White paper No.1

2005-03-08T14:56:00.000Z

This white paper addresses the obstacles an artist faces when trying to make money from their music, and goes someway to offering a solution.

Overview

This white paper sets out to look at many of the issues that surround an independent artist making a living from writing and producing their own music, primarily focusing on performance rights licensing. The restrictions on artists and limitations placed on consumers are a direct result of an historical industry dominated by four major record companies. The means to produce and deliver music has dramatically changed in just a few years whilst the methods of payment to the artist have largely remained the same.

The modern age now allows artists to produce professional results without the financial backing of a record contract; however, there is still a restriction on how an artist is able to generate revenue from their music. If alternative licensing structures were able to co-exist with conventional ones it could encourage up and coming talent whilst creating a more competitive market.

So who does benefit from the current method? The conventional collection agencies effectively collect revenue in most cases, as music that is being heavily promoted will be played on major radio and TV stations many times a day. By the time the record label recoups and takes their cut, there is usually a very small percentage for the artist.

The collection agencies can also work well where use is regulated and monitored, as in the case of large broadcasting companies. However, in the less regulated areas the Performing Rights Society (PRS) in the UK will take a sample from a play list and if your track, as an independent artist, has not been played on that day, you will not receive royalties. On the other hand, if you are Britney Spears, you may get played every day, several times a day. It is the same with public venue music. All venues have to pay a licence to Phonographic Performance Limited (PPL) and PRS, the latter looking after performance side of copyright and the former looking after the copyright owners of the recording. This again is well and good if you are constantly on the play list, especially when PRS and PPL come to take a sample of the music being played.

Having spoken to a number of public venue proprietors about public venue licenses I have found that PRS and PPL are quick to find an unlicensed venue and get it to conform. This could be seen as a good thing for the artist, however, when you know that PRS and PPL only show up once in every two years, on average, to sample the play list, who IS getting paid for their music to be used? Using the conventional PRS method, even if you got your music into many public venues, you would be unlikely to generate revenue.

Business Challenge

The music industry is run by companies that are concerned primarily with profit and are not interested in nurturing talent unless there is an imminent possibility of a return on investment.
This can have the effect of hindering the careers of up and coming independent artists and keeping consumer choice cleverly focused on the collection methods and licensing structures of the established agencies, creating a monopoly on music licensing that benefits only the established and mainstream artists whilst providing relatively little recompense for the newly emerging talent.

In the past, private user licensing models have relied heavily on the fact that a physical product moves into the market place to generate revenue. Commercial licensing revenue has traditionally been collected through heavy regulation of broadcasting methods. The conventional industry is no longer equipped to deal with, and does not seem to have the foresight to grasp the opportunities presented by technology. The virtual product is proving to be problematic for the industry.

In the UK you have to exclusively assign your copyright to the PRS. When the writer or publisher becomes a member of PRS the following rights in his musical works are assigned to the Society:

* To perform work in public (concerts, shops etc)
* To communicate the work to the public including broadcasting on demand and use of music on the Internet interactive services, including satellite and cable transmissions

Unlike PRS, the members of Mechanical Copyright Protection Society (MCPS) do not assign their rights to the society; instead the members give MCPS the exclusive authority to act as an agent on their behalf for the purpose of administering the following rights:

* To copy the work (Pressing CD’s and downloads)
* To issue copies of the work to the public (sales, CD’s, tapes or vinyl in shops)
* To lend or rent the work to the public (renting videos, tapes, CD’s and library lending)

Not having to assign the rights to a collecting society allows the artist more freedom and more licensing possibilities. Buy out licenses in the UK allow websites to charge a one-off fee for the mechanical aspect of royalties. This can be directly related to the MCPS points and offers a quick and simple solution, where the artist gets paid upfront for the use of their music before it can be downloaded in a broadcast quality format.

The mp3 format and emergence of hi speed broadband has made online delivery of high quality music possible and increasingly popular. Unfortunately, legal methods of downloading music have only recently become a reality. The delay was not a fault of technology, but a resistance on the entertainment industries part to develop sufficient licensing. It is believed that it was only the popularity of illegally available material that prompted the industry into action.

This should be good news for the independent artist, however, although an artist may build their own website, there is still the problem of marketing themselves on the worldwide web, and this requires funds. So what about music sites that are popping up claiming to be a platform for independents? Again we come back to the same problem. Musicians/music lovers develop most of these sites with no experience of sales and marketing and with very little budget; therefore they tend to have no web presence for consumers to find them and no experience to know what to do about it.

So, how can an artist earn money?

The conventional route means securing a record deal. The odds are not favourable; in fact the real odds are extremely slim. Pinning your financial hopes on getting signed up to a record label is not really the best way forward. Even if you did get signed up, it still means the odds would be against you ever earning a substantial living. Only the persistent chart successes go on to make significant financial gain. The record deal usually gives an artist 17 % of the retail price of an album, however, this includes publishing royalties and will be minus promotion costs such as free offers, marketing etc. This percentage can be as low as 4% if you have not written the material. Most of the major labels also have a clause in their contract, which states that you are not allowed to discuss your royalty payments with any third party, excluding your manager and lawyer. Here is an example of what can happen:

Don Henley outwardly dared his record company to sue him for bringing royalty statements to a hearing. He presented his most recent royalty statement for "Hell Freezes Over," which showed the panel that even though his contract called for a no more than a 10% "reserve" on sales of records shipped, Universal Music had held back more than that for eleven pay periods (roughly under three years) and that, even though his contract calls for no free goods in Europe, they had deducted $87,000 in free goods charges to Europe

A surer way of getting a higher percentage of your revenue would be to produce and promote your own music. However, you would need to identify your target market, and then, after identifying if this market was large enough to make a living from, you then have to market your music to encourage sales. Look where we are… back to requiring sufficient funds to market your music effectively!

Let’s assume that you have managed to market your music effectively, your next consideration would be licensing.

The mainstream music industry has manipulated consumer habits and artists catalogue for a long time. You only get what they give you! A new approach for independent music is needed - a platform that empowers and puts all users/ artists on an equal footing.

More and more, nowadays, an independent artist owns the intellectual rights (the composition) and the recording copyright (the actual recording); thereby the methods of payment should also be within the artists’ domain.

Just because we are looking for alternatives, does NOT mean we are anti collecting agencies, these very collection agencies are the livelihood of many artists. However, flexibility and independence in this new age should be encouraged rather than discouraged. Signing up to collection agencies should not mean assigning the collecting rights away from your self; you should be able to collect for yourself alongside if you wish. The focus should be on more accessible revenue streams for independent artists and easier and free enterprise, less complicated ways, and sometimes, more competitive ways for the consumer, especially if they were on a low budget and would welcome this kind of direct licensing.

Currently, there is no way of selling a buy-out license for PRS element of copyright; this is because PRS have assignment of the rights in regards to the performance of the music. This has created a monopoly in the UK, meaning the only feasible way of licensing the performance of music is through the PRS, whereas licensing music for mechanical use can be done on a buy out license, quickly, easily and efficiently. We need an alternative.

This situation currently excludes many users as PRS licenses are too broadly administered, in that lots of potential music uses are lost, for example, PRS rate cards quote Internet use of music at a daily rate (undisclosed in their literature) or a percentage of the sites revenue. Many website owners cannot afford prices that are quoted and are forced to break the law or go without.

Independent artists would be happy to provide music for the income, recognition and exposure on the web. Many would probably charge even less if a web link were included.

“ We must remember at all times we are acting on our creators behalf, representing them collectively where they cannot represent themselves individually” John Hutchison, PRS/MCPS Alliance.

As PRS don’t have the means to pay artists for individual tracks whenever and wherever they are used, they should allow companies that can do this to work around the system. The PRS are currently advertising that they have collected £1m in royalties and unable to pay the artists due to change of address etc. Although this is to be applauded, it shows that many artists never expect to collect the monies in the first instance, thereby shows a lack of faith in the system.

The Solution

Any decent web development company can create an online structure for uploading, selling and cataloguing music for downloading. Creating a platform that has quality control is a whole different ball game. It takes qualified staff working to a predefined spec to ensure that music is only uploaded if it meets the required production standard. This is the only way to create an independent catalogue comparable to the mainstream industry,

The challenge set by Zejo is to create a site that contains only quality music vetted by professionals. Also creating true musical diversity relies on professional soundtrack composers co-existing along side unsigned bands. The site has to appeal to all artist types with no bias one way or the other. We believe people who care passionately about music and the rights of the artist can only achieve this. A site like Zejo needs to take on a personality of its own allowing a natural evolution to take place.

The Summary

The Zejo brand is as much an attitude as a business solution. The platform is addressing all of the issues raised in this white paper and fully intends to continue to consult with the artists to produce the perfect solution in the next 5 years. This platform is the great equaliser to promote new ideals, new consumers and a new attitude to the revenues possibilities of original independent music. It is paralleled with consumer research that identifies the consumer needs and to demonstrate that an alternative direct licensing system can be successfully run along side more conventional means.

The Zejo philosophy is to do what is best for the independent artist. In this age we believe that there should as diverse a range of revenue streams as there is music. Collecting agencies do work, but not all of the time for all of the people. It would be naive to expect one company to solve this problem, however, if even one company plants the seeds of change, the whole music industry could change significantly in favour of the independent artist. Collecting agencies should not stand in the way of enterprising, forward thinking companies such as Zejo, who want to create alternative licensing structures alongside conventional methods.

Lee Pritchard, CEO, Zejo Limited

For more information on Zejo, please see the following resources:
www.zejo.com
www.zejomusicmakers.com

Making money from music royalties

White paper No.1