Clear Channel’s Giant Step

Originally published in the Jul-2012 of The Music Business Journal – Berklee College of Music

By Luiz Augusto Buff and Nicholas Spanos

The largest broadcasting group for radio in the US is Clear Channel Communications, and much of its holdings are in terrestrial radio.  It recently struck a special deal with Big Machine, the country music label whose artist roster includes, among others, Taylor Swift and Rascal Flatts. In a move that is a first in the US, Clear Channel will pay sound recording royalties on terrestrial performances to Big Machine.

Radio had always paid blanket broadcast performance licenses to ASCAP, BMI, and SESAC, and they in turn distributed the collected income to songwriters and publishers.  However, US law does not so far consider any payment by broadcasters on the sound recording right of a performance. This is unlike Europe and the rest of the world, where broadcasters do pay costs for sound recording rights and collection societies distribute such funds regularly to songwriters, publishers–and even sidemen in a recording.

In the US, broadcasters have justified not paying the sound recording right by arguing that radio airplay affords labels and performers much promotional value.  They have so far won, preserving the status quo despite continuous lobbying by the recording industry. Now, a free market solution that does not yet involve the drafting of new laws and regulations may be the seed of a new standard for royalty payments on broadcast radio.

Background

When streaming and listening to music over the Internet became a reality in the early 1990’s, laws were put forth to ensure proper payment of royalties on digital transmissions. For the new model of digital transmissions, the record companies were able to receive royalties for their sound recordings through a pay-per-play basis model, collected and then distributed by the collective management society SoundExchange, (which was created specifically for that purpose). This was agreed upon when streaming music was a very small portion of the music trade. And however much legislators were bowing to new developments, they also recognized that the ruling applied only to that incipient market.  In fact, they had no intention to transfer their exception on the treatment of music streams to the much larger market for terrestrial radio.

As Clear Channel’s terrestrial listeners are still 98% of the total (though there has been much growth in streaming music, both interactive and non- interactive), the conclusion must be that the pay-per-play basis for royalty payments on digital transmissions acted as a disincentive for Clear Channel to develop new online businesses.

The Deal

The deal that Clear Channel signed with Big Machine is in fact a beta test for a new standard of royalty payments that will allow the company to promote and advance its online services at lower costs; under the existing rules, the broadcasting giant cannot scale them down as it expands. The surprise over the deal is Clear Channel’s willingness to take a loss early on. The hope is that the rapid changes in this industry will save money in the long term, and help the company expand with new media.

The terms of the deal, and its novelty, are best appraised by comparison with the existing arrangement. Instead of paying the legislative mandated fixed rate of $0.0021 per song played on digital transmissions, Clear Channel has decided to share an undisclosed percentage of their advertising revenue – generated both from terrestrial and digital transmissions – with Big Machine Records. This gives them use of Big Machine’s music catalog in different radio platforms.

The deal bypasses the existing royalty structures for sound recordings, leaving SoundExchange outside of the collection process, with the broadcaster paying monies to Big Machine directly. Big Machine will then allegedly split the payments equally with their artists. Again, and as was mentioned earlier on, it is important to note that in the rest of the world the concept of paying sound recording performance royalties already exists, so Clear Channel and Big Machine are not inventing the wheel. Rather, they are pioneering the concept in the US.

The Future

The conflict between artists and broadcasters goes back, in the end, to the early days of radio. Yet it is possible that at long last radio can do more for talent than simply argue for their preeminent role in artists’ discovery and later success. Certainly, the parties involved in this bilateral and historical entendre see it as a forward-looking agreement. Above all, this is because the principle of a percentage take out of revenue is easy to work with. As Clear Channel’s CEO, Bob Pittmann, has said,  “I can’t build a business space paying money for every song I play, but I can [taking a] percentage of [the] revenue I bring in.” Ditto for Scott Borchetta, CEO of Big Machine Label Group: “Now, we can align our interest with radio in a predictable model based on ad revenue so that we can drive digital growth.”

It remains to be seen if other labels or artists will adopt their own agreements with broadcasters. Skeptics hypothesize that if this happened, indie labels and artists that were left behind could be cut out of radio playlists: if their content did not drive enough ad revenue, there would be no commercial advantage for Clear Channel or others to sign with them—clearly not the case with Taylor Swift’s Big Machine. If the value of indie repertoire suffered, it is suggested too that smaller radio stations might endure forced acquisitions. This, however, has not happened in Europe, although the broadcast sound recording right there is not negotiated on a piecemeal basis.

Europe and the US

Many have argued that expediency has trumped politics, for US legislators could not be expected to move fast and find a general market solution for the treatment of performance sound recording royalties. Europe has made progress on a country-by country basis, because each nation is a smaller market onto itself and speaks its own language. This brings affected parties to the negotiating table more easily, in part, because the broadcasting industry there does not have the weight that mass media can attain in the Anglo-speaking US. As a result, there are powerful stakeholders in the US that make this legislation difficult. Plus, the role of the state in Europe is generally more defensive of authors’ societies, and tends to intervene on their behalf and accelerate reform more than can be expected of the US government.

Conclusion

Musicians can be happy that America’s largest radio company seems to be taking the lead in finding a practical solution to its growth and recognizing a new right for music in terrestrial radio. It is possible that other labels will want to cut similar deals. If so, this will be the first step to a more sustainable industry wide solution that recognizes a fairer compensation for the use of artistic copyrighted materials created by performers and producers.

By Luiz Buff and Nicholas Spanos

Resources:

Christman, Ed, “Exclusive: Clear Channel, Big Machine Strike Deal to Pay Sound-Recording Performance Royalties To LabelArtists”; Billboard,  May 5 2012

Sisario, Ben, “Radio Royalty Deal Offers Hope for Industrywide Pact”, New York Times, June 10 2012

“Clear Channel and Big Machine Make Royalty Deal”, Rolling Stone,  June 11  2012

“Come Stream With Me”, The Economist, June 16 2012

“Performance royalties for terrestrial radio broadcasters back on the US music-industry agenda”, Music & Copyright, June 13 2012

A Bundle of Mechanicals

Originally published in the Jul-2012 issue of The Music Business Journal – Berklee College of Music

Legislators have tried to adapt copyright law to new inventions since the time of piano rolls. This is because creators beg remuneration in new media. In the Copyright Act of 1909, the exclusive right of the copyright owner to make mechanical reproductions of music was secured through the provision of a mechanical license, a term that is now used as well for electro-acoustical and digital reproductions.

In 1995, bowing to the pressures of the Internet era, Congress passed the Digital Performance Right in Sound Recordings Act. It broadened mechanical licenses to include digital phonorecord deliveries online. According to section 115 of the US Copyright Act, publishers and songwriters are obliged to issue mechanical licenses to companies that follow proper procedure and pay the rates set by law for songs that were previously recorded and released. These royalty rates, commonly known as statutory rates–as well as the terms, and the different categories in which music can be distributed–are defined by the Judges of the Copyright Royalty Board (CRB) every five years. In 2008, the CRB defined new regulations effective through 2012.

In April 2012, main music industry stakeholders led by (i) the Recording Industry Association of America (RIAA) representing the record labels, (ii) the National Music Publishers Association (NMPA) for the publishers and songwriters, and (iii) the Digital Media Association (DiMA) for the  digital service providers—all reached agreement on rates and terms for the next quinquennium and defined new standards to support five prior unlisted categories of digital distribution. The effort was meant to jump-start potentially novel music business models.

This agreement maintains the eight categories set in the past, extending the same rates through 2017. This means that for physical copies and permanent digital downloads the rates are still 9.1 cents per track or 1.75 cents per minute of playing time per unit distributed; for ringtones, the rate also stays put at 24 cents a track. The complicated formulas and structures for the preexisting subscription and ad-based interactive streaming services like Spotify also remain in place. The parties in the agreement confirmed as well that non-interactive, audio-only, streaming services do not require reproduction or distribution (mechanical) licenses from copyright owners.

The five new categories are for businesses operating with Mixed Service Bundles, Music Bundles, Limited Offerings, Paid Locker Services, and Purchased-Content Lockers. The legislation will bring more clarity to these providers, enabling them to better plan for their intellectual property costs. Moreover, new investors should come forward, for the risk of unforeseen legal developments hurt them too. All the categories above have their rates based on either a percentage of the service revenue or a percentage of the payments made to record companies for sound-recording rights, whichever is greater. There is at last some basis to exploit the new consumption of music.

On closer look, the agreement defines Mixed Service Bundles as the combination of locker services, limited interactive services, downloads and ring tones with other non-musical products such as a mobile phone, a consumer-electronics device, or Internet access. Music Bundles are defined as a packet of music products such as CDs, ring tones and permanent digital downloads. The third category, Limited Offerings, are usually subscription-based and offer access to certain genres of music or specialized playlists at reduced prices, and for that reason have a slightly lower rate than the other categories. Paid Locker Services, encompasses subscription-based cloud music storage for streaming and download, such as those offered by Apple, Amazon, Google and a growing list of technology companies. Lastly, Purchased-Content Lockers, are defined as those services that offers free cloud storage for digital music previously bought by the user as a permanent digital download, ringtone, or CD.

The agreement was sent to the CRB. It then published the proposed regulations to garner public comments and objections until June 18, 2012. Since the CRB encourages parties to agree on terms and rates, the agreement will likely turn into federal law, with minor changes after a review of the US Copyright Office.

Recognition should be given as well to the recording and publishing companies that are clearly taking digital-music providers more seriously—and coming to terms with them. After the dimming of physical music sales, this may not surprise (although sales have been falling for quite some time). This new business represents only a small fraction of the music industry’s income, but its potential is what likely brought all the parties together.

It is important to mention that although this new agreement has extensively covered the mechanical licenses issued by publishers and songwriters for the reproduction and distribution of their copyrighted material, this is only one of the elements of the royalty obligations of digital music services.  They still need to factor in their calculations the royalties paid to record companies for the use of their masters, as well as the public performance rights that are covered by blanket licenses from ASCAP, BMI and SESAC.

By Luiz Augusto Buff and Nicholas Spanos

 

Resources:

Federal Register / Vol. 77, No. 96 / Thursday, May 17, 2012 / Proposed Rules – LIBRARY OF CONGRESS – Copyright Royalty Board 37 CFR Part 385 [Docket No. 2011–3 CRB Phonorecords II] -Adjustment of Determination of Compulsory License Rates for Mechanical and Digital Phonorecords

“Meeting Of Minds: New U.S. Publishing Rates Deals”, Susan Butler’s Music Confidential,April 13, 2012.

Us Music-Industry Groups Agree On Mechanical Royalty Rates And Standards For New Digital-Music Services. Music & Copyright, Issue 456. April 18, 2012.

IMR’s Scoping Report

Originally published in the May-2012 issue of The Music Business Journal – Berklee College of Music

At the end of February, WIPO and its International Music Registry group (IMR) released a long-awaited “Study on the Role and Functions of the International Music Registry.” The MBJ has been covering the subject since December 2011, and last month we reported on a parallel initiative—the EU’s Global Repertoire Database.

The study’s author is Nicholas Garnett, now principal consultant with Interight. com.iGarnett is an intellectual property and information technology specialist with extensive international experience in the management and protection of intellectual property rights. He worked extensively with research and deployment of digital rights management (DRM) systems, as well as serving as Director General and CEO of the International Federation of Phonographic Industries (IFPI) from 1992 to 1999.

In this article we will report on the main points of IMR’s study. Its coverage includes (i) a comprehensive explanation of the various current and planned global initiatives in the field of music rights databases; (ii) a description of the necessities of rights management infrastructure in the current digital environment; and (iii) a proposal of functions and roles for WIPO and the IMR to support infrastructure developments to match the music industry needs on a global basis.

Rationale

The Internet is widening the global access to entertainment services and products, but an intricate system of rights, complex licensing models, and constantly changing and fragmented ownerships of rights make it extremely burdensome for rights users, who want to create services and products that require the authorization of a vast list of copyright owners. According to the study “there exists at this time no globally integrated system of rights management information for any of the three subject matters of copyright or neighboring rights protection in music: musical works, performances and sound recordings.” In a world where access for music is ubiquitous, illegal services prospered offering and circulating music for free because they did not have to bother with licensing the content. For legal alternatives to prosper, it is paramount that rights users have access to information on who owns what and where in order to obtain proper licenses.

In the traditional structure of the music industry, an RMO is a rights management organization: “an entity which has a role in administering rights in copyright work, whether as the owner of such rights or in some other capacity, such as the agent for the rights owner.” RMO’s typically enjoyed a monopoly power in local markets, offering licenses on behalf of the rights holders. The system offered standardized business models and licensing practices and the RMOs could decide which sorts of data were irrelevant for collection and processing. However, with the shift in the industry came a shift in the paradigm of rights management. With new nonlinear and complex structures – and sizeable global markets at stake – the RMO’s standard data-collection procedures seem to be less practical.

If on one hand technology is presenting challenges for the industry, on the other it is also offering new opportunities to support the increase in the overall demand for licensing. Metadata systems, fingerprinting and watermarking technologies, DRM systems, messaging protocol standards, and cloud-based systems are all examples of technological improvements that are essential to promote effective licensing structures and a global rationalization of rights management systems.

Interactions and Formalities

Understanding the core functions of rights management organizations in a manner that isolates the common denominators found among different kinds of licensing systems is an essential step to narrow the scope for the international registry initiative.

The nine core functions of the RMO’s were separated into three interactions called “rights holders,” “rights users,” and “internal.” All interconnect. For rights holders, the study illustrates issues involving the registration of works and participants, as well as the distribution of revenue. For rights users, the study examines the look up, licensing, and reporting operations. At an internal level, the study isolates dispute resolution and international reconciliation of music data.

Analyzing how these functions are performed across the globe, the study observes that for the most part there is a lot of repetition in the process: standardization and automation would be very helpful. Also, the way these functions are performed differently across territories has a direct impact on how music services are developed: some markets are excluded from accessing music services because the threat of statutory damages for unauthorized use is high and makes the development of a new service prohibitive. Better access to the relevant rights management information, i.e. easier look up terms for rights users, have a direct effect on revenue generation and the promotion of licensed services. In this regard, the identification with current technology of all the rights holders of a musical work would bring, it is argued, public awareness and access to that work and stop it from being the purvey of a few.

One important point noted in the scoping study is the prohibition of formalities for copyright protection. The Berne Convention established that no formal process should be required to guarantee copyright protection of a work. For instance, to secure a copyright in the US it is just necessary for a creative work to be original and fixed in a tangible form. Many countries have established voluntary registration systems for copyright in order to clearly establish authorship and ownership of rights. Garnett points out that the impact of digital technology and the internet are challenging the status quo, suggesting the need for revi- sion of the legal position of registration, as copyright may become meaningless without it.

Other Initiatives

When analyzing the ongoing and planned initiatives around the world, the WIPO study highlights that there is no single initiative that focuses on all the rights related to music at once, i.e. the copyright of the musical work, the separate right to its sound recording, and the claim over performance and neighboring rights.

As for the copyright of the musical work, it focuses extensively on the EU Global Repertoire Database (GRD) initiative, as it seems it is the one with most reach and potential so far.ii The study also lists the WIPOCOS and the West African Network Project as an example of a regional effort for a database and data exchange system, similar to others already in place in Latin America and Asia.

Regarding sound recording rights, the study refers to the ISRC identifier system, from the IFPI and currently the standard for sound recording registration that will soon need to be revised and updated. In neighboring rights the VRDB+ appears to be the reference application used for the identification of participating artists in sound recordings and audio-visual works.

Mr. Garrett carefully wrote the study to emphasize that the proposed IMR is not an initiative that is meant to overlap the efforts of these other initiatives, but to collaborate and serve as a registry of registries, in order to unify in a single place all the information necessary of a music work, ensuring interoperability and integration of the various systems.

The Context

WIPO sees a role as something similar to what was already created for patents and trademarks. As the music industry, especially in developed countries, is not yet convinced and even hostile of any direct involvement in the development of rights management information systems, the study emphasizes that WIPO’s involvement should avoid interfering with other industry initiatives. Instead it aims to support and enhance the potential of globalization by facilitating interaction between all the different stakeholders. One point of main concern for WIPO is to offer support for emerging countries such as the BRICS (Brazil, Russia, India, China, and South Africa). Also, WIPO sees its role as offering support for dispute resolution over intellectual property as one of its most distinctive and proven skills.

Theneedforgloballyintegratedrights management systems may be clear for many who would argue that benefits would accrue to rights holders, rights users, and many other music inter- mediaries. Still, it is not evident at this point that there is complete industry buy-in. The declining fortunes of traditional revenues, such as royalties for sound recordings, together with the emergence of new media and buying power in countries peripheral to the metropolitan economies, should at least encourage forward thinking and possibly compromise across stakeholders’ lines.

By Luiz Augusto Buff

Endnotes

i. http://www.internationalmusicregistry.org/export/sites/imr/ portal/en/pdf/imr_scoping_study.pdfii.

ii. See Peter Alhadeff, “Waiting for GRD”, The Music Business Journal, Mar. 2012 http://www.thembj.org/2012/03/waiting-for- grd/.

Facebook’s IPO and the Music Industry

Originally published in the mar-2012 issue of The Music Business Journal – Berklee College of Music

Less than ten years ago, Harvard student Mark Zuckerberg developed Facebook. Since then, many books, an Oscar winning movie, and, of course, the Internet have covered its remarkable story. A new turning point was announced at the beginning of February, when Facebook declared its intention to cease being a private company by filing papers for a public offering with the Securities and Exchange Commission (SEC).

Facebook’s IPO, i.e, its initial public offering, is expected to raise $5 billion or more. Diagnostic company data, released for the first time, indicates gross revenues of $3.7 billion in 2011, with net profits of $1billion. This margin of about one-to-three is impressive.   Close to nine-tenths of all receipts are in advertising; third-party companies using its social platform make up the remainder with commissions on sales of products and services.

The company’s trade value is estimated at $75 to $100 billion, and the projection is much, much, higher than the average multiple of twelve times net profits (Facebook would exceed the average by a factor of seven or more). Behind these bullish perceptions lie the rapid spread of Internet connectivity and the growth of mobile phone usage, especially in emerging countries.

Facebook reported that it has 845 million users and adds 451 every minute. It expects to reach the one billion mark in August, after its first public offering. That means that one in every seven people in the world will be connected via the website. More than four-fifths of the Americans connected to the Internet are also users of the website, and last year slightly more than half of the advertising revenue was generated just in the US. After the stock flotation, the company is said to have plans to expand globally creating more possibilities to grow ad revenue in prominent markets such as India and Brazil. Another big challenge for Facebook is to penetrate the Chinese market, where the website is currently blocked by the government.

Mr. Zuckerberg will still control most of the voting rights at Facebook. However, his decisions are now accountable to stockholders, whose concerns are more financial.  Because of this, Mr. Zuckerberg decided to write directly to potential investors and explain clearly his social mission and vision. He wrote that Facebook was created “to make the world more open and connected.” Zuckerberg acknowledged the necessity of profits, but, he added, “we don’t build services to make money; we make money to build better services.”

Facebook’s API

By encouraging and providing the tools for people to share anything from weekend pictures to articles recently read, Facebook has changed user behavior on the Internet. Every user, for instance, acquires an identity that other people and companies can interact with. In many cases, Facebook has removed the barrier between music artists and their fans by connecting them directly through the platform. It has also created a powerful recommendation tool, allowing users to share what they like so that others can appreciate, and engage, their artist of choice.

For example, the Facebook Application Programming Interface (API) allows other websites to communicate with Facebook and use its tools. It allows for a more personalized social experience, for instance, by embedding its ubiquitous Like button. Moreover, Facebook’s sign-in process eases sites’ registrations. Even MySpace, once a pre-eminent music network, is trying to reemerge as a sophisticated recommendation engine and music discovery tool that runs through Facebook.

Facebook’s presence is felt too as consumers trend towards streaming services. The freemium model allows listeners to access a vast catalog of songs and play them either for free, with some advertisements, or for a monthly fee that allows access to some benefits. Spotify, Rhapsody, MOG, and RDio are the main services here and all of them are using the Facebook API to permit access for users, connect them to their friends, and observe their listening habits.  Without Facebook, the impact and reach of these services would probably be much diminished.

Music Marketing and Zynga

In fact, a new generation of artist managers is now taking advantage of Facebook in order to break new artists. Berklee Alumnus Nils Gums is the businessman behind Internet sensation Karmin, with Amy Heidemann and Nick Noonan (both are also from Berklee). After producing more than thirty music videos for their channel on YouTube, the duo hit it big with 54 million views on a cover of Grammy winner Chris Brown’s “Look At Me Now.” The exponential force of Facebook’s Like and Share buttons was apparent. Karmin has since signed a deal with Epic Records and appeared on NBC’s Saturday Night Live. For that matter, marketing tools like Reverb Nation, Topspin, and BandCamp are based on the concept of the artist communicating directly with fans. That generally means going through Facebook.

A niche market that often falls below the radar of the music industry is gaming.  Yet Zynga, the company behind FarmVille, CityVille and many other social games that run through the Facebook API, accounts for 12% of the entire Facebook revenue. Composers and music publishers should take notice.  Last year Zynga developed a special avatar for Enrique Iglesias to showcase exclusive music in their games, while Lady Gaga’s Born This Waysingle was first released exclusively for players of FarmVille. Games, in short, are becoming an important platform for music discovery and artist promotion.

A New Standard

The biggest challenge for Facebook will be to meet investors’ expectations. More sources of revenue will be likely needed. Facebook could invest its surplus IPO cash in startup companies that advance Facebook’s platform—like Google has done with Google Ventures. The benefit to the startup is not just the money tendered but the mentoring opportunity that founding entrepreneurs receive from Facebook. On the other hand, even a small pick of winners could bring Facebook untold market power gains. In the meantime, there might be added value from a more expert management of advertising data. It is likely that Facebook will enter the advertising market seeking an important new acquisition.

The future of Facebook looks promising, and so do the benefits that the music industry might reap indirectly from a successful IPO.  However it is extremely important for Facebook to be aware of the risks of loosing its users – their most important asset. Since Facebook’s business model is based on mining data, issues surrounding privacy may rise as the company becomes more aggressive and pays more attention to its bottom line.

By Luiz Augusto Buff

Toward Global Rights

Originially published in the Dec-2011 issue of The Music Business Journal – Berklee College of Music

by Peter Alhadeff, Zosia Boczanowski, Luiz Augusto Buff, and Aaron Gottlieb

Music is a complex commodity bundled with many rights. As intellectual property, it requires licenses to transact legally. But in today’s marketplace, clearances from owners or intermediaries can be difficult to track both nationally and internationally. Often, many parties are involved before permission can be granted for a single trade. In effect, it may be more practical to license a collection of songs rather than a single song, biasing usage against the non-commercial and cultural repertoire of lesser known artists and works. As a result, the diffusion of musical production and the livelihood of music creators, two tenets of international copyright law, are coming under threat.

The problem for buyers and sellers of music has been compounded since the new millennium. Music is bought and sold in TVs, computers, smart phones, and satellite radio. There are more playback devices and distribution channels, so the number of transactions is growing exponentially. More trade, however, does not mean a higher returned value because the typical tradable item before the millennium was the album, and it returned ten times the worth that a single song does presently.  Musical purchases today, in short, are dominated by myriad low- priced transactions.

The perception is that the rights’ shell of music is now hindering business more than ever, not just by adding friction in the music exchange but also by preventing trade. As the fortunes of the global recorded music market have declined catastrophically since the new millennium, with the business only grossing half the value that it did back then, a new sense of urgency is being felt both by music stakeholders and governments.

Regarding stakeholders: When music users are not getting access to creative content because of the logistical difficulties that music intermediaries, including online music distributors, have clearing music rights, the market takes a hit.  As for governments: The State tends to become involved where copyright industries are deemed significant and/or music is thought of as a cultural good worth protecting. Another issue here is the migration of music into the ‘public domain’. The transition can never be seamless unless there is clarity and tractability about ownership rights. The end of the commercial exploitation of a musical piece, of course, is never really accepted gladly by the interested party.

A New Series

The Music Business Journal will start its first ever article series on a multinational effort to build a better infrastructure to trade music.  The object is to draw attention regularly in future issues to a new momentum behind international song registries and one-stop initiatives for global rights’ clearances. As we write, a new architecture for the music trade is being attempted under existing intellectual property laws. (Because of this, the Journal will concentrate its efforts on the creation of such registries and continue to cover general legal developments elsewhere in the publication.)

We will look at all the parties involved, the agreements and compromises that will be necessary to carry these novel ideas to fruition, and the implications of these registries for the future of music. It took many years to get nation states to agree to submit their economic data to the League of Nations, and for the latter to begin compiling national income statistics. Similarly, sellers and owners of music copyrights, as well as public libraries and other publicly owned music repositories, have to come to the negotiating table willingly. The drama is likely to last.

Yet the development of mechanisms for better rights’ documentation, data-collection, and rights’ clearances is arguably as urgent today as when the onslaught of online music challenged the recorded industry after 2001.  Inaction, of course, has a steep price in an economy in crisis, and global efforts to build song registries have derived impetus from the Great Recession. Naturally, the music market has a better chance to discover new trades and reduce transaction costs if it centralizes and lays bare its arcane permit strictures.

IMR, GDR, and CISAC

The Journal has picked up increased coverage on the subject, and done its part1.

The United Nations’ World Intellectual Property Organization (WIPO) is presently focusing on developing an international intellectual property system and has made the case for an International Music Registry (IMR) in the past year. Specialists, academics, and stakeholders have been convened for special forums, for instance at the World Copyright Summit in Brussels in June, throughout October and November in Geneva, and at a Harvard-Berklee Rethink Music workshop in Boston in November.

Earlier, in 2008, the European Competition Commissioner of the EU established a working group which included representatives from Amazon, Universal Music, EMI, iTunes, Nokia, and three collection societies: PRS (United Kingdom), SACEM (France), and STIM (Sweden). The aim was to develop a Global Repertoire Database (GRD) that would stand as the reliable central database for multi-territorial licensing2.

Both groups are of course weary of competing with each other. WIPO has made it clear that IMR and GRD should cooperate to make the most efficient international licensing database possible, while, early in 2011, at a joint IMR-GRD meeting, the GRD Chair noted that the GRD could connect to the system that IMR developed3.

At the same time, the International Confederation of Societies of Authors and Composers (CISAC), an umbrella organization for mostly, but not exclusively, performing rights’ societies, joined the GRD in March 2011. CISAC developed the International Standard Musical Work Code (‘ISWC’), which identifies musical works from information procured by the rights-holders4.  Its expertise in copyright data management is thus political as well as technical.

Our Coverage

Clearly, the trade of music is recognizing that it can benefit from a new and more federated approach. For more in-depth coverage, the MBJ intends to publish, in the months ahead, individual pieces on (i) the potential for a synergy between IMR and GRD, (ii) the technological solutions being discussed, (iii) possible funding mechanisms for a global register or registries, (iv) the politics of stakeholders and the role of government, (v) the management and control of global song databases, and (vi) the unavoidable legal challenges of antitrust concerns, formalities, orphan works, and conflicting claims.

In our next issue, we will be reporting from MIDEM, at Cannes, France.  There, late in January, IMR and GRD representatives will engage in a debate with participants from around the globe. The expectation is that they will release their own independent study shortly after.

_____

See Luiz Augusto Buff, “WIPO Tallies Song Credits Worldwide”, The Music Business Journal, Oct. 2011, 10; and, same author, “The G8 and Copyright”, MBJ, Aug. 2011, 4 (also at http://www.thembj.org).

Berkman Center for Internet & Society, Rethinking Music: The Challenges of Creating and Maintaining a Music Rights Registry, Working Draft, Nov. 2011, 3.

Ibid., 4.

Ibid., 5.

_____

by Peter Alhadeff, Zosia Boczanowski, Luiz Augusto Buff, and Aaron Gottlieb

The Shackles of Copyright Law: Brazil’s Tecnobrega

Originally published in the Dec-2011 issue of The Music Business Journal – Berklee College of Music

The crisis in the recording music industry has diminished the breadth and diversity of record label catalogs at a time when there are more artists and musical works than ever. Around the world, moreover, local and regional music may be in danger of becoming marginalized as the traditional distribution structures focus just on pasteurized product. And yet there is hope.

New ‘open business models’ are being considered overseas and involve the creation and dissemination of artistic and intellectual works under a more flexible and autonomous copyright regime. If successful, it is argued that such a regime would generate more revenue for the music stakeholders and cut prices for consumers.

A book by two Brazilian writers illuminates the approach and may well shape thought in years to come.

Its title, Tecnobrega–O Pará Reinventando o Negócio da Música (’Tecnobrega-The State of Pará Reinvents the Music Business’) at first may seem pretentious.  But the authors are Ronaldo Lemos, Director of the Center for Technology and Internet Society at the famous Getulio Vargas Foundation (FGV) in Rio de Janeiro, and Oona Castro, FGV ‘s Project Leader.  Lemos, in particular, is active in academic discussions of intellectual property law around the globe, has been an articulate spokesman on copyright legislation for emerging economies, and serves as the director of Creative Commons in Brazil.

The work of Castro and Lemos is scholarly and relies on in-depth mining of qualitative and quantitative data in situ. It has become a part of the Open Business Project, a global initiative between Brazil, the UK, Nigeria, Chile, Mexico, and South Africa that is partly funded by Canada’s International Development Research Center (IDRC). Brazilian think tanks FIPE, an economics research foundation, and the Instituto Overmundo were also involved. Lemos and Castro also advise Brazil’s Ministry of Culture, lately an international advocate of a new legal architecture for music.

Tecnobrega, the music from which the name of the book is derived, is a genre from the state of Pará.  Pará is far removed economically, geographically, and culturally from the main centers of the country, Rio and Sao Paulo.  Brega, a kitsch regional style, became mixed with European Tecno, but the major labels or mass communication media never picked it up. (even though the old Brega was widely popular across Brazil during the 1980s, the genre faded as the industry declined). Yet it has now returned morphed into a new and complex ecosystem that provides revenues in the millions and employment for thousands. The key appears to have been both a loose copyright enforcement policy and an informal commercial structure that enabled the growth and promotion of the genre.

The traditional paradigm illustrates, among other things, the exchange between composers, producers, record labels, and publishers. This is not how the tecnobrega model works, for the interaction there is between the aparelhagens, i.e the sound system companies, the artists, the live and studio DJs , the promoters,  the venue managers, the mass reproducers, and the street vendors.

According to Castro and Lemos, the sequence of tecnobrega is as follows:

(i) artists, either  solo acts or  bands, record songs in self owned or other studios; (ii) the best productions are sent out by the studio DJs  to mass copiers; (iii)  street vendors  sell CDs locally at an affordable price, typically $2.50; (iv) DJs play their choice of songs at aparelhagem parties; (v) artists that have popular songs assemble bands to make performances; (vi) new CDs and DVDs are recorded and sold at concerts; (viii) the cycle is repeated while success lasts.

Artists are compensated primarily through live performances at an average of $1,200 per show.  Since royalties are not a feature of that business model, musicians are driven to perform their own songs, and 84% of the artists are also composers. In fact, what usually happens is that composers only form bands after their songs have become popular by either being part of compilation CDs or because they were performed at aparelhagem parties. Artists that are solely composers are rare, but such artists tend to write for jingles used in broadcasts and political campaigns as well as for songs that are exclusively commissioned to pay homage to the aparelhagens.

The aparelhagens, in fact, are a crucial element of the tecnobrega business. These sound system companies are hired to provide large setups that combine computers, sound, video, and lighting technologies for large parties in which tecnobrega music is played by DJ’s. There are four major companies running aparelhagens throughout the state, and several hundred of smaller ones. Aparelhagens are mostly family businesses. Local promoters are then responsible for organizing the parties and subsidizing the acquisition of new equipment for the aparelhagens—a major selling point in the eyes of the attendees. Ticket prices typically range from $5 to $10, with an attendance range between 3,000-5,000 people on average.  When aparelhagens debut their new equipment at special parties as many as 8,000 people have been known to attend.

The gatekeepers of the tecnobrega are the studio and aparelhagem DJs. They determine which songs will be a hit by either distributing them on compilation albums for mass reproducers, or by playing them at live events and through the electronic media channels. Not all the deals are based on the exchange of monetary values, and sometimes the network of contacts and the capacity of access to certain people is sufficient consideration.

It is important to note the informality of this business model. The absence of written contracts and the sale of mass reproduced copies by street vendors (approved by artists but in fact illegal) prove that the tecnobrega is a model based upon norms rather than law. The lack of a strong copyright culture, combined with the fact that the parties themselves foment this structure of distribution, breeds an environment conducive to growth.

Tecnobrega artists don’t expect any revenues from copyright exploitation, believing that giving up control allows for the free circulation of their songs thereby reaching a broader audience. Piracy is not seen as a threat. In fact, artists support the practice because it can significantly increase the size of the audience for their concerts. Considering unauthorized distribution as a marketing tool, artists sell their albums and DVDs at concerts with a price sufficient to cover their costs of production, and the show’s revenue comes mainly from ticket sales. In a country where legal albums are sold at a price well above what most of the population can afford, the tecnobrega model guarantees broader access for the lower-income layers of society.

The book suggests that in some cases the application of copyright protection mechanisms might not be necessary to stimulate creation and sustainability within the creative industries. As well, copyright mechanisms may have a negative impact on the access to music, which for the authors is a ‘cultural’ good.  The tecnobrega model navigates a grey area within the margin of the established legal canon, but the case of Pará shows that when creators do not make an issue of their private intellectual property, a music economy may evolve just as well.

Lemos and Castro urge the public to consider that there are new effective ways of generating income for the stakeholders of ‘cultural’ industries. They make the case for easier copyright policies in Pará. In addition, the tecnobrega economy emphasizes the sale of ancillary services and strategies that leverage publicity to sell other goods. Similar examples of these so-called ‘open business models’ are found in the technology sector with open-source software, in the Nigerian Nollywood film industry, in Wikipedia–and, as well, in the much scrutinized initiative of Radiohead offering their album at whatever price a consumer might be willing to pay.

For the stakeholders in tecnobrega, the formality of the copyright system stands in the way of their trade in music.  Although Lemos and Castro warn that the replication of the model is unlikely on a bigger scale and in a different context, it remains an exemplar of a vibrant musical exchange in an emerging economy. It makes everyone interested in the future of music pause for thought, for where intellectual property law cannot be seen as the chaperone of trade, but its shackle, musicians and the public at large are victimized.

________

The English translation of the book is pending; the Portuguese version can be downloaded free at: http://portalliteral.terra.com.br/lancamentos/download/715_tecnobregamiolo.pdf.

________

by Luiz Augusto Buff

The Rock in Rio Festival

Originally published in the Nov-11 issue of The Music Business Journal – Berklee College of Music

Nearly two months ago, and after a ten-year hiatus, Brazil witnessed the return of the Rock In Rio Festival. The event, considered the biggest of its kind in the world, has developed its own international profile, with Madrid and Lisbon editions in Europe. Roberto Medina, one of the most successful advertising entrepreneurs in Brazil, has built an empire around it.
The first edition of the festival, a landmark event in Brazil, was held in January 1985. The country was recovering from military dictatorship and the new democracy welcomed international acts at last. 1.4 million people went to a specially-built location called “Rock City” (Cidade do Rock) to see Queen, Iron Maiden, Ozzy Osbourne, and AC/DC. The festival also featured Al Jarreau, James Taylor, and George Benson. Large audiences drove Rock in Rio to success. Queen’s performance was anthological, with Freddie Mercury conducting a choir of more than 325,000 voices singing Love of My Life. The performance was recorded and broadcasted in over sixty countries and reached two hundred million people, giving sponsors an unprecedented amount of visibility. Rock in Rio became a reliable brand, which then cemented the reputation of young local groups such as Paralamas do Sucesso, Titãs, and Barão Vermelho. These bands are now recognized as pioneers of a new musical landscape in Brazil.
The second edition of the festival, in 1991, took place at the famous Maracana Stadium. The economy was not doing well, the event could not be run from the desired Rock City venue, and, for budgetary reasons, there were many more national artists performing. Part of the reason for that was that the organizers themselves wished to diversify into genres other than rock in order to attract newer audiences. Artists from more traditional Brazilian styles like Gilberto Gil and Elba Ramalho shared the same stage as Sepultura, George Michael, A-Ha, and Judas Priest. The highlight of the festival, however, was Guns and Roses, who played two memorable concerts.
Rock in Rio III took place in 2001, and welcomed 1.2 million people in a rebuilt City of Rock. Good causes dominated the event, which pushed the motto and project “For a Better World”, education for the young, and untold UNESCO initiatives. Celebrities attended in droves, and convinced 3,2000 radio stations and 400 TV broadcasters to air three minutes of silence for reflection.
This social mantle was instrumental in establishing Rock in Rio as an international brand, promoting festivals in Europe, with Rock In Rio Lisbon in 2004, 2006, 2008 and 2010, and also in Madrid in 2008 and 2010. The European versions were not as well attended as in Brazil but, on average, audiences hovered around a respectable 350,000.
More regularity helped too. After six European editions, the way was paved for a stellar return to Brazil. A partnership with the Rio de Janeiro City Hall allowed the construction of an entirely new City of Rock on the site of the future Olympic Village in 2016 . Rock in Rio 2011 has had an enormous impact on the city’s economy because it generated about half a billion dollars in revenue and indirectly created 10,000 new jobs. It was not the largest festival of the series, but attendees numbered 700,000 throughout the week. More than 160 musical acts were featured across three different stages. The price of admission was around $110 and tickets sold out in less than four days.
This year, one of the criticisms levied at the festival is that not enough space was set aside to feature Rock music—the genre from whence the event was born. Roberto Medina explained that the festival is an open space where different people can come together and share experiences. In fact, the majority of the 600-plus acts featured in every edition of Rock in Rio have been rock acts like AC/DC, Metallica, and the Red Hot Chilli Peppers. However, the strategy always was to diversify in order to attract a wide array of customers. Roberto Medina emphasizes that the choice of artists who perform at the festival is the result of dense marketing research and a thorough analysis of trends in social media. Katy Perry and Rihanna were both at Rio this year, and their success seems to confirm Medina’s approach.
This year, for instance, the organization decided to invest heavily in communication through non-traditional outlets. They estimated that 180 million people from more than 200 countries followed the festival via the Internet and social media. Rock in Rio had an exclusive channel on Youtube that streamed all the concerts live worldwide. During the weeks of the festival, Rock in Rio was the top “trending topic” on twitter in more than ten countries, and its exclusive iPhone app was the most downloaded in Brazil.
Taking advantage of the success of this latest edition, the organizers announced that the festival will now happen on a regular basis. Even with no bands announced yet for 2013, 15,000 tickets have already been sold during a pre-sale promotion at the festival this year. Before it happens again, Rock in Rio will go back again to Lisbon or Madrid in 2012, and possibly to Latin America in 2013. Mexico and Colombia are the most likely candidates.
The brand is growing organically. But, Rock in Rio demonstrates too the growing power of Brazil in the international music market. With a thriving economy plus important events in the upcoming decade–the World Cup in 2014 and the Olympic Games in 2016—the country is attracting new business. Indeed, Lollapalooza, America’s best-attended festival, has announced a Brazilian edition next year.

By Luiz Augusto Buff