behind the scenes developing a business model that will generate income for all of the authors, and will create significant value for all visitors to the site. But at present, all we are doing here is talking about these issues because it's important that somebody does. Think of it like public broadcasting. The British kind, with no ads and without the pledge drives.

No money is being generated through Music Think Tank by anyone at this time (with the exception of our hosting and technology providers) but I'm determined that they will. I hope I can make it worth your while to be a part of that - especially because you and I don't agree on everything.

I think MTT will be all the better for dissenting opinion, robust debate and healthy discussion from all sides of the topics.

No need for a fight here - but you're one of my favourite people to match wits with. To put it bluntly, you're super-scary-smart and I feel I get smarter when I engage in debate with you. You're not the only one I can say that about in the MTT team - but you're pretty good at it.

Now go and write a blog post, will you? :)

Andrew -
You are very kind, very kind indeed. And you sly devil - you got me hooked!

I'm not sure how to post beyond where I am today - and perhaps I can do that at a future time, but I think you and your gentle readers would appreciate the commentary I just filed for KCRW - it very much speaks to the problem at hand. The file will be up in about an hour
http://www.kcrw.com/etc/programs/ob/ob080528music_appreciation_1

I'll be very curious to hear ideas out of this. The company that made it, sent it to me, not knowing how I might feel about it. It's not a perfect match, but it gets more right than wrong. And it's more interesting than most that I've seen - even if it is for kids.

Just imagine what it might look like with other content, ideas and interaction....hmmmm

I think you have hit the nail on the head here. As a co-founder of a music startup (mixmatchmusic.com), music copyright issues have been a massive concern for us. Because copyright penalties are based on strict liability, you're essentially screwed if you get sued by the RIAA (and the amount the have to spend on legal fees is sorta nuts). So, if the RIAA comes after us, that could be crippling.

Also, the fees associated with internet streaming can add up and truly stifle the growth of a Music 2.0 startup. Because the purpose of the Copyright Act is to promote creativity, it's silly to slow the growth of startups that advance music creativity and discovery for the benefit of the general public. The funny thing is, as this article pointed out, is that these music 2.0 startups have found innovate ways to make record labels and artists money in the digital age. I think it's in the labels' best interest to lay of the copyright fuss and let these startups help promote their meal tickets and make money for them!

Long live the future of music!

May 28 | Unregistered CommenterGavroche

What an interesting debate! I'm an avid music industry reader.. Even though I don't work in the field I've got a young brother that will finish his jazz university in 3 years and then will be the time to apply all the ideas :)

Just to let you know that I also read The Pirate's Dilemma a couple of months ago..I'm now reading Net, Blogs and Rock'n'Roll from David Jennings and it's being very interesting.

My 2 pennies are focused on merchandising: E.g. I would love to see companies like threadless.com or lafraise.com outsourcing their services for online music communities :)

I think this is a great idea indeed. It might even get some wind under its wings, I believe.
However, the service companies already in the business might find it unfair as they've had to pay heavy advances. The definition of the grand price should be clear allowing only startups to enter etc.

To sum it up, this is another version of the Grand Idea of working together. By working together I mean real collaboration between music companies and technology/service providers in the name of a mutual target.

We are all working towards the same target: get music heard by the people out there!

regardless of whatever anyone said above, my comment is really simple.

WE (YOU) SHOULD DO THIS ANYWAY.

don't spend any money marketing it and make sure it stays closed, and don't sell ads while its in beta...
grow it so that when you show the majors/publishers/artist that there are thousands of people willing to voluntarily participate in such a market model, then generate incentives for the majors/publishers/artists to participate.

DO IT...just don't get caught

if you owe the bank $10 million dollars the bank owns you, if you owe the bank $10 trillion dollars, you own the bank. it's what YouTube did, and they did it behind Fair Use.

JUST DO IT

June 10 | Unregistered Commenterweaponry

I like that approach. Is copyright really that important as we think it is? I don't think so. In most cases blaming copyright simply means doing bad business or creating bad music.

copyright is just that silly thing that can prevent innovation and great music. http://www.thebeatlesneverbrokeup.com

January 18 | Unregistered CommenterMarco Raaphorst

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