Berklee College Of Music Music Business Journal

Volume 10, Issue 4Music Business JournalLaw SectionThe Conflict over Consent Decrees (cont.)(From Page 1)ther, the consent decrees force the PROs togrant a license upon the licensee’s request,even if a rate has yet to be agreed to, and establishes the Southern District Court of NewYork as the arbiter in cases when the PROand licensee are unable to agree on a royaltyrate. Perhaps the most important provision ofthe decrees is the establishment of a royaltydistribution system that mandates equal payment to both the publisher and the composerof a work. This split is significant because itmeans that half of the royalties earned fromthe public performance of the work go directly to the songwriter, and cannot be heldagainst an un-recouped advance given to thewriter.The Ire of Music PublishersSince their inception, the consentdecrees have been the source of great contempt within the music publishing industry.As music sales have slowly given way tostreaming, these sentiments have only grownstronger, with the publishing industry citingthe rate setting procedures established by theconsent decrees as the source of the exceptionally low rates paid for the public performance of a composition. As the streamingindustry continues to grow, publishers haveworked hard to try and secure higher ratesfor the compositions they control, frequentlyfinding themselves wrestling in the courtroom.Recently, however, Sony/ATV music publishing decided to go a different routeand announced their intention to withdrawtheir digital rights from the PROs, opting tonegotiate with digital music services on theopen market. Unfortunately for them, the ratecourts ruled that membership to the PROshad to operate on an all-in or all-out basis,meaning that publishers and songwriters haveto grant their PRO rights across the entirespectrum of public performances, or withdraw completely. While the publishers havedecried this as unreasonable, this ruling is notwithout just cause. ASCAP and BMI havelong been subject to criticism for their lackof transparency and administrative failures.Even now it can be difficult for a licensee tounderstand the full scope of material coveredby a blanket license from either PRO. Adding another licensing source without a standardized database would only exacerbate theconfusion. Further, Sony/ATV would not berequired to issue a license upon a licensee’srequest like the PROs are, so new digitalOctober 2014music services engaged in negotiations withSony/ATV would face the very real possibility of having to launch without the Sony/ATVcatalog, or waiting to launch until they cancome to an agreement, either of which couldrisk sinking the company. The major publishers obviously weren’t too happy about thisdecision, and ultimately sent National MusicPublisher’s Association Chairman, and former DOJ attorney David Israelite to convincehis former colleagues to begin a review of theconsent decrees.Higher Rates for Whom?Opponents of the consent decreesoften like to point out the age of the decreesand suggest that there is no way that rules setin the early 1940s could still be useful today.While it is true that the decrees have been ineffect for quite some time, and aren’t reallyoptimized for the digital marketplace, the suggestion that they have been gathering dust forthe last seventy years is very misleading. Thedecrees are in fact periodically reviewed andamended, with the last review of the ASCAPdecree having occurred in 2001. The mainargument offered by the major publishersin their crusade against the consent decrees,however, is that they feel the rate setting procedures established by the decrees have resulted in unreasonably low royalty rates. Theyfeel that if they were able to directly licensetheir catalog and use the PROs simply as aroyalty collection and distribution agency thatthey would be able to secure far higher ratesfor their catalog, and they’re probably right.Given the tremendous degree of concentrationin the publishing industry, no digital musicservice or radio broadcaster can really existwithout the catalogs of the major publishers,and in a direct licensing situation they wouldhave to pay whatever rate the publishers demanded.While the major publishers wouldcertainly be making more money, there’s noguarantee that the same would be true of songwriters. Without the consent decrees therewould be no requirement that public performance royalties be split 50/50 between thepublisher and writer, and that the writers sharebe paid directly to the writer. The major publishers have insisted that they would pay writers a reasonable share. However, given thatthe music publishing industry has a history ofunsavory behavior, and the fact that their tradegroup, the NMPA, inexplicably resigned fromthe International Confederation of Societiesof Authors and Composers, a group that advocates for writers, and promotes reasonablebusiness standards as well as data collectionstandards, their suggestion that they be trusted seems more than a bit suspect.2In addition to guaranteeing theequitable payment of songwriters, the rulesof operation set forth in the consent decreeshelp to promote a functional marketplace.The requirement that a license be grantedto a prospective licensee upon their requestallows small streaming startups to makeavailable the same catalog of songs as muchlarger, well-established services, therebyhelping to foster competition and innovationin the realm of music streaming. This rule, intandem with the requirement that the PROsnot discriminate in the terms of their licensebetween similarly situated licensees ensuresthat the publishing industry does not choosethe winners and losers in the streaming race.What Happens Now?Unfortunately, it seems unlikelythat this process will end with the consent decrees existing as we know them today. In thehighly concentrated music publishing industry, the major publishers wield a significantdegree of power, and don’t hesitate at all toshow it off.In early July, at the beginning ofthe review process, Sony/ATV chairman andCEO Martin Bandier informed songwriters signed to his company that if the reviewprocess did not end in modifications to theconsent decrees that Sony/ATV found suitable, they would be more than willing toconsider the “nuclear option”, i.e. “the complete withdrawal of all rights from ASCAPand BMI.”3 One, let alone all of the majorpublishers completely withdrawing fromASCAP and BMI would have an absolutely disastrous effect on public performancelicensing. Currently, because ASCAP andBMI primarily issue blanket licenses thatcover their entire catalog, small publishersand independent songwriters receive the fulllicensing leverage of the major publishers’vast, in demand catalogs. Full withdrawal bythe major publishers would leave the PROstremendously weakened, and the benefits ofcollective licensing would disappear, likelyresulting in incredibly low rates for the already disadvantaged independent publishersand songwriters. Even worse for the indepen(Continued on Page 16)www.thembj.org3

Volume 10, Issue 4Music Business JournalBusiness ArticlesApple As a Record LabelBy Anahita Bahrisocial networking sites Facebook, and Twitterhave released songs, and music videos for artists including Fifth Harmony, Bruno Mars, andMichael Jackson. Lastly, CBS.com debutedBruce Springsteen’s High Hopes album beforeits worldwide release as part of a marketingcampaign for the CBS show The Good Wife.Has the novel marketing push worked well forBono and the rest of the rock band, as it did forother artists?Apple’s collaboration with U2 garnered a much less enthusiastic response thanprevious innovative marketing stunts. In fact,the marketing ploy received quite a bit of criticism, prompting Apple’s release of a tool toremove U2’s record from users’ iTunes library.In general, people want pull, not push. Contrasting Jay Z and Beyoncé, U2 didn’t give users a choice, and essentially forced the albumupon them. This sparked many privacy concerns and issues, as many users believed thatthey had an “unwanted musical virus planted”in their iTunes library.4If you are an avid Apple product useror have been following tech news recently, thenyou’ve probably heard about Apple’s most recent partnership with U2. While Apple unveiledtheir new products, which include the iWatch,and two new iPhones, Irish rockers U2 pulledoff the largest album launch in history by makThe Cost of Free Musicing their latest record available for free to half abillion iTunes users. Songs of Innocence, theirU2 is using its music as a loss leadfirst album in five years, was automaticallyer; instead of selling albums, U2 hopes to selldownloaded onto users’ iTunes libraries and deconcert tickets. Through the album launch,vices.they have reached a potential audience of 500million listeners. Their ultimate goal was toThe Rise of Innovative Releasesreach as many people as possible, gain younger fans, and help fill seats during future concertThere’s no doubt that music distributours, even though the band regularly sells outtion is changing as fast as the rapidly evolvinghuge concerts. The idea of reaching someoneindustry. August saw the lowest weekly albumon the other side of the world excited them.sales ever recorded by Nielsen SoundScan. Sofar this year, US album sales have fallen 14.6%,Despite U2’s rationale behind the rewhile digital album sales are down 11.7%. Artlease, many have argued that U2 is damagingists and labels are grappling to find feasiblethe music industry by giving their music awayrevenue models in the new music business. Befor free. In actuality, however, the music wascause of the rather bleak state of affairs, artistsnot entirely free. Apple paid the band and Uniare looking for more creative and innovativeversal a blanket royalty fee and committed to aways of releasing music.marketing campaign worth up to 100 million.Even though the rock stars were paid, musicU2’s album launch has been comindustry professionals believe that the givepared to several recent music marketing camaway still undermines up-and-coming artistspaigns, including Jay Z’s partnership with Samsince the end-users are still getting the musicsung, in which one million copies of Jay Z’sfor free. The music industry changed back inMagna Carta Holy Grail were released to Sam1999 when Napster was founded. It changedsung Galaxy owners for free through an app,the way most people obtained music and aland Beyoncé’s surprise album drop, which, liketered the perceived value of music by lowerSongs of Innocence, was considered disruptiveing the average album price from around 12to traditional industry release models. Fans acto nothing. U2’s unconventional album releasetually had to pay for Beyoncé’s album. Unlikemay have “devalued” music, but it offers aU2 and Jay Z’s albums, however, her uniquenew union between technology and music toapproach still garnered 800,000 sales. Addiembark on innovative and creative projects.tionally, music-identification app Shazam, andwww.thembj.orgFuture CollaborationsWhat’s next for Apple and U2?They hope to revolutionize the music-listening experience with yet another collaborativeproject – one they hope will assist artists inselling more albums and singles by buildingcreative capabilities and making the musicexperience more digitally immersive. A fewmedia outlets claimed that the tech giant andIrish rock band were creating a new digitalmusic format, when, in reality, the projectis actually an “audiovisual interactive format for music that can’t be pirated and willbring back album artwork in the most powerful way,” according to Bono. This projectcomes at a time when musicians are exploring new ways to distribute and market music, all while fighting declining sales in theage of streaming and downloads. U2 is alsoplanning to storm through the criticism witha 2015 arena tour to promote Songs of Innocence. In the meantime, U2 are preparingfor the physical release of the album, whichwill include exclusive acoustic versions ofmany songs to appease traditional retailerswho weren’t too happy with the giveaway.When thinking about Apple’splans for Beats Music, the future is unclear.Analysts claim that Apple would shut downBeats’ streaming service, but in a publicstatement, an Apple spokesman denied it.Wall Street experts and industry analystspredict that the Beats Music brand will eventually be retired and streaming music willbe incorporated into iTunes. By integratingBeats, Apple could offset their decliningdigital download sales and find new ways tofuse technology and music projects throughstreaming.Technology can’t do withoutmusic, which has been evident throughSamsung’s project with Jay Z and Apple’spartnership with U2. Technology firms arebuying music directly and offering users thismusic for free or through a freemium model.This cannot be neutral to the music business.If the record labels can no longer be reliedto break releases by stellar recording artists,and instead share their cash cows with thetechnology sector, the old pillars of the music industry are, at the very least, not doingthe job they once did.October 2014

Volume 10, Issue 4Music Business JournalTech NewsStems and The Business of StemsBy Esteban RoaKarl Marx rightly said that man ishimself and his instruments of production.Musicians, of course, do not live alone intheir own creative bubble. Indeed, the shifting frontier of music making is arguably bestobserved today by dropping in on a gathering of audio and game developers, audio andtechnology manufacturers, audio productionspecialists, and musicians. Changes in theway we make things are likely to carry overinto music production, and a list of such carry-ons might include more automated processes in the creation of music itself, the useof artificial intelligence in the selection ofmusical events that make up compositions,and even the outsourcing and more efficientuse of creative nuggets to bring out the rightmusical muse.The Advanced Audio & Applications Exchange (A3E) conference, recentlyheld in Boston, afforded the MBJ a goodopportunity of observing music futurists inaction. An instance of this was Google’scurrent involvement with the developmentof new standards for Web Audio production.Such standards would enable musicians tocollaborate creatively in different physicalspaces instantaneously by just using their Internet browser, avoiding the current incompatibility of user plug-ins and mismatchesof software translators (the reader shouldconsult our interview, elsewhere in the issue,with Google’s Chris Wilson).StemsHere we choose to report on thenew use of ‘music stems’ for purposes ofmusical creation. Irish startup Score MusicInteractive (SMI), for example, is beta testing Xhail, a program that is meant to automate music production for film, advertising,television, and video game projects.SMI uses templates of chordchanges that it outsources to chosen musicians and composers around the world. TheOctober 2014idea is that these musicians and composerswould create unique compositions based onthe templates—and supply one or more recordings of their work, known as stems, on asingle instrument. Each stem would be sentback to the content library, and then a teamat SMI would listen and tag emotions andother characteristics from a predefined list offields (romantic, slow, moonlit, and so on).When a producer or music supervisor asksfor material for a project, SMI would lookfor the various stems in the cloud and putthem together to create a completely new,and original composition.Since each individual compositionwas composed against the same template,once they are drawn together, every part willwork harmonically. If the user is not satisfied with a specific part or perhaps even theentire composition, SMI will extract different stems to add a new part or even createanother entirely new piece.Mick Kiely, the Irish founder ofSMI, built a reputation as one of the leadingcomposers for Irish television programs andvideo games and received international recognition, signing publishing deals in Ireland,the U.K., and the U.S. In 2010, while figuring out how to integrate enough content todrive music in a game engine for Xbox/PS3,Kiely wondered if, under the right conditions, music stems could be blended together, arguing that “if you look back in history,thousands and thousands of songs have beenwritten to similar chord-maps or identicalchord-maps, the Beatles did it all the time.”This begs some elaboration. Evenif Kiely was right, any musician that is a Beatles fan will know that the devil of the musicis in the details and that whereas rhythmand-blues inspired much of their music, theBeatles blended chord, melody, and lyrics inways that surprised and won the admirationof listeners and musicians worldwide.The Business of StemsIf Kiely is suggesting that randomly made music from trunks of common harmony have a place hitherto unexplored in themusic business—and for starters, this wouldwork well with video games—the licensingof such music is intriguing.To begin with, Kiely argues thatfor the first time in history, session musicianswill be given a publishing deal: “if you playharmonica really well we want to get harmonica tracks that work interactively withour templates, and [we will pay you] everytime that [your] harmonica is used.” This isbecause SMI wants to be constantly building up their sound database in order to keepgenerating completely unique compositionswith the Xhail platform. The incentive actsas a supply management tool.Secondly, Kiely claims that everyfinal composition licensed will never be generated again for any other user: it remainsunique to that user and that product. Individual stems, however, will return to the contentlibrary to be used multiple times in differentunrelated combinations. Nevertheless, if theoriginal user decides to use the same composition in a sequel, the user will pay SMIagain to get a new license.Thirdly, SMI, who becomes thepublisher of the work, recognizes the creative input from contributors and rewardseach of them by equally splitting the performance royalties: “[we] allow the user to givethe piece of music a name that is relevant tothe project, we register that piece of musicwith the PROs and we make sure that it’stracked; any royalties that are collected go tothe creators of the parts, including a share tothe user.”Finally, unlike US publishingdeals, SMI gives their musicians 100% of thewriter’s share, plus a 50/50 split of the synclicense fee, a popular European model. Kielyemphasized the importance of keeping musicians and composers in the revenue lane.Based on research, SMI believesthat for every 1,000 stems created in theirlibrary, SMI can create up to 50,000 uniquelicenses. Keil says that if a composer madeavailable a piano piece for one of their socalled fantasy templates, they could expandthat piano part to all the other templates intheir database adapting the harmonic structure of that part “[while] keeping the emotional performance of the composer intact ”.New copyrights would also be generated for each reproduction of the originalstem, and the same publishing deal would begiven to the composer as though every reproduction was his/her original work. SMIwould provide too a back portal for creators,allowing them to upload and track all of(Continued on Page 16)www.thembj.org5

Volume 10, Issue 4Music Business JournalBusiness ArticlesOn Smart Artists and Smart FansBy Dan ServantesThe Internet age has drastically altered the dynamics of the interaction betweencorporations and their customers. Talking downat consumers, for instance, is less preferablethan engaging them in a conversation that canlater lead to a commercial transaction. This iswhat direct-to-fan marketing should be for themusic industry, and there is literature to supportit.1Before the Internet, the figure of therock star was dominant. The aura of mystery,backstage antics, and secrecy at the recordingstudio was a valuable commodity. The perspective seems quite different today. An aura ofmystery means there is no story to tell, backstage antics end up on Twitter and Reddit beforethe encore, and the singer’s mother gets lessupdates from the studio than her fans. This isthe expectation, and bands that can’t deliver areforgotten. But for artists that understand thesenew dynamics the promise of growing a loyalaudience is real.watch the entire recording process of an albumvia updates straight from the artist, and offers amulti-tiered merchandise and experience store.Essentially, PledgeMusic acts as an extendedpre-order campaign with an emphasis on fanengagement. Fans can spend as little as 10 foran album download to upwards of 20,000 for ahouse concert from the artist, with unique itemssuch as signed vinyl copy, handwritten lyricsheets, and Skype music lessons. On PledgeMusic, the average fan spends 60 on an item, andthe record pledge is over 40,000.3Patreon and PledgeMusic have incommon that they take an artist who is at theirPatreon allows fans to pledge a certain amount of money per work that the artistreleases and the fan receives certain rewardsbased on the amount of money pledged. TonyLucca, an alumnus of The Voice, has a Patreonpage set up where users can spend 1, 5, 50,or 100 per each YouTube video he produces.2In return, the patron

ed a decades old debate over the management of publishing performance rights, and has the potential to significantly change the landscape of the music industry. Background. America's oldest PRO, the American Society of Composers, Authors, and Publish-ers, or ASCAP, was founded in New York in early 1914 by American composer Victor