P2P vs. Traditional Music Economics

Aram

May 29, 2012

¶ 1 Leave a comment on paragraph 1 0 In December, 2011, digital “storage locker” service Megaupload (a website that enables people to store, transfer and share large media files, and which has been vilified by the RIAA and others for encouraging piracy) unveiled a new marketing campaign featuring a cavalcade of popular and major label musicians such as Macy Gray, Sean “P. Diddy” Combs, and Kanye West, singing the service’s praises both literally and figuratively. Predictably, the video became a viral hit; within hours, “#megaupload” was a trending topic on Twitter, and millions had viewed the video.[1]

¶ 2 Leave a comment on paragraph 2 0 Then something interesting happened: the video disappeared from YouTube, which offered an explanatory note that “This video contains content from UMG [Universal Music Group], who has blocked it on copyright grounds.” In other words, the largest record label in the world had filed a DMCA takedown notice,[2] claiming that it owned some of the video’s contents. The problem is, the record label had no legal basis for its actions; while artists such as P. Diddy have recording contracts with UMG, these contracts don’t prohibit them from appearing in advertisements. The labels control copyrights to recordings, not to the artists themselves.

¶ 3 Leave a comment on paragraph 3 0 Within a week, YouTube had reinstated the video,[3] after finding that UMG’s copyright claims were baseless. Yet, in the course of that week’s outage, the label successfully interrupted a viral marketing campaign, halting its ascent and perhaps preventing it from being viewed by millions of people. Ironically, UMG resorted to false copyright claims in order to do battle with a site it accused of abusing intellectual property. The following month, Megaupload’s founder (and the star of the censored video) Kim Dotcom was arrested in his home country of New Zealand and indicted by the US Department of Justice for “running an international organized criminal enterprise allegedly responsible for massive worldwide online piracy of numerous types of copyrighted works.”[4] At the time of writing, the case is still pending. After six weeks in jail, Dotcom was released on bail. He is currently confined to an 80 km radius around his home, and prohibited from using the internet, out of concern that he has “the ability to use it for wrong purposes.”[5]

¶ 4 Leave a comment on paragraph 4 0 Why did UMG invoke false copyright claims to prevent the video from being seen? Was it simply a matter of using any means necessary to combat a website it considers a dangerous pirate? Perhaps this is the case, but I believe the company was equally concerned with the video’s actual contents, which consisted of major label artists celebrating the site. A foundational element of the RIAA’s and IFPI’s antipiracy narratives is the argument that label-backed music distribution “support[s]”[6] artists, while their efforts to crack down on unlicensed distribution “protect[s] artists.”[7] So it’s problematic when some of their best-known and best-selling acts publicly extol one of the very services the industry has identified as a threat.

¶ 5 Leave a comment on paragraph 5 0 The truth of the matter is that, historically, the major labels have done a fairly poor job of supporting and protecting artists, and therefore artists today have little incentive to fight for the status quo on behalf of companies that are routinely criticized for unfair or unethical business practices. Most notably, major label record contracts typically include clauses whose primary effect is to diminish actual royalties paid to the recording artist. As pro-musician advocacy group The Future of Music Coalition argued in a lengthy critique of these contractual hijinks, “Outside of the major label music world many of these clauses are seen as an affront to basic logic.”[8]

¶ 6 Leave a comment on paragraph 6 0 Several economic analyses have demonstrated the effects of these practices on actual artist revenues. Celebrated rock producer Steve Albini (Pixies, Nirvana, PJ Harvey) wrote a widely-read and reprinted 1993 article in The Baffler, demonstrating how such clauses, and other economic factors, could conceivably lead to band members signed to a $ 250,000 contract taking home roughly $4,000 apiece for their work.[9] More recently, online magazine The Root, in conjunction with Don Passman, author of All You Need to Know About the Music Business,[10] conducted a 2010 economic analysis corroborating this point, demonstrating that “for every $1,000 in music sold, the average musician makes $23.40.”[11] These economic disparities pertain even in the digital music economy; according to court documents filed in 2011 by rapper Chuck D, artists signed to UMG get paid $80.33 for every 1,000 iTunes downloads sold.[12]

¶ 7 Leave a comment on paragraph 7 0 Even the more justifiable contractual elements can be damaging to artists’ bottom lines. For instance, “recoupment” clauses require the labels to make back their expenditures for producing, distributing, and marketing the music before any royalties are owed to the recording artist. As the RIAA has admitted on its own website, fewer than one in ten of its constituents’ album releases ever make back the money the label has spent;[13] therefore, by this logic, more than 90 percent of major label artists never see royalties beyond the initial advance.

¶ 8 Leave a comment on paragraph 8 0 Aside from these contractual considerations, the major labels have historically fought to diminish the degree of power, ownership and revenue recognized by recording artists, in the interest of maximizing their own profitability. One fairly recent example is their lobbying effort to insert four words into the text of The Satellite Home Viewer Improvement Act of 1999, thereby with one tiny stroke reclassifying all recording artists’ labor as “work-for-hire” under copyright law. The practical effect of this maneuver was to eliminate artists’ rights to recapture control of their work via “term reversion” after their contracts had expired. Although President Clinton signed this bill into law, subsequent Congressional testimony by major label artists like Sheryl Crow and Don Henley led to its repeal by the Senate. Despite this highly visible reversal, the major labels and publishers have continued to fight copyright term reversion. Most recently, a federal judge ruled in favor of “Y.M.C.A.” composer Victor Willis in a test of this principle in 2012. Yet, this story has only begun; it seems likely that the music industry will continue to push the matter by any means necessary to avert a “ticking time bomb” of mass copyright reversion from taking effect beginning in 2013.[14]

¶ 9 Leave a comment on paragraph 9 0 Another highly visible, high-stakes battle between the major labels and their artists has revolved around the issue of whether digital downloads (such as those available from iTunes) are technically retail or licensing. According to traditional artist contracts, retail royalties are significantly lower (by a factor of about 3-to-1) than licensing royalties, which means that the answer to this question could be worth billions of dollars to either labels or artists. Recently, this battle has been waged in the form of a lawsuit between rapper Eminem and Universal Music Group[15] (the US Supreme Court declined to revisit an Appeals Court ruling in favor of Eminem),[16] as well as an ongoing class action suit brought against UMG by a variety of musicians including Rob Zombie and Rick James.[17]

¶ 10 Leave a comment on paragraph 10 0 In short, the relationship between the major labels and the artists they purport to represent has historically been a fraught one, and continues to be contentious. While many benefits, such as fame, legitimacy, and the chance of riches, accrue from a major label relationship, it is no surprise that even successful artists continue to express support for P2P and other forms of free online music sharing, as, in their eyes, the benefits must far outweigh the risks.