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Jon Webster is CEO of the Music Manager's Forum, which represents artists and managers in the recording industry.

We recently spoke to Tim Westergren of Pandora, which was forced to close its UK service due to what he saw as excessive new royalty rates, demanded by the recording industry.

This, in addition to  the proposed royalty rises in the US, has threatened several online broadcasters - Jon gives us the view from the artists and managers' perspective.

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Tell us about MMF. What does it do and who does it represent?

The Music Managers Forum represents artists and their managers. We have nearly 400 members from the largest with multi million pound deals with the major record or publishing companies to self-managed artists who are just starting out.

Formed in 1992, our aim is to educate and train our members, to represent their collective views and to fight for an equitable share of remuneration for artists. We are part of the International Music Managers Forum – the worldwide body.

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What's your stance on digital music distribution? What are the key issues, as you see it?

It’s very hard to compete with free. Suing individual consumers is pointless. We are all searching for a model that remunerates creators fairly for their endeavours.

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Do you feel that digital music providers are helping or hindering the music industry, and why?

Digital music providers are one of the conduits by which the product of our industry (the music industry) reaches the consumer. Like all new entrants to the market they need to purchase the products that they want to sell on to the consumer.

You cannot therefore expect licensing bodies such as PPL (for the record music/performers side) and MCPS/PRS Alliance (for the songwriters and publishers) to just let any business walking in off the street to use 9 million+ tracks for free and to pay later based on what income they generate and at a rate that they determine. It is not the job of the music industry to effectively fund new businesses.

It would be like someone saying that they want to set up as a carpenter and then they walk into the only timber merchant in town and say “give me all the timber you have and I will see what my customers want to have built and what they will pay and then I will pay you what I think it’s worth”.

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How are you measuring the effects of these services on your industry?

Well obviously we see the effects in our income streams and how they are changing. Record royalties are falling, live performance income for the successful is increasing. At the same time our artists see their music being used to promote, and included in, digital services often without their permission and without remuneration.

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Presumably not all of these online music services are ripping off musicians? Which ones are fair, and which ones are unfair?

Pretty obviously the fair ones are where music is paid for in some way and the unfair ones where it is not. We are in a state of flux with the internet and in many ways it’s like the Wild West. Services set up using the whole gamut of recorded music.

Some approach relevant licensing bodies and some do not. Many did this before the licences even existed and the services are often so new and are constructed in such ways that they do not fit into standard industry models that have systems based on pre-internet modes of doing business.

Please remember that for every artist who is happy for their music to be shared free and exposed on music networking sites there is another absolutely furious that their music has been appropriated without permission or payment and used to build a business that is then sold for millions of dollars.

 -----------------------------

I have bought many new CDs and downloaded music as a direct result of discovering artists on services like Last.fm. Isn't that a good thing? Aren't these services reducing marketing costs for the music business?

Many of the new services have dual effects in much the same way as radio did in analogue days. Yes there is obviously some sort of promotional effect in people hearing new music but the same process produces millions of pounds worth of business for the radio station owner.

This argument has of course existed in the radio world for ever. One of the smartest responses I ever heard to the argument was from a record company boss and it was "When you play the track I want played at the time I want it played then it’s promotional". It never happens.

Also if you can hear all the music you wanted on the net whenever you wanted to hear it (the celestial juke box) why would you ever buy anything? Conventional radio pays for its music in all civilised countries in the world. The exceptions are ,I believe, Iran, North Korea, Rwanda and strangely enough the United States of America.  Why should digital be different?

And that’s why these services are not reducing marketing costs – because the digital provider is dictating what’s played not the record company or artist.

 -----------------------------

Can it be argued that the internet is bad for major artists but good for minor artists? If so, isn't the industry making more money from the 'long tail' (shifting more units from minor artists)?

Well there is one study that has shown that the long tail sales pattern is a myth. A mobile operator told me last year that 99% of sales were from 0.7% of tracks they had available. I don’t think the internet differentiates between major and minor or artists. It may well differentiate between well marketed and not.

 -----------------------------

How are the royalty rates divided up between record companies, publishers and composers? Do you feel that artists get a fair share?

I feel a book coming on! After the recent Copyright Tribunal decision the publishers receive a percentage of income from a download or stream. How income is defined is complex but there are also minimum rates to protect them from companies giving music away i.e. they receive a minimum per track rate even if a download is given away.

Record companies tend to receive a rate per track per stream model for streaming and a wholesale price for a download. Artists writers are paid according to their contracts with record companies and publishers respectively.

It is the contention of the MMF that too many unjustified deductions are made by record companies before artist royalties are paid.

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 Is there any room for compromise on the royalty rates paid by online music services like Pandora? Or is Pandora's situation simply the result of a business model that isn't viable?

I think there is always room for compromise but things like the Copyright Tribunal decision make it difficult for publishers. As above - should the music business fit into someone’s new model or vice versa? There is always a spectrum of opinions and they are changing faster now than ever.

There are parallels with controversial subjects like covermounts. Some saw these as a way of making large amounts of money in the short term. Others as another nail in the coffin of the music business for promoting the idea that music is free.

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Do you think that the MCPS/PRS and PPL will change their mind about rates in the future?

I can’t answer for them apart from to say that rates always change and never more so than in a fast moving environment.

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Content providers such as CBS have struck deals with YouTube, allowing the site to show its content in return for a share of ad revenue - wouldn't a similar deal with stations like Pandora be a better idea?

If you mean Sony/BMG then I think that all the majors have done deals for the record company side. Where are the indies in this though? And all the one off performers from around the world? That’s why they have set up Merlin -  to fight for their share.

In the UK the MCPS-PRS Alliance have licensed You Tube which is to be welcomed but what about the rest of the world?

As I understand it Pandora and the licensing bodies have agreed a deal. It’s just about what cost.

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Tim Westergren of Pandora has said that forcing services like his to close will lead to increased music piracy online - do you agree with this?

No. I think that people who want to pay nothing for music will continue to use illegal P2P with all that entails. Have you seen the Radiohead In Rainbows figures? No.1 downloaded album on i-Tunes in the USA in the week of release. And that for an album that was available legally free for 3 months beforehand. We live in interesting times.

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Graham Charlton

Published 12 February, 2008 by Graham Charlton

Graham Charlton is the former Editor-in-Chief at Econsultancy. Follow him on Twitter or connect via Linkedin or Google+

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Comments (11)

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Sam B

Good afternoon, I am Professor Quentin Ball from the Analogy Department at the University of Internet. We have found Mr Jon Webster's submitted analogy, which compares a carpenter obtaining timber to a radio station obtaining music, to be extremely unsound. During a standard test in which we subjected the analogy to a minor logicquake rating 1.2 on the Richter Scale, the analogy immediately fell apart.

This occured when it was pointed out that a) the marginal cost of producing a plank of wood is considerable, whereas the marginal cost of producing an audio file is infinitesimal. And b) when someone looks at a house, they do not think "I'd like to buy that wood, off I go to Bloggs Timber" (for starters, a casual observer cannot even tell which merchant made the wood) , but when someone hears a record, they frequently think "I'd like to buy that record" (and either the DJ or their audio software will tell them its name and who made it so they can do just that).

Due to the extremely unsound nature of the submitted analogy, we give it an F safety rating, and for the protection of the general public we recommend that the body responsible for producing the analogy, i.e. the right side of Mr Jon Webster's brain, be shut down until further notice.

over 8 years ago

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bravo

nice job, sam b

over 8 years ago

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Gareth Reakes

Some interesting thoughts here Jon, and I'm glad to hear you speaking about consumers and artists getting what they want and deserve in future. But I'm surprised you haven't mentioned the ad-supported download model. Here at www.We7.com we've been paying our artists royalty cheques from day one, allowing new artists (especially indie) to get noticed and get paid, while fans get free, safe and legal music. I'd love to hear your thoughts on this...

Gareth Reakes - CTO - We7

over 8 years ago

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Martin Brass, Managing Director at Blue Latitude

This is a very interesting article and really highlights that the Recording Industry (as opposed to the wider Music one) hasn't really moved on at all. Is it not now clear that the licensing bodies are just not equipped for licensing music in the digital age and as such, these institutions should be dismantled and rebuilt with the knowledge that someday all recorded music will be 'acquired' this way

(oh, by the way, someday = today).

Of course it is pointless to go after and demonise the customer - they are the customer, and the source of the value delivered to the industry (and as any retailer will tell you – “the customer is always right!”). Interesting again, that the new proposed strategy for combating the music downloader is …to shut off their internet access.

(make way, Fat Lady coming through!)

And of course it is hard to compete with 'free' - but it is not impossible. It will just take some creative thought. Possibly a great deal of it. But isn’t that what the industry boasts in abundance.

Current statistics show that illegal download volumes outweigh legal ones by a factor of 20:1 (quoted on Radio 4's 'This Morning' today). Does this not clearly show that the value of recorded music is not in the recording itself. In fact you could argue (and I would) that it never has. The value has always existed in the 'experience' of recorded music. This value has been slowly eroding over the past 30 years with the move from physical to digital. The problem is that the industry has set itself up to exploit sales of plastic media - giving the experience away for free, provided the customer purchases [a license for] the plastic disc.

Maybe somebody should be asking the customer how they would like to engage with recorded music, now, today, such that new propositions can be identified and new revenue/licensing models built. It is clearly a question that has never been asked, yet alone answered. Only by asking, can you even think about starting to compete with 'Free'.

I also find it amusing that the industry is on the one hand complaining about ‘free’ music and on the other hand, perpetuating the ‘free’ experience by continuing to plaster their wares on the front pages of news media and magazines. Once again, not only failing to understand, but devaluing the experience itself.

In fact the only parts of the Music industry that have been asking this question are the internet broadcasters (such as Pandora). So why are these same businesses being forced to shut down?

Maybe because they just do not conform to the old way and therefore challenge its very existence.

...and as for the reference to carpentry, the recording industry is not comparable to the Timber Merchant (retailer) but is possibly more akin to a Forester (producer), harvesting all of his trees without any thought of sustainability of the forest.

Paraphrasing the great Bob Dylan - "For the times they are a-changed'"

over 8 years ago

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jon webster

A few comments to the comments:
1. We7. Yes well aware of it and a great idea.
2. Sam B. Agreed my analogy was not the best but nor is your assertion that people go " I have heard that record now I'd like to buy it". What is happening and the challenge that faces us all (music industry, music performers, customers, even society etc) is what happens when people say "yes I have heard that music and now I will download it for free"?
YOUR analogy seems to suggest that the creator should be paid for the first copy that they sell and after that because they CAN be reproduced at an infinistesimal marginal cost then they should be.
Where does that leave creators?
In reply to Martin Brass I totally agree the times they are a changing and I think I said in my responses that the models are still being developed. Pandora was not forced to shut down. It decided that the price the licensing bodies asked for to use the music nade by creators was too high for the business model thay proposed so they decided to close. Last FM felt otherwise.
The licensing bodies are feeling their way. In that situation it is hardly surprising that they start with a higher price and work to where the market finds equilibrium. If you start from free then you end up with free.
Maybe there is not a model that attracts ANY charge and that we accept that all music will be free either streamed or downloaded but at that point we have, as a cultural system, to ask ourselves how we are going to value digital creators in the new world.

The same process that allows a customer to download a file for free and deprive Paul McCartney of his income from that illegal copy of "Yesterday" is the same process that deprives a world musician starving in Darfur or HIS income from the sale of his music.
We need a balance and the only way that we are going to achieve it is by rational debate and thought. As far as I can tell no-one either within the music industry or without has solved that one yet.
Jon Webster

over 8 years ago

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Martin Brass, Managing Director at Blue Latitude

I suspect that the starving musician in Darfur(?) has very little to do with this argument and it has much more to do with an army of record company people who are all desperately trying to save their own positions.

The industry is in decline as a direct response of their inability to look into what was an inevitable future.

Your artists are not "Digital Creators" they are artists. Your role is find a way to recompense them for their art. Not just the part of their art that they happen to record.

I suspect that the end scenario looks something like this:

-There is no physical music (no CD, DVD)
-There is no mechanical copies.
-All devices (TV, phone, iPod, etc) are internet enabled and all music is streamed (they used to call it "Broadcasted" in the good ol' days)
-Music is all free to air (despite channel or device) to the consumer and is monetised by advertising revenues and licensing fees from broadcasters. Channels (or maybe even ISP's) pay a blanket license to 'broadcast' music to end consumer.

Sounds familiar?... it is the Music Publishing model which as you know is thriving in these 'inclement' times.

Jon, I am very happy to debate this ad-infinitum with you and suspect time not on your side. It is incumbent on the "within" crowd to resolve this, or it will most likley be decided on their behalf by the "withouts".

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