Leveling The Playing Field: Unearthing The Hidden Traps Of The Traditional Music Business

By George Howard
(follow George on Twitter)

Introduction

In Thomas Friedman’s book The Lexus and the Olive Tree, he relates an anecdote about how prior to the fall of the Soviet Union the state-run newspapers would frequently run pictures that ostensibly showed American citizens standing in long bread lines.  They did this as a way of demonstrating that it wasn’t only communist states that had food shortages.  These images, for some period of time, assuaged the masses, as they perceived their status to be at least no worse than those of the hated Americans.  The problem with this approach was that the photos that Tass and Pravda used were not in fact people waiting in line for their rations, but rather your typical group of New Yorkers queuing up for a hot, fresh bagel on a Sunday morning.

It is said that the Internet shines a bright light on mediocrity.  The Internet also tends to make keeping things secret very hard.  This is not to say that even in a post-Wikileaks era of “transparency” that there isn’t confusion and disinformation.  Having trolled through some of the “expert” sites on the music business, for example, I feel that often they do more harm than good (they also often have a mercenary aspect them that tends to overshadow actual unbiased information).

All that said, now more than ever, artists can find out the information needed to make better choices, and the industry knows this. And the industry is frightened.  There’s a bit of an emperor has no clothes element going on; recently, a major label executive apparently justified 360 deals by stating that if artists want access to the talented executives at this company, they would have to part with the vast majority of their rights (i.e. make a 360 deal) in order to gain this access.  It’s worth nothing that this is a label that has consistently lost money and market share.

“Well, they do it, because they can”: Some Examples of Music Business Landmines

I’ve had the misfortune of having to explain some of these vagaries of the record business with the less-than-satisfying “answer” of, “Well, they do it, because they can.”  I’m hoping that the tenses begin to shift, and I can soon say, “Well, yeah, they used to do that, because they could. Glad they can’t anymore.”

The Controlled Composition Clause

One of the more frustrating “because they can” record label practices revolves around the controlled composition clause.  In a nutshell, as any reader of the TuneCore blog knows, any writer of a song is due a mechanical royalty when her song is reproduced by a label (either physically or digitally).

The royalty rate that the label is supposed to pay the writer of the song is set by statute, and currently rests at $.091 (i.e. just about a dime) per song.  Well, the vast majority of writers never receive this statutory rate from the label that mechanically reproduces their work.

The reason for this is that the writer — who almost always is also the performer signed to the label — as part of his or her record contract, signed a sort of waiver that gave the label the right to pay less than the rate established by statute; typically, 25% less.  So rather than getting $.091 the writer gets $.068 per song.  Why? Because they can.

It gets worse.

Suppose your label releases your record that has fifteen songs on it that you wrote.  As part of most controlled composition clauses, under the above hypothetical, you will only get paid a mechanical royalty on ten of those songs (occasionally, you can negotiate it up to eleven) – at the reduced rate, of course.

How do the labels get away with not paying you on the other four of five songs? Because they can.

The reality is that controlled composition clauses have become such an ingrained part of recording contracts that when most artists and their representatives are confronted with them, they begrudgingly accept them as “boilerplate.”  The real reality, of course, is that most artists don’t know what a mechanical royalty is, let alone a controlled composition, and must defer to their representatives.[1]

As artists begin to understand what rights they have when they generate copyrights (and, please, please do download the TuneCore PDF booklet on this topic ) more artists can ask the questions regarding the validity (or lack thereof) of things like the controlled composition clause.  Believe me, just because something is “boilerplate” doesn’t make it not horseshit, and doesn’t mean it has to be accepted.

Lack of Public Performance Rights for the Performer

Another “because they can” element of the music business relates to public performances.  As readers know, one of the exclusive rights that a copyright holder to a song has is the right to publicly perform that song.  Radio play is a public performance, and, thus, when a radio station desires to play a copyrighted song, they must have a deal in place with the copyright holder.

Clearinghouse agencies like ASCAP and BMI handle these negotiations, collections, and payments on behalf of their affiliated writers.

However, there is, of course, a copyright in the recording of the song too (i.e. the version of the song as reproduced on a record/mp3).  The copyright holder of this element has the same rights as the copyright holder of the song itself — including the exclusive right to publicly perform the song.

By all logic, therefore, radio stations (and others) should have to go through the same process with the copyright holder of the master as they do with the copyright holder of the song; i.e. negotiate a rate and pay them in order to publicly perform their copyrighted work.

And yet, nothing of the sort is required.

The US is in fact the only industrialized country in the world, where the copyright holder of the master does not receive a public performance royalty when their songs are publicly performed on terrestrial broadcast.

While we might not have lost a lot of sleep over this when it was largely the record labels who were losing out on this public performance revenue, in an era when many artists are acting as their own label, and at a time when every penny is needed to sustain oneself in this industry, it is truly unconscionable that broadcasters continue to not pay a public performance royalty to master holders.

You might ask, how they get away with this.  I suppose I don’t need to tell you the answer: because they can.

There is a movement afoot to end this craziness, and, if you’re so inclined you can add your support. Here is additional information: Music First Coalition

Conclusion

There are certainly other elements of the music business that continue to exist for no other reason than “because they can.”  Some are happily fading and anachronistic (packaging deductions), while others seem to be becoming further entrenched (the aforementioned 360 deals).

What gives me hope is that, increasingly, artists are their own labels.  As such, not only do they no longer have to suffer the indignities foisted upon them by labels, but, more importantly, they are in control of their own destiny.  No longer must they play by the somewhat arbitrary and capricious “rules” that no one remembers when or why they were codified in the first place, and instead can begin making deals in a strategic manner; deals in which there exists a parity of expectation and value alignment.

As these types of deals increase, we will finally see something of a renaissance in the music business; it will, of course, no longer be the music business at that point, but rather a business with music at its center.

Until this happens, and so long as artists are assigning their rights to another party, it’s imperative — and, happily, more realistic than ever — to become educated about the above (and other) landmines out there laying in wait for artists to step on.  There really are no longer any excuses for not doing so.


[1] As a note, I’ve just scratched the surface of the controlled composition clause; it’s a multi-headed hydra, and you simply must educate yourself on it in its entirety. See additional information about the controlled composition clause at Artists House.

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George Howard is the former president of Rykodisc. He currently advises numerous entertainment and non-entertainment firms and individuals. Additionally, he is the Executive Editor of Artists House Music and is a Professor and Executive in Residence in the college of Business Administration at Loyola, New Orleans. He is most easily found on Twitter at: twitter.com/gah650

  • Dennel

    Wow! Great article, the more informed we are as artist to our rights and the “landmines” of the record industry, the better choices we can make as a whole. Controlled composition clauses? Lack of public performance rights for the performer? Is it any wonder then that more artist (myself included) have opted to form their own labels to get around some of the madness? Last I checked, no one likes being pimped just for the sake of.

    Dennel

    • http://twitter.com/gah650 George Howard

      Thanks, Dennel, and good on you for starting your own label!

      George

  • http://twitter.com/gah650 George Howard

    Thanks, Dennel, and good on you for starting your own label!

    George

  • Directdistributor1

    Hello Im a newbie to Tunecore and loving the articles and posts already.Our group will be finishing our 1st
    album soon.Any advice in this Indie direction?

  • Sam Tall

    While I couldn’t possibly disagree that the recording industry has abused its power for decades, especially recently once the original rationale for such clauses had been pretty much forgotten, I disagree that the controlled composition clause is the bane of music’s existence. In its current form, I agree with your argument: “because we can” isn’t a good reason for anything, ever. But I started a label that prices music very low because we manage to produce high quality recordings at significantly low cost. For promotional periods, we distribute music at a “pay-what-you-want” price; clearly, for every free song downloaded we’d be taking a loss which we can’t necessarily afford to do as a startup label, so we’ve written into our recording contracts–which I should mention are atypical: we don’t control the masters or any rights, but rather we act as production, distribution, marketing, and management administrators–that the artist waives his or her right to mechanical royalty for free downloads, but shall receive their royalties when any money is brought in. If an album of ten songs is bought for 50 cents, we still pay the artist 91 cents. Still a loss, but if we make money, they make money, period. We also run a 50/50 with the artists on all profits after recoupment of production and manufacturing costs. It’s working out very well for everyone involved, but it’s exactly what you say is the evil we’re facing. But to us, it’s a necessary business model while we still are running on bootstrap money.

  • bomber music

    It’s worth noting that the controlled composition clause is an almost exclusively American thing. It is totally illegal in the UK.

  • Thunderingherd

    Now this is a great article! I learned more in a few paragraphs than all the dealings I’ve had with my label in the past 5 years. Marko