Digital Music Pricing Has Been A Scam And Digital Rights Management Is Dead

[coda]

interesting read

http://www.theregister.co.uk/2006/11/03/peter_jenner/

Big labels are f*cked, and DRM is dead - Peter Jenner

Clash, Pink Floyd manager lifts the lid

Interview Few people know the music

industry better than Peter Jenner. Pink Floyd's first manager, who

subsequently managed Syd Barrett's solo career, Jenner has also looked

after T.Rex, The Clash, Ian Dury, Disposable Heroes and Billy Bragg -

who he manages today. He's also secretary general of the International

Music Managers Forum.

And he doesn't pull his punches.

The major four music labels today are "f*cked", he says. Digital

music pricing has been a scam where the consumer pays for

manufacturing, distribution, and does all the work - and still has to

pay more. Labels should outsource everything except finance and

licensing.

But he's also optimistic that for almost everyone else - indie

labels, musicians, songwriters and budding entrepreneurs - as well as

network providers - the future's going to be pretty bright. The Big

Four know that the DRM era is nearly over - and within two or three

years, he predicts, "most countries" in the world will have a blanket

licensing regime where we exchange music freely, for a couple of quid a

month.

In the future, he also suggests, artists, co-ops and managers will

raise their own investment on behalf of artists - and pick and choose

their marketing teams.

Jenner is organising a conference

in London on November 15 to discuss these issues. Billed as an "Urgent

Blue Sky Debate", for once a music event may live up to its billing.

Earlier this year, France almost voted to legalise P2P and bring in a

blanket license - the necessary stepping stone to the future.

While Jenner elaborated on these in a report for MusicTank recently

- it's only available to the public for a fee. So we were delighted

when he dropped by Vulture Central yesterday to lift the lid on the

business. Strong language follows.

You said that at In The City, the big label executives have lost their faith in DRM - they don't believe in it any more.

They don't. Not anymore.

And that was done by Sony BMG - what the **** was that [rootkit DRM]

about? The other was iTunes - and they've seen how kids don't like it.

The unitary payment doesn't suit the technology, it doesn't suit how

they're actually using downloads - which is to explore and move around.

You don't want to pay a dollar for each track when you want to explore

music.

And they're pretty crappy services, too. eMusic works, but when the

others time-bomb the songs it's more annoying than the per-machine

restriction. Because it's suddenly robbing you of something you had.

Oh yes.

And three years later you go, "Oh, shit!" - You basically have to pay twice for it.

Yes, that's outrageous. You've got to provide stuff that people can keep, and they don't mind paying you $3 a month for.

So how long can the big labels keep up this charade?

Earlier I was talking about the ground moving underneath the industry. At In The City

people are beginning to realise they have to do something. So I think

in two or three years blanket licenses will be with us in most

countries.

And France nearly voted for it this year.

Yes, it got shot down - but the people who shot it down really shot

themselves in the foot. They tried to get away from being too unpopular

by saying "it's like a parking fine" - and the court said no - if it's

an infringement of copyright, it's an infringement of copyright, and

there's a huge fine.

So of course they can't enforce the law - it's completely unenforceable.

With the DRM, I think they've realised it just isn't working. People

don't like the CDs, they find their way around it; they don't like the

DRM, they don't use the DRM services; they resent - as you say - having

subscriptions wiped.

So do you think a blanket license will be introduced bottom-up

through industry agreement, or top-down as in France - where there was

some political leadership? It just isn't on the mainstream media, or

think tanks' radar just yet. And I don't see much political leadership.

No, the political people have to be just well informed enough so

they don't **** it up, and they have to be encouraged to help it. I

think it would be wonderful if the government could lock everyone in a

room - the music industry, the unions, the performers, the record

companies, the publishers, the ISPs - and tell them you can't be let

out until you sort it all out.

They won't do that, but I think some way will be found to get that result.

So it's a fear of losing the distribution channels?

They won't have any control over distribution. A blanket license is

a blanket non-license, really - it's simply saying "we won't sue you".

But if you have commercial services exploiting music, we will want to

pay you more. You're licensing the anarchy.

It's interesting where we'll end up drawing the line between

commercial and non-commercial, but in the end the numbers will be so

huge it'll iron itself out. Someone from England might pull in a lot of

hits from Spain - but again, it doesn't matter. I don't then worry how

they'll pass the money to each other, but it'll all come out in the

wash.

Like it does today with collection societies?

Yes

I saw some reaction to the first step - "Value Recognition Right"

here in the UK, and very few people seemed to understand it -

especially not from the value-for-money point of view.

It was a very important first move but it was also a bit clunky.

"Value Recognition Right - what's that? You're inventing a new right to

make people pay - but you're also suing people - huh?"

But if you say that if mobile phones and ISPs want to distribute

music in a non-commercial fashion, then they should pay for that right.

And if you swear that you're not going to listen to any music,

you're not going to pay. It's going to be very hard for you not to pay,

and the network is keeping an eye on you to see you don't download any

music. And if you do without a license, we'll sue the hell out of you -

because you've been offered a cheap deal like the TV license.

That's a lot cheaper than a TV license.

And fairer. If you don't have a computer, you don't have the

internet, you don't have a 3G phone - and you don't listen to music -

you're not going to pay!

They had to do it I think, and it was necessary to flush out

critics who have no realistic alternative - other than that artists

should go begging...

The "freedom" people are telling us I have to go out and sell more T-shirts - it's an argument I find tremendously insulting.

To me if someone gets some earning from their creativity it's one

less person who's going to spend their life on a production line, or in

a cubicle

Well, all the people who are writing this have salaries

Or they're rich tenured American professors.

They're getting paid very nicely, thank you. No, I certainly agree.

I don't think the positivehello side of Recognition Rights came in.

Here's some place you won't be sued - you can do what you like with it

- explore the world's music, share it, download it.

So the Big Four can't give up control?

Well, they know that they've built their power around their

monopoly, and their manipulation of the market, and that's how they

cover up their incompetence - by being "the only people who know how to

buy stuff in", and so on. They've spent a lot of money establishing it.

And it's only through distribution, through black boxes, and their control of the existing copyright regime.

But it's not just that. You've also got this incredibly complicated

rights structure. They've got to sweep it away online - they don't need

to **** with it offline - but they need to say there will be payment

for music, and it's for the [artists] to claim under some kind of

regulation.

We can have an 'OfRoy' - an office of royalties, or whatever you

want to call it. Someone just to keep an eye on things to see people

aren't be shafted, and that there's arbitration in the long run.

Doing it through the courts is just too complicated - it just

becomes nit-picking. What we are doing today with radio, PRS, is

actually riddled with holes. Money gets lost, misattributed, deductions

are taken for this or that - but we can all live with it. It's not some

malicious plot. It's just compounded human error.

For readers who've never heard of the black boxes, what are they?

Any money that comes in through collective payment and you don't

know who it belongs to for any reason - or you can't pay it to them

because you don't know where they are - goes into what's called the

black box.

Which everyone in the collection societies insists doesn't exist.

You ask Fran [Richard, ASCAP] about the black box and he will give you

the most fantastic bullshit. He'll say "We don't have a black box".

Of course he has a black box. With the best will in the world you cannot distribute all the money accurately.

In a blanket license system, there'll be huge black boxes, and we'll

have to learn to hold the money for a long time. People will learn to

register, then we can work out how to deal with the black box fairly -

rather than giving it to people who know it's there. That's what's

happened in the past, really.

We don't talk much about it - so no one know who's got it. And the

people who get it don't say much about it - it's not top of their

conversation at music conferences. They don't come in and say "we

cleaned up on the black box". What they will say, is "our market share

was fantastic." That's because it's divided up by market share. It's

non-attributable income and it doesn't have go to the artist - it goes

straight to the bottom line.

The industry dreams of black boxes! (laughs)

But now it's going to be in the collection agencies' hands - or some intermediary.

If it's the publishing side, you get 50/50 at least, or 70/30 if you

have a modern or newish record deal. And that 50 per cent is not

recuperable against any advance. It's the same with PPL - you get some

substantial proportion of the income. [The PPL is a members' society

that collects royalties from public performances and and divides them

between the recording rights holder and musicians] It's not quite as

much as they try and tell you get, but it's quite a lot. So it's

another income.

But it's quarterly and they can't wait to get rid of the money. The

agencies know the regulators are watching them closely and can come in

and ask "what are these pools of money you have here?" The EU watches

them very closely.

So in collection agencies, while money can get systematically

stolen, it's like petty theft. It's like retail losses from

shoplifting. The agencies are really just shoplifters, but the major

labels are burglars, and the worst of them are like armed robbers!

You mention Clive Rich [sony BMG] in your report who modernised the

recording contract - but that cut the rate for songwriters, didn't it?

No, I don't think it cut the rate for songwriters. I think it kept

the rates online very low - but it was much clearer, much simplified

and absolutely a move in the right direction. But you see, because of

the stock market, they're obsessed with "margin".

If you're talking about your margin you should be doing things

completely differently. They should be talking about their bottom line.

But they talk about "unit margin" because that's what analysts look at.

That's true. It's a house joke at The Register when we

cover earnings calls that the analysts have this Pavlovian response.

I've been on calls where a company's sales have fallen 50 per cent and

all the analysts ask about is "margin" Er, guys, what about your sales

drop!

What's important is what's your bottom line, for Christ's sake.

The blanket licensing thing is obviously going to slash your unit

margin. The record companies have increased their margin on downloads,

because the costs have been ripped out. So they've cut the artists

royalties and raised their margin.

But because they've replaced an album with a single they've helped

destroy the retail industry, they're now in a position where they're

completely fucked.

No one's got any sympathy or love for them, because they've

systematically been shoring up their figures in the short run -

squeezing money into Universal to make up for their catastrophies;

Warner Brothers have been coping with huge debt; EMI have been

desperately trying to hold their stock price up so somebody would buy

them; BMG has been wondering how the **** they're going to pay somebody

back money for whatever it was, so they don't go public - and Sony are

in a terminal mess.

So all of them have been draining profit. It's "get the money in, boys, get the money in. "

So they've raped them. They've raped their whole business model, and

no one's got the time or energy to think about their business.

Then you've got people like Barney [Wragg] at Universal, their new

technology man, and they've got these High Priests of DRM in there.

One thing you strongly hint at is that the distinction between

royalties for a physical thing, and performances, is out of date and

needs to be rethought.

The difference between a download and a stream now is now purely

just a question of what you want to call it. Both are streams, both can

be downloaded and it's whether you want to call it a download and

charge for a download.

The record companies have managed to establish, and I think

incorrectly and it should be challenged, that a download is a

replacement for a sale. Here's what they're saying - it's a mechanical,

so it's the same as selling a record. Then the logic goes on: a

download is a certain technical process that puts it onto your machine.

So anything which does that is a download. Therefore, anything

delivered in that way is a sale: so we'll pay you as a sale.

Which then means you've got to track everything. It's not

discriminating - it's not looking at what people are using the music

for. It's creating an artificial distinction so they can distinguish

the payment of royalties. So you get paid 15 per cent of the dealer

price net of some things - whether they call it "packaging deductions",

or "new technology", or

"Mid-Price", or some combination of those.

They have all sorts of ways of slicing down the royalty rate. And

the net result is that if you're getting only five per cent of the

dealer price actually paid to you - as the person who made the record -

you're doing well. The writers, because they've got the publishers

fighting for them, get more. They went to tribunal recently and got

eight per cent of the dealer price. So if you wrote your own song you

might get 11 per cent of the dealer price, and that's top money. If you

allow for the Paul McCartneys, maybe 15 per cent. But that's tops for a

big label.

Now, if you're an independent, you get in the region of 35 per cent

of the dealer price, because they go 50/50. And that's what gives the

game away.

And all your net is a payment to an aggregator - maybe 15 per cent,

and paying the distributor, and paying the publisher. So instead of

five per cent of dealer price you're going to get maybe 20 per cent of

dealer price. It's a huge difference!

If you say it's a performance, however, it's a neighbouring right,

it might be argued that it goes through PPL, in which case you get 50

per cent with many less deductions. So a performance split between

members of the band, sessions musicians - a complicated formula but it

goes to the musicians.

In your report you suggest that a blanket license for digital will

really begin to change relations fundamentally. You mention managers,

and artists co-ops. Can you elaborate?

The key things that the record companies do are probably finance and

distribution. Well, distribution is much easier because of the net.

There's also marketing - and that's really finance. Then you have an

issue of these complex rights - so who do you back? Do you put your

money into the record or into the whole game? And I think everyone's

moving into putting money into the whole game.

You can envisage a different investment model - imagine estate

agents for IP. Someone wants to come in and invest £100,000 in Billy

Bragg. And he goes to someone and someone says "Sure, Billy Bragg, it's

safe to give him £100,000"...

I can't see it working. We might live in four or five houses in a lifetime and there's only one Billy Bragg career for Billy.

There's one career - but the logic is sound. If you turned over 50,000 and made a 50,000 profit, he'd be safe

You can look up the recording part of it, and chop that up. Or you

can just promote the brand. I think you call them consultants rather

than estate agents. That way you're asking what is the key element of

the equation - and the key is to "own the fans" - and the person who

owns the fans is the artists. So it may be the best person to invest in

is the management - you'll get the best return on your investment - and

you can see what the manager did last year. Or they can say, Peter

Jenner - I know what he does. Let's let him go out and find the

promotion people and the marketing people.

I like the idea of doing co-ops to raise the money, too. If I give

money to you to write a book, that's fairly high risk. If I lend it to

100 people that's much lower risk - someone's going to come through and

I'll get my money back. The industry understands these issues. And

you're less likely to rip each other off.

Small businesses working together strengthens the market.

There are intangible things about physical music we're only just

discovering we value. I'll tell you something. Have you noticed that

digital people are pretty twitchy people. Recently I was reunited with

all my old vinyl and it's much more sociable than running it off a

computer or an iPod. People appreciate each other's company more, and

appreciate the music more - we grow more patience and it's lovely. The

tyranny of the playlist, of interactivity is horrible - it's a curse.

Well, without sounding like a clever clogs, I always said this was

going to be a streaming media, which has even less interactivity.

Like what we're listening to now it washes over me. That's fine. I

see music as a commodity as being the driver. There's far more casual

access to music and for those people, you need all of the music. It's

no good just having Sony's catalog. While for the fans, they want more

from one artist. They want to get close to the artist, they want better

packages. Real fans might want many versions of a song from a demo, to

the final version, to the mash-up version, as many as 20 - it's a

continuum. And you can give them it now. You've got that sort of market

for the fanatics - they want the live recoridng, the backstage photos,

the singer's blog when he's on the road.

That's a complicated bundle of rights - it's about bundles. You

can't sell that individually, but it's a bundle. And people will want

to give your their money.

And mobile?

The real game in town is not online. It's a skirmish. The real game

is mobile phones. If your mobile phone is a portable computer, which

has got all the facilities of an iPod and a radio, and a TV, with some

limits on their memory but as time goes it'll have huge memory. But you

need access to everything. ®

Peter Jenner's conference Beyond The Soundbytes, organized by MusicTank, takes place on 15 November.

[DrWho]

interesting - thx for posting

[Duke Spinner]

the Label's are reaping the reward's of F'n ...everybody for years ....

now, any Artist can self-publish due to Pro-Tools, and the many CD duplicators

$999 for a Thousand CD's, silk screened, w/ case.... w/ Art

[pauln]

Not an issue for me. I'm digital free, And happy as can be.

I quit buying music 20 years ago...

right about the time they stopped making it...

[Duke Spinner]

.

I quit buying music 20 years ago...

!

so ... you are saying ...

the newest music you have is ...."Light My Fire "

[steve]

Duke!

That was 40 years ago, not 20. More like Born in the USA wasn't it?

[pauln]

The last record I recall buying was 'Presto' around '92 I think - Rush - only one of their's I ever bought, got it new sight unseen (unheard), like it a lot.

[Daddy Dee]

I hope DRM is dead. I find it to be oppressive.

If I buy the license, I ought not have to be online to play what I've paid for. This is Napster's deal.

Renting the license, maybe that's fair enough to be online to make it work.