Although the details are sketchy, the US Justice Department is looking into whether a subscription for the Big Four labels is an antitrust violation. Back in 2001, there was an antitrust investigation against the major labels for…. a subscription service. According to The Register, the Big Four have already been served notice this time around. Although the details are sketchy, it is apparent that the Dept. of Justice has an eye turned toward the industry (again).

Investigations around “Big Music” have been ongoing for the last few years. In 2000, the Federal Trade Commission settled with the major labels on price fixing and unlawful advertising practices relating to “Minimum Advertised Price” policies.

Super producer Rick Rubin has said “The subscription model is the only way to save the music business. If music is easily available at a price of five or six dollars a month, then nobody will steal it.” He also said, “Until a new model is agreed upon and rolling, we can be the best at the existing paradigm, but until the paradigm shifts, it’s going to be a declining business. This model is done.”

While a subscription service may stem the tide of file sharing, will it provide any kind of sustainability for artists? CD sales are falling end over end, but digital sales are brisk, and touring and merchandising are still viable revenue streams.

Everyone agrees it’s time for a new model, and noone seems to know what the new model will be. The sky may be falling, but music is still a multi-billion dollar business. The future lies in creating a model that generates positive public perception, convenience, and collectibility. The platform may be shifting wholly to digital music, but that doesn’t necessarily mean people won’t buy music anymore. The advent of the “360 deal” shows that the industry is embracing a new kind of marketing, where the band is the brand, not the content. At the end of the day, it’s all about the music, and people will pay for convenience and for music that they love.

Bottom Line: The paradigm shift at the heart of the music industry is upon us.

A new idea has surfaced in the music business this year: giving away tons of free CDs. First Prince did it through UK newspapers, causing quite a stir in the industry. Now Big Head Todd and the Monsters are giving away 500,000 copies of their new album to radio stations and fans, splitting the cost with radio to get the copies out there. The albums will be available as giveaways from radio stations, and on the band’s site. The album is available as a free download for fans, and according to the BHTM site, the physical album is “Available SOON from our merchandise store for just $5 or FREE with any merchandise purchase of $15 or more.”

At first glance this appears to be another groundbreaking model for the industry. BHTM used to be on a major label, and has the industry recognition and viability as a touring outfit (they are preparing for a 60 city US tour as we speak) that comes with major label artist development and promotion.

Looking closer, even at dirt cheap prices (including postage), the investment here would be a minimum of $200,000. Apparently, fans are jumping at the bit to get the free album, a testament to the credibility of BHTM. But what does this action say for the rest of us in the industry? Although not as widely recognized as Prince or Radiohead (and few artists are), BHTM has the credibility and resources to launch this kind of campaign. For the rest of us who have not had major label development, access to create a quarter million in investment, tons of willing radio contacts, and the ability to book a viable 60 date US tour, this tactic may not be fruitful in the short term.

Based on the flopping CD sales over the holiday season, CDs are set to lose major amounts of retail shelf space next year, except in major retail outlets like Wal-Mart and Target. Consider that without retail shelf space, physical distributors will rapidly become obsolete. These days, selling 100,000 copies of a CD gets you high up on the charts. Give the sorry state of CD sales, it appears that musicians will need to have some kind of sure money maker (like touring) to buffer this kind of massive promo giveaway, unless one is willing to invest tens of thousands of dollars and ‘see what happens’.

So what about the horde of mid level musicians that don’t have the clout to give away half a million (or even ten thousand) CDs? It’s a brilliant marketing ploy, but without the ability to book a viable tour with sweet guarantees and juicy crowds or the guarantee of radio play it becomes a major loss leader in an industry that is rapidly losing revenue streams.

Giving away albums to generate buzz has become the modern equivalent of the single. Let the fans hear the music, and give them the opportunity to support the band live, or by buying merch or CDs. This tactic will drastically undercut the Big Four’s ability to set prices and control music distribution over 2008.

Bottom Line: It is beginning to appear that the only way to transform the music business is to devalue music and start again with a whole new model, where art is free and the money comes from something else.

You probably already know that the US Copyright Royalty Board is finalizing royalty rates for internet radio for the period 2006-2010. The premise seems noble: Raise royalty rates on the internet, so artists can make more money. The practical result of this royalty hike is most small internet radio broadcasters will be pushed to bankruptcy, leaving only the largest (and mostly consolidated) broadcasters left. Before we take a look at how this has gone down, here’s my take on this:

This is not about royalty money. Money is one of the most powerful tools of distraction in our society. The issue here is who will have the power to broadcast on the internet. Deregulation of media ownership is moving online, and by limiting who will have the legal right to broadcast music, the RIAA is attempting to control our tastes, and therefore protect their flopping sales.

According to the Copyright Royalty Board’s Final Determination – Docket No. 2005-1 CRB DTRA, Page 71, “SoundExchange was…an unincorporated division of the Recording Industry Association of America.” SoundExchange’s argument during these proceedings: “it would be inefficient for the Copyright Royalty Judges to select more than one agent to receive and distribute royalties.” “Only one party in this proceeding, SoundExchange, proposes that Noncommercial Webcasters should be subject to a rate structure incorporating a revenue-based metric… SoundExchange specifically proposes that Noncommercial Webcasters pay according to the same structure and rates applicable to Commercial Webcasters.”

SoundExchange has a summary of this ruling on their site. On page 4, it states, “Upon review of the evidence…the CRJs concluded that ‘selection of a single Collective represents the most economically and administratively efficient system for collecting royalties…’ The CRJs also found ‘no credible evidence that demonstrates that copyright owners and performers suffer increased costs from a system with a single Collective.’” (Check out this summary to see all the great reasons for establishing a monopoly).

In the songwriting realm, we have freedom of choice with Collection Societies, mainly ASCAP, BMI, or SESAC. This competition allows artists to have leverage in how they are treated, and the rates they pay. So why would the CRB rule in favor of a single royalty collection entity for internet broadcasting? And why choose an entity that started as an extension of the RIAA?

Back in 2004, The Register reported that thousands of artists unclaimed royalties would be kept by the RIAA unless claimed by the end of the year. Here’s a couple of articles from Techdirt, Slashdot, and Daily Kos from late April ’07 dissecting the CRB ruling. it turns out that SoundExchange is actually the recipient of all internet royalty payments, whether RIAA members or not.

Here’s a quote from the SoundExchange Site:
“What about webcasting? The recent U.S. Copyright Office ruling regarding webcasting designated SoundExchange to collect and distribute to all nonmembers as well as its members. The Librarian of Congress issued his decision with rates and terms to govern the compulsory license for webcasters (Internet-only radio) and simulcastors (retransmissions).”

Let’s take the Polyvibe team as our example. We are not affiliated with the RIAA in any way. Our first priority is having the music heard, royalties or not. We are required to register with SoundExchange and pay their fees to get our royalties. We haven’t made their unpaid label list yet.

If they know who they are collecting money for, and they have a meticulously cataloged list of unpaid labels and artists, isn’t it easy to send out a form letter? Here’s a recent post from Wired’s blog, “SoundExchange Distributed Only 60% of Collected Royalties in Q1 2006” (SoundExchange is only required to keep records for three years, ain’t that a kicker).

The most recent ruling by the CRB is in the Federal Register on May 1 (The ruling was March 2). Our last hope is HR 2060, which will overrule the CRB ruling. The bill is sponsored by Don Manzullo and Jay Inslee.

Free the Airwaves!
Save Net Radio!