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| Death of the record industry. |
| Roy Starin |
Wow, I just about gave up on myself with this one. There is one problem with having no deadline, you can end up putting shit off forever. I can make some lame excuses about how I have been traveling a lot, working a lot, and skating as much as possible, but whatever. I could also do the whole Concussion editorial thing and tell you how over it I am, but that's not really true either. The bottom line is that I couldn't find something that made me wanna sit down and type out a new editorial. I still don't really know where this thing is gonna go, but fuck it. I guess I will start off in the early 90's. Remember when MTV played videos? Yeah, me too. There are tons of videos that literally burned themselves into my memory, and I spent just about every waking moment soaking it all in. Here are a couple of videos that show what skateboarding was to me in high school.
Unsane - Scrape
This one was a cringe-inducer then, and it still gives me the willies a little now. I like that the last shot in the video is a make, it's like a little flicker of hope. Also,
I never realized that the name of this album was about Waffle House hash browns. Here's another video from my high school days. This one is chock full of future stars.
Sonic Youth - 100%
That's a good one. Remember Blind jeans? You could put a 40 in the front pocket, that's how big them shits were. Tell you what though, I don't miss having to push every 5 feet. Small wheels were pretty dumb. Alright, alright, nostalgia time is over. Time to tackle an actual topic or something.
Let's talk about the modern corporate music industry. I have been doing a little research on the topic lately, mainly because I think the time is right for a new kind of record store. See, my dream has pretty much always been to open my record store, but I know it's basically one of the toughest businesses to survive in. I suppose it's just like opening a skateshop, which is another one of my dreams. Enough about that, what I really want to talk about is why things are the way they are right now. One of the main problems in the record industry right now is the standard contract. The standard record contract is probably the shadiest document ever produced. There are plenty of stories about artists that never
recoup, and the one that sticks out in my mind the most involves Incubus. Incubus released Make Yourself, an album that ended up going multi platinum. Yet, despite the
obvious success of the album, Sony ate up so much of the money through various contract clauses that Incubus decided to sue to be let out of their contract. Sony sued back, claiming that Incubus owed them four more albums. Can you imagine working under those conditions? That's pretty much indentured servitude in my opinion, but bands sign their lives away all the time. Let's see how the record company gets away with it. We will start with the standard deduction clause(s).
*The following information is courtesy of www.futureofmusic.org.
Clauses 6, 7, 8, 9: Returns, reserves, and other standard deductions
How do you turn a 16%royalty into a 6% royalty?
It’s easy. Standard. Industry. Deductions.
What the clauses say:
1. Definition of "Net Sales":
“…eighty five percent (85%) of gross sales, less returns, credits, and reserves against anticipated returns and credits.”
2. Container Charge:
“the applicable percentage, specified below of the Gross Royalty Base applicable to the Records concerned: ...Compact discs, New Technology Configurations…25%"
3. In the royalty paragraphs:
“Not withstanding anything to the contrary herein, the royalty rate for any Record in the audio only compact disc configuration shall be eighty percent (80%) of the otherwise applicable royalty rate set forth in this agreement.” (New Tech is 75%)
4. From that same royalty section:
"No royalties shall be payable to you in respect of Records sold or distributed....as "free", "no charge", or "bonus" Records (whether or not intended for resale; whether billed or invoiced as a discount in the price to [Record Label's] customers or as a Record shipped at no charge)."
That paragraph contains a host of other carve-outs for such things as promo records, etc.
What they mean:
Take care of your advance money, because it's all you'll see for awhile, unless you wrote the songs. Songwriters get a mechanical on each record sold, but they also get a reduced rate due to the controlled comp clause (see above for definition).
To start with, clause #1 indicates that the labels are going to reduce your royalty based on records that might get returned because you only get paid on royalty bearing units --which means if you don't have a cap on free/promo goods (#4), you're in trouble.
As an example, let’s think about a CD that has a value of $10. The "net sales" definition means you're only going to get paid on 85 of every 100 units shipped. However, there are further deductions. Clause #2 indicates that $2.50 cents comes off that $10 before you apply the royalty percentage. But wait, there's more. Clause #3 means that your royalty percentage (the one you apply to the dollar figure after figuring in the 85% rule and the 25% container charge) is further reduced by 20%. Have I mentioned the absurdity of a container charge for "New Tech" i.e. digital distribution where there are no manufacturing costs? (And don't forget that the reduction there is 25%, not 20% as with CDs).
Here it is important to remember that artists’ contract royalty rate is not statutory, transparent nor is it public. Traditional contract royalties begin at a much smaller “11 –13 percent” and allow for that royalty amount to be further diminished through a process of unfair deductions that are standardized within the industry.
To understand this royalty reduction, multiply an 11 percent royalty rate by 85 percent for a “free goods” deduction. Then multiply it by 75 percent for a “packaging” deduction. Then multiply it again by 75 percent for a “new media” deduction. After this process of deduction, an 11 percent royalty is effectively reduced to less than 6 percent.
Pretty bad, huh? But wait, there's more. Not only do you not make any money on your album, you don't even own it. Check this out:
Clause 1: Transference of ownership
You own nothing, ever!
What the clause says:
"You grant and convey to Label, and confirm that Label shall be the exclusive, perpetual owner of all Masters throughout the universe, including without limitation, all copyrights therein as a "work made for hire". Label and all parties authorized by Label shall have the exclusive right to exploit the Masters, and to use your name, voice and likeness in connection with such exploitation. The right to use your name, voice and likeness shall be exclusive during the term and non-exclusive thereafter."
What the clause means:
Unless Congress and/or the courts speak up and say otherwise, you have no ownership or control whatsoever in the sound recording copyright created under the contract.
If you don't recoup the costs necessary to produce, market, and distribute the record, you will never see another penny beyond your advance (unless you wrote some of the songs, and even then it's not probable).
Nor will you likely be able to get your hands on the dust-gathering CDs sitting in the label's warehouse to sell on your website or on tour.
Nor will you be able to authorize/license anyone else to do the same.
Nor will you be able to license/authorize the use of the sound recording in any movie, advertisement, TV show, talking cupie doll, or otherwise.
And don't think you can simply jump in the studio and re-record the songs on a new CD (at least for a long time after the end of your deal), because a separate part of the contract will prevent it.
Ever wonder why most pop albums have right around 10 songs? It's primarily because the artists are compensated for a maximum of 10 songs. What, do you like working for free? Check out the controlled composition clause:
Clause 5: The Controlled Composition Clause
Feeling a bit out of control?
NOTE: This is the most important clause in need of reform. Record companies do not recoup recording costs and advances from mechanical royalties. For singer/songwriters, mechanical royalties may be the ONLY money they ever see.
What the clause says:
(a) “Controlled Composition” is hereby defined as each musical composition wholly or partially written by You [Artist], or owned or controlled directly or indirectly by You or by any party associated or affiliated with You. If and to the extent Controlled Compositions are recorded hereunder, each such Composition is hereby licensed to [Company], for the United States and Canada, at 3/4 of the current minimum fixed statutory copyright royalty rate (the “Applicable Rate”) on the earlier of (i) the date the recording commences or (ii) the date the recording is required to be delivered; provided that [Company] will not be required to pay more than then (10) times the Applicable Rate for an Album and no more than two (2) times the Applicable Rate for a seven-inch or twelve-inch singles record. Without limiting Company’s rights, it is agreed that [Company] shall have the Offset Right if mechanical royalties payable by Company are in excess of such amounts.
(b) No mechanical royalty whatsoever shall be payable for (i) records cut out of the [Company] catalog and sold as discontinued merchandise or records sold as “scrap,” “overstock” or “surplus”; (ii) any work which is non-musical; (iii) records distributed by [Company] which are not “Records Sold” (as defined herein); (iv) any work which consists of an arrangement of a work in the public domain; or (v) any more than one use of any work on a particular record.
What the clause means:
The Copyright Office sets the statutory rate for mechanical royalties, increasing every two years according to changes in cost of living as determined by the Consumer Price Index. The rate increases are by authority of the 1976 amendment to the Copyright Act. The first rate increase was in 1981. It was at about this time that the Controlled Composition clause became commonplace in record contracts.
The main purpose of the controlled composition clause is to NOT pay artists the statutory rate and to NOT increase royalties as costs of living increases; basically, to thwart copyright law.
The controlled composition clause limits the amount of mechanical royalties the company is required to pay for records it releases, and holds the artist responsible for the excess. In essence, the record companies are compelling artists to subsidize the payment of mechanical royalties. Here’s how they do it: (all examples assume today’s royalty rate of $.0755).
Artist gets 75% of the statutory rate per song = $0.056 per song, not $0.0755
This is based on the minimum statutory rate, so the company calculates the same rate for a 10-minute song as for a 2-minute song. This thwarts the statute, which provides increased rates for songs over 5 minutes.
Artists gets royalties on maximum of 10 songs = $0.56 per album total
Under the statute, an album with 12 songs would earn $.90. Under this clause, the maximum royalties payable would be $0.56. If the maximum is exceeded (by using a cover song or a producer demanding a higher rate), the artist is held responsible for that excess.
Rate is fixed on date master is delivered.
The reduced rate will never increase, thwarting the Copyright Office statutory cost of living increases. Record labels lock in the earliest date possible. Some contracts fix the date at execution of the contract signing, knowing full well that the record won’t hit the shelves for two years.
Not pay royalties on “free goods”
Under the compulsory license provisions of Copyright Act, record labels are required to pay mechanical royalties on all records “made and distributed.” Instead, record labels thwart this law by refusing to pay for so-called “free goods.” This confusing word “free-goods” is not defined as promo albums. Rather, all major labels define “free goods” as 15% of the records they sell. Using this provision, major labels calculate royalties on only 85% of records sold.
Reduced rate applies to all “controlled compositions”
The definition of “controlled composition” casts a wide net. It includes songs written by producers on the album. Customarily, the record company hires these producers without negotiating a reduced mechanical royalty rate. The artist is forced to make up the difference. This is particularly egregious because most artists have no control over producers.
Hold Artist responsible for excess mechanical royalties.
If the total amount paid by the company does exceed the specified maximums, the difference will be deduced from the artist’s royalties. The possibilities of the artist running afoul of all these provisions are endless and, potentially, very expensive for the artist.
The following example illustrates the devastating effect this clause has on royalties:
Example: Artist has agreed to be responsible for any costs of mechanicals over $0.56 (75% of statutory times 10 songs). Artist has no say over what is recorded. She records 15 songs written by the record label’s “affiliated publisher” who charges the full statutory rate of $.075 per song, or $1.13 for the album. The Artist now OWES the record label $0.57 per record. In five years, when the statutory rate increases to $.91 per song, but the artist’s rate stays the same, the artist will OWE $0.85 per album! Each record sold puts her deeper in the hole, and farther away from ever recouping.
Amazing stuff. And it's all totally legal, too. So, what's the solution to this mess? Do it yourself. You don't need the corporations half as much as they need you. As consumers, let's support the little guys. Maybe we can get this industry back on track. If you want to explore your options, go to the following websites:
http://www.futureofmusic.org
http://thedeathofthemusicindustry.wordpress.com/
http://recordingindustryvspeople.blogspot.com/
That's all I got for you this time around. Til next time...
Roy Starin
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Saturday 25th 2007f August 2007 14:54
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