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Understanding Digital Revenue Streams (for Musicians)

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This session reviews the basics of digital revenues streams for musicians using online radio, download and streaming sites to promote and sell their music.

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Understanding Digital Revenue Streams (for Musicians)

  1. 1. Understanding Digital Revenue Streams: Music Deborah Gonzalez, Esq. Georgia Lawyers for the Arts 2014
  2. 2. Overview • Introduction • Setting the Context – Definitions • Music Revenue Streams • Digital Revenue Streams – Sound Exchange – iTunes, YouTube, Pandora, Spotify – Grooveshark, Presto.fm, Rdio • Music Revenue Strategies • Q&A
  3. 3. Who am I? Who are you?
  4. 4. Setting the Context • Video killed the Radio Star. – MTV (1979) – http://www.youtube.com/watch?v=Iwuy4hHO3Y Q&feature=kp • Digital killed the record. – CD sales down – Digital download sales down – Digital streaming up
  5. 5. Setting the Context • Mechanical Royalties: are revenues from sales and are determined by federal law. As of 2012, when any music retailer sells a copyrighted music track on a CD or as a download online, a fee of at least 9.1 cents must be paid to the music publisher to be split with the songwriter. ** Those royalties are set through a government apparatus, not free markets. • Mechanical royalty rate for streaming is 10.5% of revenues. For the two major sources of streaming revenues (Spotify and YouTube), the mechanical is paid directly by the services to the publishing concern (in Spotify's case, through Harry Fox) and does not flow through the label.
  6. 6. Setting the Context • Synch Licensing: earns revenue through upfront fees paid to the publisher by a music licensor, such as a production company or movie studio, for rights to synch some or all of a song to visual images. • Performance Royalties: Whenever a song is broadcasted to the public, such as through a radio station, podcast, nightclub, jukebox, shopping center or public event, a performance royalty must be paid to the song’s publisher. Performance rights organizations offer blanket licenses that venues or broadcasters can purchase, after which the songs selected for airplay are tracked and the appropriate payments are made to the songs' publishers.
  7. 7. Setting the Context • Self-Publishing: able to keep 100 percent of music revenues can make it worth the extra work for songwriters. Independent songwriters can sign up as publishers with performance rights organizations. They can also upload their own music to websites that offer opportunities for broadcast, synch licensing and mechanical sales, such as Reverbnation.com, Musicdealers.com, CD Baby and Amazon.com.
  8. 8. Setting the Context Note on Self-publishing: Downside: you still need to find people that will help you take your music to market. If you own your master or copyright, but lack the relationships to adequately expose it, then you're keeping 100% of something that's not worth very much. If we're talking revenues, then the effectiveness of which a copyright or recording is exploited is an important variable in the equation that should be considered.
  9. 9. Music Revenue Streams Future of Music Coalition: http://money.futureofmusic.org/revenue-streams- existing-expanded-new/
  10. 10. Digital Revenue Streams • In 1995, Congress passed Digital Performance Right in Sound Recordings Act (DPRA). • The DPRA established a performance right for sound recordings in digital transmissions. • Sound Exchange was then created to administer the digital performance right.
  11. 11. Digital Revenue Streams • ASCAP, BMI and SESAC collect performance revenue for the owners of the copyrighted musical work (the song), i.e. music publishers, songwriters and composers. • Sound Exchange collects performance revenue for the sound recording copyright owner (usually the record label) and for the performers.
  12. 12. Digital Revenue Streams • Digital royalties are fees that service providers such as Pandora, SiriusXM and webcasters are required by law to pay for streaming musical content. • These royalties are paid by the services to Sound Exchange, and accompanied with playlists of all the recordings played by the service provider.
  13. 13. Digital Revenue Streams • Example: If I hear Patsy Cline singing “Crazy”, which was written by Willie Nelson, on terrestrial radio, Willie will get a check from BMI because he’s the songwriter, but Patsy gets nothing. But if I hear Patsy Cline’s “Crazy” on XM Radio, Patsy’s estate is paid by SoundExchange for performing the song, and Willie is paid by BMI for writing it. • Katy Perry’s “Roar” - KP gets paid for the lyrics (she wrote the song) from the PRO + the recording performance (from Sound Exchange)
  14. 14. Digital Revenue Streams Payment breakdown: – 45 percent of performance royalties are paid directly to the featured artists on a recording, – 5 percent are paid to a fund for non-featured artists, typically session musicians and background singers. – The other 50 percent of the performance royalties are paid to the owner of the sound recording (i.e., the owner of the “master”), which can be a record label or an artist who owns their own masters.
  15. 15. Digital Revenue Streams • Includes iTunes & iTunes Radio • Digital Downloads – license not a “sale” – Per song: $.70 (under 10 minutes) – Per album $7.00 (10 songs) – + Share of Advertising Revenue • $0.14 cents per play and 19 percent of net ad revenue (after a year of service)
  16. 16. Digital Revenue Streams • YouTube's Billion-Dollar Payout (Feb. 2014) http://www.rollingstone.com/music/news/youtubes-billion- dollar-payout-provide-new-revenue-for-musicians- 20140205#ixzz2zWgUpUXb • Seven Ways Musicians Make Money Off YouTube http://www.rollingstone.com/music/news/seven-ways-musicians- make-money-off-youtube-20130919
  17. 17. Digital Revenue Streams • Monetization • Content ID • Vevo • Music Sales Links • Sponsorship • Merchandise Annotations • KickStarter
  18. 18. Digital Revenue Streams • Pandora is a radio model, under which you cannot select your own music or replace ownership of music. • That is different from Spotify, MOG, Rdio—and other selectable music services which let users pick songs— and as a result they don't fit all three criteria in the Digital Performance Act (they are interactive rather than "non-interactive") and thus negotiates all royalties individually with record labels and distributors.
  19. 19. Digital Revenue Streams • ASCAP has charged Internet-radio services either 1.85% of their gross revenue or 0.06 cent each time a user tunes in for a listening session, whichever sum is greater. Pandora has been paying an interim rate along those lines since 2011, in the absence of a deal with ASCAP over what it should pay through 2015. • According to Pandora regulatory filings, separate legal battles are currently under way between Pandora, ASCAP and BMI to determine publishing royalty rates after the current rates expire in 2015. http://www.cnbc.com/id/101393890 (2/6/14)
  20. 20. Digital Revenue Streams • Subscription Service • Does NOT pay per stream. • An artist’s royalty payments depend on the following variables, among others: – In which country people are streaming an artist’s music – Spotify’s # of paid users as a % of total users; higher % paid, higher “per stream” rate – Relative premium pricing and currency value in different countries – An artist’s royalty rate • Recently, these variables have led to an average “per stream” payout to rights holders of between $0.006 and $0.0084
  21. 21. Digital Revenue Streams
  22. 22. Digital Revenue Streams • Grooveshark Artists is the only music service that provides independent artists and content holders with free, worldwide digital distribution and access to over 20M active listeners across the globe. Grooveshark is actively signing licensing deals and welcomes all independent artists to the service. It is free to upload your content and manage your presence on the site. • A licensing deal with Grooveshark entitles your label or distribution entity to a predetermined portion of our advertising revenue, based on your contents' quarterly market share on Grooveshark.
  23. 23. Digital Revenue Streams Illegal??? See article below: http://www.digitaltrends.com/web/spotify-vs-pandora-vs-grooveshark/ 12/2013 In fact, an RIAA spokesperson emailed me to make sure I knew that “the vast majority of songs streamed on Grooveshark are not licensed, making the service unauthorized and illegal.” “That’s why they’re not featured in Apple’s app store,” the spokesperson continued. “That also means that with the paid version of Grooveshark, that money is going straight into the operators’ pockets and not to artists and songwriters, as opposed to Pandora and Spotify who do pay music creators.”
  24. 24. Digital Revenue Streams • Free online music streaming and discovery service with the goal of connecting you to music perfectly matched to your tastes. • Since Presto's content comes directly from Youtube, you can earn a share of the money from the ads that Google displays in the Youtube player. To get started, sign up for Youtube's Partner Program and you'll receive royalties based on the advertising displayed on the content that you upload. You can also monetize content uploaded by other users that you own the rights to by using Youtube ContentID.
  25. 25. Digital Revenue Streams • Free web or subscription $10/month • Rdio Artist Program: earning additional revenue that complements the existing royalty structure already in place with the record labels and distributors we license your music from. • Integration with Shazam app; goes international (Feb 2014)
  26. 26. Music Revenue Strategies • Expand your channels • Use your resources more efficiently • Branding • Partner outside your industry to optimize your value creation potential
  27. 27. Resources Music and Money Quiz https://futureofmusic.org/music-and-money-quizzes
  28. 28. Thank You! Deborah Gonzalez, Esq. The Law Office of Deborah Gonzalez, Esq., LLC IP: Art, Music, Entertainment, Digital Atlanta – New York www.dgonzalezesq.com dgartlaw@att.net Twitter: @dg_iplaw

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