MuseNet Music Network - The Truth About the Music Industry

If you've ever wondered why any musician would want to set up a website and sell their own music instead of having the great honor of being on someone elses record label, heres the transcript of a recent speech given by Courtney Love:

Today I want to talk about piracy and music. What is piracy? Piracy is the act of stealing an artists work without any intention of paying for it. Im not talking about Napster-type software.

Im talking about major label recording contracts. I want to start with a story about rock bands and record companies, and do some recording-contract math:

This story is about a bidding-war band that gets a huge deal with a 20 percent royalty rate and a million-dollar advance. (No bidding-war band ever got a 20 percent royalty, but whatever.) This is my funny math based on some reality and I just want to qualify it by saying Im positive its better math than what Edgar Bronfman Jr. [the president and CEO of Seagram, which owns Polygram] would provide.

What happens to that million dollars?

They spend half a million to record their album. That leaves he band with $500,000. They pay $100,000 to their manager for 20 percen commission. They pay $25,000 each to their lawyer and business manager.

That leaves $350,000 for the four band members to split. After $170,000 in taxes, theres $180,000 left. That comes out to $45,000 per person.

Thats $45,000 to live on for a year until the record gets released.

The record is a big hit and sells a million copies. (How a bidding-war band sells a million copies of its debut record is another rant entirely, but its based on any basic civics-class knowledge that any of us have about cartels. Put simply, the antitrust laws in this country are basically a joke, protecting us just enough to not have to re-name our park service the Phillip Morris National Park Service.)

So, this band releases two singles and makes two videos. The two videos cost a million dollars to make and 50 percent of the video production costs are recouped out of the bands royalties.

The band gets $200,000 in tour support, which is 100 percent recoupable.

The record company spends $300,000 on independent radio promotion. You have to pay independent promotion to get your song on the radio; independent promotion is a system where the record companies use middlemen so they can pretend not to know that radio stations -- the unified broadcast system -- are getting paid to play their records.

All of those independent promotion costs are charged to the band.

Since the original million-dollar advance is also recoupable, the band owes $2 million to the record company.

If all of the million records are sold at full price with no discounts or record clubs, the band earns $2 million in royalties, since their 20 percent royalty works out to $2 a record.

Two million dollars in royalties minus $2 million in recoupable expenses equals ... zero!

How much does the record company make?

They grossed $11 million.

It costs $500,000 to manufacture the CDs and they advanced the band $1 million. Plus there were $1 million in video costs, $300,000 in radio promotion and $200,000 in tour support. The company also paid $750,000 in music publishing royalties.

They spent $2.2 million on marketing. Thats mostly retail advertising, but marketing also pays for those huge posters of Marilyn Manson in Times Square and the street scouts who drive around in vans handing out black Korn T-shirts and backwards baseball caps. Not to mention trips to Scores and cash for tips for all and sundry.

Add it up and the record company has spent about $4.4 million. So their profit is $6.6 million; the band may as well be working at a 7-Eleven.

Of course, they had fun. Hearing yourself on the radio, selling records, getting new fans and being on TV is great, but now the band doesnt have enough money to pay the rent and nobody has any credit.

Worst of all, after all this, the band owns none of its work .... they can pay the mortgage forever but theyll never own the house. Like I said: Sharecropping. Our media says, Boo hoo, poor pop stars, they had a nice ride. Fuck them for speaking up; but I say this dialogue is imperative. And cynical media people, who are more fascinated with celebrity than most celebrities, need to reacquaint themselves with their value systems.

When you look at the legal line on a CD, it says copyright 1976 Atlantic Records or copyright 1996 RCA Records. When you look at a book, though, itll say something like copyright 1999 Susan Faludi, or David Foster Wallace. Authors own their books and license them to publishers. When the contract runs out, writers gets their books back. But record companies own our copyrights forever. The systems set up so almost nobody gets paid.

Recording Industry Association of America (RIAA) Last November, a Congressional aide named Mitch Glazier, with the support of the RIAA, added a technical amendment to a bill that defined recorded music as works for hire under the 1978 Copyright Act.

He did this after all the hearings on the bill were over. By the time artists found out about the change, it was too late. The bill was on its way to the White House for the presidents signature.

That subtle change in copyright law will add billions of dollars to record company bank accounts over the next few years -- billions of dollars that rightfully should have been paid to artists. A work for hire is now owned in perpetuity by the record company.

Under the 1978 Copyright Act, artists could reclaim the copyrights on their work after 35 years. If you wrote and recorded Everybody Hurts, you at least got it back to as a family legacy after 35 years. But now, because of this corrupt little pisher, Everybody Hurts never gets returned to your family, and can now be sold to the highest bidder.

Over the years record companies have tried to put work for hire provisions in their contracts, and Mr. Glazier claims that the work for hire only codified a standard industry practice. But copyright laws didnt identify sound recordings as being eligible to be called works for hire, so those contracts didnt mean anything. Until now.

Writing and recording Hey Jude is now the same thing as writing an English textbook, writing standardized tests, translating a novel from one language to another or making a map. These are the types of things addressed in the work for hire act. And writing a standardized test is a work for hire. Not making a record.

So an assistant substantially altered a major law when he only had the authority to make spelling corrections. Thats not what I learned about how government works in my high school civics class.

Three months later, the RIAA hired Mr. Glazier to become its top lobbyist at a salary that was obviously much greater than the one he had as the spelling corrector guy.

The RIAA tries to argue that this change was necessary because of a provision in the bill that musicians supported. That provision prevents anyone from registering a famous persons name as a Web address without that persons permission. Thats great. I own my name, and should be able to do what I want with my name.

But the bill also created an exception that allows a company to take a persons name for a Web address if they create a work for hire. Which means a record company would be allowed to own your Web site when you record your work for hire album. Like I said: Sharecropping.

Although Ive never met any one at a record company who believed in the Internet, theyve all been trying to cover their asses by securing everyones digital rights. Not that they know what to do with them. Go to a major label-owned band site. Give me a dollar for every time you see an annoying under construction sign. I used to pester Geffen (when it was a label) to do a better job. I was totally ignored for two years, until I got my band name back. The Goo Goo Dolls are struggling to gain control of their domain name from Warner Bros., who claim they own the name because they set up a shitty promotional Web site for the band.

Orrin Hatch, songwriter and Republican senator from Utah, seems to be the only person in Washington with a progressive view of copyright law. One lobbyist says that theres no one in the House with a similar view and that this would have never happened if Sonny Bono was still alive.

By the way, which bill do you think the recording industry used for this amendment?

The Record Company Redefinition Act? No. The Music Copyright Act? No. The Work for Hire Authorship Act? No.

How about the Satellite Home Viewing Act of 1999?

Stealing our copyright reversions in the dead of night while no one was looking, and with no hearings held, is piracy.

Its piracy when the RIAA lobbies to change the bankruptcy law to make it more difficult for musicians to declare bankruptcy. Some musicians have declared bankruptcy to free themselves from truly evil contracts. TLC declared bankruptcy after they received less than 2 percent of the $175 million earned by their CD sales. That was about 40 times less than the profit that was divided among their management, production and record companies.

Toni Braxton also declared bankruptcy in 1998. She sold $188 million worth of CDs, but she was broke because of a terrible recording contract that paid her less than 35 cents per album. Bankruptcy can be an artists only defense against a truly horrible deal and the RIAA wants to take it away.

Artists want to believe that we can make lots of money if were successful. But there are hundreds of stories about artists in their 60s and 70s who are broke because they never made a dime from their hit records. And real success is still a long shot for a new artist today. Of the 32,000 new releases each year, only 250 sell more than 10,000 copies. And less than 30 go platinum.

The four major record corporations fund the RIAA. These companies are rich and obviously well-represented. Recording artists and musicians dont really have the money to compete. The 273,000 working musicians in America make about $30,000 a year. Only 15 percent of American Federation of Musicians members work steadily in music.

But the music industry is a $40 billion-a-year business. One-third of that revenue comes from the United States. The annual sales of cassettes, CDs and video are larger than the gross national product of 80 countries. Americans have more CD players, radios and VCRs than we have bathtubs.

Story after story gets told about artists -- some of them in their 60s and 70s, some of them authors of huge successful songs that we all enjoy, use and sing -- living in total poverty, never having been paid anything. Not even having access to a union or to basic health care. Artists who have generated billions of dollars for an industry die broke and un-cared for.

And theyre not actors or participators. Theyre the rightful owners, originators and performers of original compositions.

This is piracy.
Technology is not piracy

This opinion is one I really havent formed yet, so as I speak about Napster now, please understand that Im not totally informed. I will be the first in line to file a class action suit to protect my copyrights if Napster or even the far more advanced Gnutella doesnt work with us to protect us. Im on [Metallica drummer] Lars Ulrichs side, in other words, and I feel really badly for him that he doesnt know how to condense his case down to a sound-bite that sounds more reasonable than the one I saw today.

I also think Metallica is being given too much grief. Its anti-artist, for one thing. An artist speaks up and the artist gets squashed: Sharecropping. Dont get above your station, kid. Its not piracy when kids swap music over the Internet using Napster or Gnutella or Freenet or iMesh or beaming their CDs into a My.MP3.com or MyPlay.com music locker. Its piracy when those guys that run those companies make side deals with the cartel lawyers and label heads so that they can be the labels friend, and not the artists.

Recording artists have essentially been giving their music away for free under the old system, so new technology that exposes our music to a larger audience can only be a good thing. Why arent these companies working with us to create some peace?

There were a billion music downloads last year, but music sales are up. Wheres the evidence that downloads hurt business? Downloads are creating more demand.

Why arent record companies embracing this great opportunity? Why arent they trying to talk to the kids passing compilations around to learn what they like? Why is the RIAA suing the companies that are stimulating this new demand? Whats the point of going after people swapping cruddy-sounding MP3s? Cash! Cash they have no intention of passing onto us, the writers of their profits.

At this point the record collector geniuses who use Napster dont have the coolest most arcane selection anyway, unless youre into techno. Hardly any pre-1982 REM fans, no 60s punk, even the Alan Parsons Project was underrepresented when I tried to find some Napster buddies. For the most part, it was college boy rawk without a lot of imagination. Maybe thats the demographic that cares -- and in that case, My Bloody Valentine and Bert Jansch arent going to get screwed just yet. Theres still time to negotiate.

Destroying traditional access

Somewhere along the way, record companies figured out that its a lot more profitable to control the distribution system than it is to nurture artists. And since the companies didnt have any real competition, artists had no other place to go. Record companies controlled the promotion and marketing; only they had the ability to get lots of radio play, and get records into all the big chain store. That power put them above both the artists and the audience. They own the plantation.

Being the gatekeeper was the most profitable place to be, but now were in a world half without gates. The Internet allows artists to communicate directly with their audiences; we dont have to depend solely on an inefficient system where the record company promotes our records to radio, press or retail and then sits back and hopes fans find out about our music.

Record companies dont understand the intimacy between artists and their fans. They put records on the radio and buy some advertising and hope for the best. Digital distribution gives everyone worldwide,

Instant access to music.

And filters are replacing gatekeepers. In a world where we can get anything we want, whenever we want it, how does a company create value? By filtering. In a world without friction, the only friction people value is editing. A filter is valuable when it understands the needs of both artists and the public. New companies should be conduits between musicians and their fans.

Right now the only way you can get music is by shelling out $17. In a world where music costs a nickel, an artist can sell 100 million copies instead of just a million.

The present system keeps artists from finding an audience because it has too many artificial scarcities: limited radio promotion, limited bin space in stores and a limited number of spots on the record company roster.

The digital world has no scarcities. There are countless ways to reach an audience. Radio is no longer the only place to hear a new song. And tiny mall record stores arent the only place to buy a new CD.

Im leaving

Now artists have options. We dont have to work with major labels anymore, because the digital economy is creating new ways to distribute and market music. And the free ones amongst us arent going to. That means the slave class, which I represent, has to find ways to get out of our deals. This didnt really matter before, and thats why we all stayed.

I want my seven-year contract law California labor code case to mean something to other artists. (Universal Records sues me because I leave because my employment is up, but they say a recording contract is not a personal contract; because the recording industry -- who, we have established, are excellent lobbyists, getting, as they did, a clerk to disallow Don Henley or Tom Petty the right to give their copyrights to their families -- in California, in 1987, lobbied to pass an amendment that nullified recording contracts as personal contracts, sort of. Maybe. Kind of. A lict that Id never let my daughter use. Plus they were a condescending bunch of little guys. They treated me like I was an ungrateful little bitch who should be groveling for the experience to play for their damn soda.

I ended up playing without my shirt on and ordering a six-pack of the rival cola onstage. Also lots of unwholesome cursing and nudity occurred. This way I knew that no matter how tempting the cash was, theyd never do business with me again.

If you want some little obedient slave content provider, then fine. But I think most musicians dont want to be responsible for your clean-cut, wholesome, all-American, sugar corrosive cancer-causing, all white people, no women allowed sodapop images.

Nor, on the converse, do we want to be responsible for your vice-inducing, liver-rotting, child-labor-law-violating, all white people, no-women-allowed booze images.

So as a defiant moody artist worth my salt, Ive got to think of something else. Tampax, maybe.

Money

As a user, I love Napster. It carries some risk. I hear idealistic business people talk about how people that are musicians would be musicians no matter what and that were already doing it for free, so what about copyright?

Please. Its incredibly easy not to be a musician. Its always a struggle and a dangerous career choice. We are motivated by passion and by money.

Thats not a dirty little secret. Its a fact. Take away the incentive for major or minor financial reward and you dilute the pool of musicians. I am not saying that only pure artists will survive. Like a few of the more utopian people who discuss this, I dont want just pure artists to survive.

Where would we all be without the trash? We need the trash to cover up our national depression. The utopians also say that because in their minds pure artists are all Ani DiFranco and dont demand a lot of money. Why are the utopians all entertainment lawyers and major label workers anyway? I demand a lot of money if I do a big huge worthwhile job and millions of people like it, dont kid yourself. In economic terms, youve got an industry thats loathsome and outmoded, but when it works it creates some incentive and some efficiency even though absolutely no one gets paid.

We suffer as a society and a culture when we dont pay the true value of goods and services delivered. We create a lack of production. Less good music is recorded if we remove the incentive to create it.

Music is intellectual property with full cash and opportunity costs required to create, polish and record a finished product. If I invest money and time into my business, I should be reasonably protected from the theft of my goods and services. When the judgment came against MP3.com, the RIAA sought damages of $150,000 for each major-label-owned musical track in MP3s database. Multiply by 80,000 CDs, and MP3.com could owe the gatekeepers $120 billion.

But what about the Plimsouls? Why cant MP3.com pay each artist a fixed amount based on the number of their downloads? Why on earth should MP3.com pay $120 billion to four distribution companies, who in most cases wont have to pay a nickel to the artists whose copyrights theyve stolen through their system of organized theft?

Its a ridiculous judgment. I believe if evidence had been entered that ultimately its just shuffling big cash around two or three corporations, I can only pray that the judge in the MP3.com case would have seen the RIAAs case for the joke that it was.

Id rather work out a deal with MP3.com myself, and force them to be artist-friendly, instead of being laughed at and having my money hidden by a major label as they sell my records out the back door, behind everyones back.

How dare they behave in such a horrified manner in regards to copyright law when their entire industry is based on piracy? When Mister Label Head Guy, whom my lawyer yelled at me not to name, got caught last year selling millions of cleans out the back door. Cleans being the records that arent for marketing but are to be sold. Who the fuck is this guy? He wants to save a little cash so he fucks the artist and goes home? Do they fire him? Does Chuck Phillips of the LA Times say anything? No way! This guys a source! He throws awesome dinner parties! Why fuck with the mem_mnstatus quo? Lets pick on Lars Ulrich instead because he brought up an interesting point!

Conclusion

Im looking for people to help connect me to more fans, because I believe fans will leave a tip based on the enjoyment and service I provide. Im not scared of them getting a preview. It really is going to be a global village where a billion people have access to one artist and a billion people can leave a tip if they want to.

Its a radical democratization. Every artist has access to every fan and every fan has access to every artist, and the people who direct fans to those artists. People that give advice and technical value are the people we need. People crowding the distribution pipe and trying to ignore fans and artists have no value. This is a perfect system.

If youre going to start a company that deals with musicians, please do it because you like music. Offer some control and equity to the artists and try to give us some creative guidance. If music and art and passion are important to you, there are hundreds of artists who are ready to rewrite the rules.

In the last few years, business pulled our culture away from the idea that music is important and emotional and sacred. But new technology has brought a real opportunity for change; we can break down the old system and give musicians real freedom and choice.

A great writer named Neal Stephenson said that America does four things better than any other country in the world: rock music, movies, software and high-speed pizza delivery. All of these are sacred American art forms. Lets return to our purity and our idealism while we have this shot.

Warren Beatty once said: The greatest gift God gives us is to enjoy the sound of our own voice. And the second greatest gift is to get somebody to listen to it.

And for that, I humbly thank you.