Wednesday, February 13, 2008

Music Royalties and How Not to Make a Living

Nate Anderson of ArsTechnica presents an informative overview of the Copyright Royalty Board (CRB)’s current hearing on songwriter royalty rates for the music industry. The CRB’s decision later this year will, as he writes, “determine—for the first time—what songwriters get for digital downloads and streaming music.” When we consider the precipitous drop in CD sales and the continuing shift toward digital music, it is safe to say that this decision is critical for all three parties involved. A brief breakdown:

Side One
Participants: Recording Industry Association of America (RIAA), representing major-label music companies; Digital Media Association (DiMA), representing third-party digital media companies, including Amazon, Apple, Best Buy, and Yahoo!
What they want: A reduction in “mechanical rates,” or royalties that songwriters and publishers receive for copies of their music. Specifically, both seek a lower per-track mechanical rate for digital downloads (5-6 cents for RIAA, less for DiMA), and little to no mechanical rate for streaming music.
Reasoning: While digital music purchases are growing at an impressive clip, they haven’t offset the profit that major labels have lost from declining CD sales. The RIAA sees a reduced mechanical rate as a necessary move, since it would provide them with a higher profit margin. In contrast, the companies of the DiMA are in a healthier financial position, and their profit margin on digital purchases is arguably better than they claim. Still, there isn’t a foreseeable ceiling for digital music, and lower royalties would result in a significant financial advantage.

Side Two
Participants: National Music Publishers Association (NMPA), representing music publishers and songwriters
What they want: An increased per-track mechanical rate of 15 cents, and 12.5 percent of revenue from streaming music.
Reasoning: Many songwriters and publishers (and bands) depend upon royalties from mechanical rates to make a living, and the current CD mechanical rate of 9 cents per track usually isn’t a path to riches. While RIAA contends that lost CD revenue should require a sacrifice on the NMPA’s part, the NMPA argues that because digital music eschews many of the production and distribution costs associated with CDs, a higher rate is in order.

Which side has more of a case? Anderson’s analysis at the end of the article is telling:

“The move to cut (substantially) songwriter royalties doesn't sound like something done to ‘support the artists,’ though perhaps moving more songs at lower prices would be better for everyone in the long run. On the other hand, it's not hard to imagine prices staying the same and the labels and resellers simply keeping the extra cash. It's also important to note that it's not just the RIAA that wants to lower rates; Apple, Amazon, Napster, iMeem, Live365, RealNetworks, and more are all DiMA members, and they're pushing for the lowest rates of all” (emphasis mine).

Call me cynical, but I believe that “keeping the extra cash” is exactly what the RIAA and DiMA would do, leaving songwriters and publishers in an even worse financial position. Making a living from creating music is difficult enough for most people, even without having the music industry and retailers undercut what little there usually is to financially gain.

1 comment:

ALN said...

Dear Chris,
First of all, I would like to thank you for your neatly presented summary of the digital songwriter royalty debate. It is a topic which interests me greatly, although one whose relevance and importance I had not previously considered. You expressed your position that “making a living from creating music is difficult enough for most people, even without having the music industry and retailers undercut what little there usually is to financially gain.” Certainly cutting royalty rates would hurt songwriters, but I believe that it is also possible that this reduction would damage the industry as a whole by negatively affecting the quality of popular music today. Those artists who rely on external songwriters would have to begin writing their own songs, which might lead to decreased song quality, fewer hits and sales, and therefore hurt the industry overall. To take this one step further, in light of the recent writers’ strike, what if songwriters were to begin their own strike in response to the RIAA’s demands for mechanical rate cuts? While this may be a radical idea, I wonder if the RIAA and DiMA have considered this at all or if they are solely focused on the possibility of “keeping the extra cash,” as you believe is a likely outcome. In any case, I anxiously await for the two sides to reconcile their differences, for, as Wired’s Eliot Van Buskirk recently wrote, if the "quality of music depends on keeping songwriters happy, music fans should hope the Copyright Royalty Board settles on a rate that keeps them solvent.” For the sake of American music culture, then, I hope this debate results in victory for the songwriters this coming October.