Music Performance Rights Become Key Asset in Economic Slowdown

As revenue from digital downloads, which analysts had hoped would help revitalize a music industry hobbled by years of flagging CD sales, continued to disappoint in 2010, income from performing-right royalties have become increasingly important to songwriter/artists around the world. While the annual “Recording Industry in Numbers” report issued recently by the UK-based International Federation of the Phonographic Industry (IFPI) shows a continuing slide in music sales, performing-right revenues, which showed pockets of resilience during 2010, play a much greater role in the marketplace, with increased emphasis on enforcement and more diligent methods of collections.

For 2010, global music sales fell 8.4 percent to $17.38 billion, led by the ongoing decline in physical media, which dropped another 14.2 percent in 2010, according to IFPI. After peaking at just over 706 million units in 2000, CD sales have since plummeted more than 50 percent.

The double-digit CD fall-off was only marginally offset by single-digit download sales, which rose a mere 5.1 percent worldwide last year, or nearly 4 percent lower than in 2009 and well off the 34 percent gains recorded just four years earlier. In the U.S., digital revenues remained nearly flat (1.2 percent) year to year, says IFPI.

Things weren’t much better at the music box office. For 2010, concert-ticket sales were off 15 percent from the previous year, from around 45 million in 2009 to 38 million last year according to figures compiled by trade magazine and online concert resource Pollstar.

There were however, encouraging signs that performance-rights revenues could buck the trend. Citing greater strength in areas like cable, satellite audio and new media, for its 2010 fiscal year BMI reported$917 million in revenues, up 1.3 percent from the prior year. Total distributions to BMI’s stable of songwriters, composers and music publishers reached $789 million. Over the last five years, BMI’s royalty distributions have increased by more than $116 million or 17%.

Separately, IFPI reported that collections by global music-licensing firms increased 50 percent over the last five years, from $1.2 billion in 2006 to $1.8 billion last year. (IFPI’s figures are based on collections on behalf of performers and producers only.)

Piracy Still Impacting Revenues
Industry groups like IFPI blame illegal downloading for the continued slide in global music sales, led by such notorious BitTorrent and file-hosting sites as isoHunt, Pirate Bay, RapidShare and MegaUpload. Despite strong demand for new music on a global level, the persistence of piracy means that major record companies “are operating at only a fraction of their potential,” notes IFPI chief executive Frances Moore. “Determined action by governments and intermediaries to tackle this problem could create a framework for increased growth, more investment in artists and greater consumer choice."

Even when users aren’t downloading scot-free, however, they still have plenty of ways to listen for next to nothing. For example, first-time subscribers to DRM-based download service Rhapsody who elect to cancel their membership receive a generous counteroffer: just $4.99 a month for unlimited streaming to up to three different authorized PCs. And while emerging “cloud-based” providers like Spotify and Vodafone offer a premium paid-for option, listeners can also elect to stream for free through a separate ad-supported tier.

Still, with an estimated global subscriber base of over 10 million, services like Rhapsody and Spotify are key to the future growth of the music industry, say experts. Cited in the IFPI report, NPD Group, a provider of consumer- and retail-market research, suggests that “entertainment companies in the US are slowly moving toward a subscription and micro-payment model, whether for digital books, game add-ons, or home video” and that “the explosion in connected or smart devices in the home and mobile space has already begun to redefine the platforms for digital music.” Going forward, IFPI believes that cloud-based programs will lead to a much more competitive marketplace as “a new generation of licensed services [give] access to music across many platforms and devices.”

Such permutations represent both a blessing and a curse for the major labels. Despite the potential to attract millions of newcomers, “all-you-can-eat” subscription services allow users to have unfettered access to music they’ve already purchased — hardly the big revenue generator the industry has been hoping for. The same holds true for so-called “digital lockers” such as Amazon’s Cloud Drive, an online music-backup service debuted last month that allows Amazon customers to store music “in the cloud" with the ability to access personal libraries from any location and on any computer. Having ceded the CD-buying market (or what’s left of it) to iTunes, Amazon sees its locker concept as a way to seriously compete against Apple’s online behemoth in the digital-music sweeps. While “effectively an alternative way to build an ecosystem that ties customers in,” says Mark Mulligan, digital-media analyst for Forrester Research, it remains to be seen how and when the majors will be able to cash in on these types of service offerings.

The continued pullback in global music sales highlights the growing importance of revenue generated by performance royalties, according to IFPI. This includes music used in commercial environments such as stores, restaurants and nightclubs, in addition to radio and television broadcasts.

“Performance-rights collections represent a significant income stream for record companies and artists,” says IFPI. “Businesses that use recorded music to attract and retain customers, drive productivity and motivate employees increasingly pay a fair price for doing so wherever they are located.” Greater enforcement of licensing arrangements, as well as improved productivity by music-licensing companies, has helped keep collections strong in recent years. However, continued vigilance is required in order to ensure ongoing compliance, says the organization.

Share Your Password, Go to Jail

A law criminalizing sharing with your family or friends your password to entertainment services like Netflix and Hulu Plus takes effect July 1st and is causing quite a stir for consumers. The new law, which acts to enhance the theft of services law already on the books, is meant to thwart hackers, according to Hollywood executives. But as written, the law appears over-broad.

The law lacks language specifically targeting hackers and/or commercial users. It therefore has the capacity to capture average Americans, like family members sharing a Netflix password over multiple devices such as a Playstation, a computer and an XBox. If a family member travels a lot and takes a console or a computer on the road, s/he may then violate the law because s/he's now shared the password with family members back home. Merely leaving home could trigger criminal liability.

As with many new laws recently implemented to protect a shrinking entertainment revenue base, this one has the potential to quickly spread nationwide. Before it does, it should be narrowly tailored to address the stated issue of hacking. Otherwise, consumers should expect litigation targeting the purses of Middle Class consumers.

TN Passes Law Criminalizing Photos That Traumatize

Tennessee, the state that recently made it a crime to swap passwords on online entertainment networks like Netflix, has now criminalized posting photos that might cause viewers to become emotionally distressed.

The law makes it a criminal offense for anyone who "communicates with another person or transmits or displays an image in a manner in which there is a reasonable expectation that the image will be viewed by the victim." As for mens rea, a publisher must possess "malicious intent to frighten, intimidate or cause emotional distress" and must act without "legitimate purpose."

There are sure to be constitutional challenges to this law, which could have a chilling effect on many prevailing ethics in communication and entertainment, for surely establishing the 'legitimate purpose' element requires encroaching on well-established freedom of speech rights and also requires modifying or further complicating obscenity laws.

Obama's Hope Poster Creator Settles Lawsuit with AP

Earlier this moth, Shepard Fairey, the artist behind the iconic Barack Obama "Hope" poster, agreed to settle a fair use claim he filed against Associated Press (AP). The news organization, whose work-for-hire photographer in 2006 had snapped the image Fairely used to stencile his posters, took legal action against Fairey in 2009, long after the image became the symbol of Obama's campaign message and of victory, for copyright infringement in 2009.

Fairey's design was created in one day and printed first as a poster. Fairey sold 350 of the posters on the street immediately after printing them. It was then more widely distributed—both as a digital image and other paraphernalia—during Obama's campaign. The image became one of the most widely recognized symbols of Obama's campaign message, spawning many variations and imitations, including some commissioned by the Obama campaign. This led The Guardian's Laura Barton to proclaim that the image "acquired the kind of instant recognition of Jim Fitzpatrick's Che Guevara poster, and is surely set to grace T-shirts, coffee mugs and the walls of student bedrooms in the years to come."

In January 2009, after Obama had won the election, Fairey's stenciled portrait version of the image was acquired by the Smithsonian Institution for its National Portrait Gallery.

Last year, the New York Times reports, Fairey admitted that he had misstated which A.P. photo he had used for the Obama image and that he had submitted false images and deleted others to conceal his actions, leading to a criminal investigation in addition to the civil case. Fairey originally said that he had used a photograph from an April 27, 2006, event at the National Press Club in Washington, where Obama was seated next to the actor George Clooney. Instead, the photograph he used was from the same event, but was a solo image of Mr. Obama’s head. The photograph was taken by Mannie Garcia for The A.P.

Fairey said that he had initially believed that The A.P. was wrong about which photo he had used, but later realized that the agency was right.

In settling the civil lawsuit, “The A.P. and Mr. Fairey have agreed that neither side surrenders its view of the law,” The A.P. said in a statement on Wednesday. “Mr. Fairey has agreed that he will not use another A.P. photo in his work without obtaining a license from The A.P. The two sides have also agreed to work together going forward with the ‘Hope’ image and share the rights to make the posters and merchandise bearing the ‘Hope’ image and to collaborate on a series of images that Fairey will create based on A.P. photographs.” The statement added that the two sides had agreed to “financial terms that will remain confidential.” More.