Indiependence: Is Anyone Really Free in This New Digital World? Should They Be?

Solange Knowles
Courtesy Photo

Creators and rights holders have less independence than ever... but that's not always a bad thing.

The traditional record label or music publisher might be dying, but many rights holders, artists and songwriters are far from independent. They are members of coalitions and societies that negotiate on their behalf. They are also subject to rules and rates established by Congress and courts.

Take the current controversy over Apple's proposed licensing deals for Apple Music. The contract calls for independent record labels and publishers not to receive royalties during new users' 90-day free trial. Rights owners' reactions have ranged from dismay to anger. A2IM (American Association of Independent Music) called the contract "surprising" and encouraged its members "not [to] feel rushed to sign Apple's current offer." CIMA (Canadian Independent Music Association) called it "arrogance" and "exploitation" of its artists. Just today (June 17), Australian indie label trade body AIR wrote that the agreement "does not meet a standard of commercial fairness."

Independent artists and labels are speaking in unison about contract terms that will have real financial repercussions -- no surprise -- but this underscores a growing trend in the digital music business. Independence is being replaced by group dynamics; the ability to set prices is being superseded by the need for leverage in negotiations. The nature of the digital music business means less independent decision-making and more decisions by representatives. 

We live in an age of independence. Young artists are encouraged to be entrepreneurs. They can employ a manager, lawyer, marketer, publicist and, depending on resources, a radio promoter. They release their own music and retain ownership of it, and songwriters can retain ownership and hire a company to administer their publishing rights. This all translates to control over the decision-making process.

But creators can't control everything. We also live in an age of coalitions which represent the interests of rights holders and creators. The "major labels" are effectively coalitions of owned and distributed labels negotiating as a single voice with digital services. Merlin represents over 20,000 labels and distributors. Aggregators like CD Baby and TuneCore represent tens of thousands of independent artists. What those artists are paid by digital services depends on the licensing terms negotiated by their chosen aggregators.

The consolidation doesn't stop there. Collection societies, already operating on behalf of many thousands of artists, are creating their own coalitions between one another. The major music companies' music publishing divisions -- EMI Music Publishing, Sony/ATV Music Publishing and Universal Music Publishing Group -- have partnered with various collection societies for pan-European licensing. Many independent publishers are grouped together in IMPEL, a pan-European licensing organization operated by PRS For Music. Kobalt created ARMA for "a global scale" that insiders believe is a play for pan-European business.

Creators also cede independence to the government. Songwriters and publishers earn mechanical royalties that are set by a three-judge panel, the Copyright Royalty Board. Those judges established the 9.1-cent royalty earned from a music download at iTunes, for example. The judges also set the statutory royalty rates for non-interactive digital services like Pandora and SiriusXM. This is now a considerable amount of money. Last year, royalties for non-interactive services paid by SoundExchange totaled $773 million, up from $462 million in 2012. 

A similar trend exists in publishing. In some cases, songwriters and publishers earn performance royalties based on a rate set by a Federal court in New York. A judge makes a determination when either ASCAP or BMI can't agree to terms with a licensee. In the last few months, BMI beat Pandora in rate court and Pandora beat ASCAP in a different rate court.

Loss of independence isn't necessarily a bad thing. Digital innovation is hampered, and consumers affected, when licensing becomes too difficult for small digital services. The current consolidation in pan-European licensing is the result of the European Union's desire for a less fractured, more efficient performance license marketplace in Europe. A complicated licensing system had created "many barriers which prevent consumers from fully benefiting from the opportunities that the Internet provides," EU commissioner Nellie Kroes said in 2009.  What's more, statutory rates provide an efficient mechanism for licensing that otherwise would harm digital services and consumers.

Coalitions like these make the digital music business possible. Aggregators allow a digital service -- especially a small one -- to ingest large quantities of music with little effort. A digital service simply couldn't have direct relationships with every label or artist that desired one. Blanket licensing has the same rationale. Being part of a collective benefits those creators and rights owners that couldn't otherwise license their works to a multitude of radio stations, venues and other commercial entities that play music.

And yet independence isn't completely dead in digital music. For example, iTunes and Amazon provide for flexibility in pricing. Bandcamp lets artists sell digital and physical music, as well as merchandise, and set the prices. Artists have free reign over music, merchandise and tickets sold at their websites, without middlemen. And there are numerous opportunities to create fan clubs or provide VIP experiences at concerts. 

Influence isn't dead. Creators can wage public relations campaigns. Rights holders and their trade groups can lobby Congress. Coalitions can gain market share to improve their negotiating leverage. But independence? It's getting harder to find. 


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