Are New Digital Music Payments Enough?

This week the music industry -- record labels, publishers, songwriters and online music sites -- agreed on new royalty rates for online music downloads. The new deal covers what the music industry calls "limited downloads" in which listeners can select songs on-demand but don't keep a copy like they would when they buy a song off iTunes.

Companies offering this on-demand music now will pay a royalty of 10.5 percent of their revenue. This is good news in that it will allow web sites to offer music in different ways, while the music giants -- Warner Music Group (WMG), Universal Music, Sony BMG, etc. -- are compensated. The more potential music distribution models, the more potential revenue.

The bad news; this doesn't cover the highly-debated issue of compensation for Internet radio. Internet radio sites like Pandora and Live 365 have been locked in a battle with SoundExchange, which collects royalties for musicians and record companies. The musicians and publishers want to be paid an amount that would effectively put Pandora and the like out of business. But this is progress in tackling a new streaming technology.

The music labels are consistently demanding more music royalties, aiming to stay afloat. They're given Activision (ATVI) Blizzard a hard time, saying they're not paid enough royalties from hugely popular games like Activision's Guitar Hero and Viacom's (VIA) RockBand. Warner Music's CEO Edgar Bronfman recently said revenues from these video game companies are "paltry" and that the music labels should and could charge more to the game publishers because the games are "entirely dependent' on music.

But now Activision Blizzard CEO Robert Kotick is fighting back, saying maybe music labels should pay them! His argument: music games make songs more popular, driving paid song downloads, album sales, and ticket sales. Kotick also says that the songs themselves don't drive the game purchases: it's not like an album, which you're buying for the artist, you're buying it for the game.

Next week is the Digital Music Forum in Hollywood and I'm starting to talk to industry experts about the industry and where it's headed. Bottom line: paid digital downloads and other paid music services are growing. Unfortunately for the music giants, they're not growing fast enough to compensate for other declines. That gives the music labels more reason to be open to working with, compromising with, new music models, whether it's video games or Internet radio.

Comments

[AT57:]

You say, "But now Activision Blizzard CEO Robert Kotick is fighting back, saying maybe music labels should pay them! His argument: music games make songs more popular, driving paid song downloads, album sales, and ticket sales."

Good for him...Didn't Activision have to receive express permission from Aerosmith (one of the games' music partners) to use their likeness AND THEIR MUSIC in the body of the game? Did the band's agents give that permission in exchange for a fee payable to the artist? RIAA shoud have NO claim to performance royalties in this case. Also, it seems that the RIAA's willingness to accept a 'percentage of revenue' model from Rhapsody and other music subscription services like it, where anyone with an analog receiver and CD burner attached to their computer can take copies of SELECTED MUSIC at will, and not take the same deal with Internet streaming stations where selective music piracy is far more difficult, leads me to beileve that the RIAA sees linkage between Internet streaming and broadcast radio, where they have been unsuccessfully fighting for the performance royalty for 70 years.

Smarten up, RIAA...forcing Internet only operations like Pandora to die in their cribs won't make up for your industry's shortsighted, stupid sales model mistakes of the past decade. And expecting the 'old' radio industry to pay you to promote your product now since you believe that promotional value has diminished with the advent of the Internet- see above - is even more short sighted and stupid. Will you be looking for a performance royalty from movie producers, TV producers and the like for the inclusion of songs into their soundtracks?
THEY ARE HELPING YOUR ARTISTS BY DOING THAT...NOT STEALING FROM THEM. Your industry may be, with the possible exception of investment banking, the most stupidly run industry ever.
Go figure out how to monetize music without trying to kill the media that wants to help you sell music. One potential bailout is enough, thanks.

2008 Sep 29 11:46 AM

[K. Lewis:]

I agree with Activision. The game play is the driver for the sale. You could easily substitute the music with indy songs and still have hit games. Just look at the model on television. CBS revived their label just to feed their shows. Cable stations bypass the high priced option altogether for independent music.

Activision is in such a position of power that they could probably start their own boutique label and have bands gladly jump at the opportunity. There's at least one move studio I know of that's looking to do just that in order to bypass paying labels for including their acts music in major motion pictures.

The labels must adapt or perish along with their antiquated business model.

2008 Oct 02 01:55 PM