p2pnet news view | Music:- The termination of Yahoo! Music and their customer’s impending lost access to all that music they paid for (I didn’t say “bought, ” I said “paid for.”  There’s a big difference.) illustrates one of the fundamental issues regarding the many, and largely failed, attempts to distribute DRM’d music over the Internet.

Despite the bright and shiny “BUY IT NOW!” buttons on those stores, you don’t really buy anything.

Legally, what you’re doing is acquiring a license to hear that music.  A license grants you only limited rights.

As their soon-to-be-former customers are now finding out, they don’t have the right to listen to that music forever, or move it to a new computer.

You also don’t have the right to resell that music. If you remember, Apple got eBay to take down George Ziemann’s auction of a full iPod when he wanted to prove just that point.

Now, of course, all those music stores spent a lot on lawyers and the language in the EULAs was quite specific, even if it wasn’t very well written and in really tiny type.  They knew what they were doing, and the customers should have been aware of it from the beginning. (I’m a lawyer, and I know that stupidity is not a defense.)

The noise being made now about Yahoo! giving refunds and mp3s has more to do with public relations and a whole lot less to do with legality.

Frankly, I always considered the success of these services, limited as it was, to just be God’s way of telling people they had too much disposable income.  Customers really got exactly what they paid for.  The fact these services have routinely failed is really the nicest thing you can say about the intelligence of the average music consumer.  Most of us knew better.

The major labels knew all about these restrictions as well, because they were the ones who demanded the stores put that DRM stuff on everything.T

And that, dear members of the congregation, brings us to the subject of today’s sermon.  As if we needed further proof of the dark and greasy evil at the heart of the major record labels, their conduct in regard to accounting to artists for download revenue is truly gilding the poison ivy.

You see, on one side, they granted the online music services the right to grant individual licenses to end users like you and me.  In return for that right, a big chunk of the amount paid by the consumer was passed back to them.  They know the consumer transactions are licenses.  The terms and conditions they place on what rights the listener eventually gets makes the transaction a license and not a sale.

But something happens when that money gets to the labels.  Even more importantly, something happens to the definition of the consumer transaction.

It is no longer a license, it is an outright sale.   (And I need to point out that I am talking about the RIAA member major labels.  There are many indie labels that play fair with their artists on downloads, and I have no quarrel with them on this issue.)

What the labels treated as a license in dealing with the services becomes a sale in dealing with the artists.

The reason for this is simple.  The industry standard split on license revenue is 50/50.  The label gets half, the artist gets half.  The industry standard on a sale is whatever the negotiated royalty rate was in the contract in effect when the song was recorded.  For artists from the 50s and 60s, that rate could be 3%, or even lower.  When you factor in all the usual sharp accounting practices the labels have developed over the years, that 3% was usually cut in half, or even more.

So, the label gets seventy cents from Apple for every $.99 download from the iTunes store.  If the transaction is a license, the artist should get 50%, or 35 cents per download.

Instead, because the label treats the download, for artist accounting purposes, as a sale, the artist gets as little as a fraction of a penny per download.  At that differential, it doesn’t take many downloads to make a gigantic difference in the artist’s royalties.  And the label’s bottom line.

So, boys and girls, we end up with the situation in which the label says one thing to the services because it promotes their interest, and then says the opposite thing to artists, because it promotes the label’s interest on that side of the ledger.

Who’s surprised?

Fred Wilhelms - p2pnet
[If the corporate music industry had any ethics, Wilhelms would be its ‘ethicist-in-chief,’ wrote CounterPunch’s Dave Marsh. Wilhelms is an entertainment attorney based in Nashville, Tennessee. You can contact him at fred.wilhelms @ gmail dot com. ]

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New York Times - New worm transcodes MP3s to try to infect PCs, July xx, 2008

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This entry was posted on Wednesday, July 30th, 2008 at 7:12 am and is filed under Music. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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