Net profits

The Internet is a capitalist’s dream come true: Slap up a virtual storefront, talk someone into giving you a product to sell, then sit back and watch the dollars roll in. Everyone’s getting involved — “dot-com” is almost as ubiquitous as “the” these days — but only a handful manage to connect with consumers. In the digital age, companies are a blue-chip stock one minute, an error message the next.

Online music distributors (OMDs) are among the few start-up companies that manage to stay up longer than it takes to download their products. And all too often, they do it by balancing on the backs of musicians who don’t know how much their product is worth. Using a potent mix of techno-speak and marketing hype, OMDs such as MP3.com, Tunes.com, and Yahoo Broadcast Services (formerly known as Broadcast.com), along with a bevy of look-alikes, are gobbling up free music (er, content) in staggering quantities.

OMDs have been enormously successful at painting a full-color media picture of themselves as virtual Davids out to slay the mighty recording industry Goliath. By promoting themselves as cool, underground, anti-establishment sites fighting the good fight on behalf of poor, downtrodden musicians everywhere, OMDs have convinced thousands of musicians (a whopping 28,000 in the case of MP3.com alone, according to MP3.com’s CEO Michael Roberts) to hand over their tunes, no questions asked.

People like Roberts want consumers to believe that the Internet puts the reins of power back into the hands of the artists. But what he and other OMDs really mean, of course, is that the Internet puts the reins of power into their hands.

It’s a mighty attractive business model: scot-free use of inventory with minimal accountability to the owners of that inventory, which generates revenue from music fans, from advertisers, from the artists themselves — even, according to one industry insider, from the recording industry. But why on earth would an artist want to give up all rights to their singles — the very cuts that have generated the most revenue historically — and, for the most part, to a start-up company at that?

“No one’s paying independent artists right now,” says Brandon Barber, product manager of digital music for Tunes.com. Barber’s site is a music hub that controls RollingStone.com, TheSource.com, and DownBeatJazz.com; it offers professional music reviews and Webcasts, in addition to downloadable music. According to Barber, Tunes.com is considering paying artists in the future, but is “trying to be as agnostic as possible until a standard emerges.”

A standard does exist, of course, and has for years — it’s just being ignored by OMDs. It’s called copyright, and it ensures that artists get paid when companies make money off their music. Basically, there are two types of music copyrights. One is the right of the songwriter to get paid every time someone performs one of their songs. The other is the right of the performer to get paid every time his performance of a song is reproduced or broadcast. It’s simple, really. Furniture makers own the furniture they make; songwriters and performers own the art they create.

But because songs and performances are harder to track (and easier to steal) than, say, a sofa, copyright owners have the option of registering their work with performance organizations (ASCAP/ BMI/SESAC) and reproduction licensing organizations (the National Music Publishers’ Association’s Harry Fox Agency). These organizations exist to track the use of copyrighted songs and pay royalties back to the rightful owners. Specifically, the performance licensing fees that radio and television stations, film companies, live venues, and even jukebox owners pay to ASCAP/ BMI get kicked back to performers; the reproduction licensing fees that recording companies pay to the Harry Fox Agency get kicked back to songwriters.

Contrary to popular opinion, which still views the Web as a kind of anything-goes frontier, U.S. copyright law already addresses music distributed over the Web. So do performance and reproduction licensing organizations. Whether they admit it or not, OMDs follow the radio model when they allow visitors to stream song files, and the record-pressing (distribution) model when they allow site visitors to download MP3 tunes. So why aren’t they coughing up licensing fees like everybody else?

“This is all still in the infancy stage,” says Steven Phenix, director of publicity for WorldNet Box Office, Inc., a company that Webcasts and archives live music performances at ClubCastLive.com. “We plan to renegotiate the contracts artists sign with us in the future so that, eventually, they will make money.”

His cheerfully optimistic sentiment was echoed by Jim Werking, president and CEO of AustinMP3.com, which distributes downloadable MP3s by Austin-based artists without compensating its artists — although Werking say his company plans “to create opportunities for artists to profit from their work.”

“Nobody knows what’s going to happen with online music,” Werking says.

History, of course, begs to differ.

According to the National Music Publishers’ Association, every new advancement in music reproduction and distribution technology has spawned the same tired argument. First, it was TV and radio broadcasters who claimed they should be able to use music for free, arguing that broadcast exposure helps sell records. Then it was film and television producers; next, restaurant and club owners. In all of these cases, organizations representing musicians — from established record-industry alliances to unions — finally forced companies to follow the law and pony up for the value they were receiving.

Technically, OMDs aren’t stealing music; they’re talking independent musicians into giving it away. Some would argue that this is a subtle difference (comparable to the difference between mugging a fat lady and selling her Fen-Phen, since the result is the same), but it does exist.

How do they do it? By requiring indie artists to sign outrageously one-sided contracts for the privilege of — get this — Being On The Web.

“It’s absolutely ridiculous,” says Vicky Moerbe, a veteran of the music business and current manager of Austin favorites W.C. Clark and Seth Walker. “The Webcast contracts I’ve seen expect musicians to sign away everything. Not just the right to broadcast their shows, but to archive them, turn them into CDs, make money off them from now until forever — all without paying the musicians a dime. You know, musicians make little enough as it is, and here these companies are trying to get rich off them.”

The American Federation of Musicians (AFM), a union whose membership includes professional musicians across the country, holds a similar point of view.

“The bottom line is that these companies want to distribute recordings without even attempting to compensate the artists,” says Ginger Shults, vice president of AFM Austin local 433. “We’re very concerned.”

To be fair, not all OMDs require artists to give away all rights in all circumstances. For example, etherStream.com, the Dallas company headed by Carpe Diem Records boss Allan Restrepo, has taken great pains to ensure that everything it does is as artist-friendly as possible. It helps that much of the staff consists of working musicians, such as Hagfish bassist Doni Blair and Jeff Liles. On the front page of its Web site, the company has posted a disclaimer, just in case you might get the wrong impression.

“EtherStream.com is proud of the fact that all of our music is 100 percent legal,” it reads. “Though MP3 has had its share of negative criticism due to its misuse, you can rest assured that the music you find here on etherStream.com is licensed and our artists are compensated for all sales of their music.”

Liles backs up that claim, promising, “It’s a half-and-half deal. The artists are totally in control of how they want to use it. They can give away all their stuff for free if they want to. They can sell them for 49 cents a song or a $1 a song. Whatever comes in, we split half and half with them. We definitely do not look at it the same way that a record company would. We don’t ask for any obligation, and all the bands are free to leave whenever they want. They’re totally in charge of their commitment. We’re certainly not holding any artists against their will.”

And while MP3.com doesn’t compensate musicians for individual tunes downloaded or sold as part of a sampler (multiple-artist compilation) CD, it does offer to share the revenues it gets from selling artists’ full-length CDs. According to MP3.com, the 50 percent they offer artists in these cases is far above the “10 percent most traditional record labels offer.”

But comparing an OMD to a traditional record label is not only far-fetched, it’s purposely misleading. Record labels earn their (admittedly) high percentage by forking out for all of the production costs involved in making a recording. They’re the ones who pay for a CD to be recorded, mixed, mastered, and pressed. They’re also the ones who develop the artwork and promote the finished recording through established radio and print channels.

By contrast, MP3.com offers none of these services. What do they offer? A description of the CD that the artist has already paid to produce, plus the promise to stuff a copy in the mail if a customer requests one. That’s it — and for that, they demand fully half of an artist’s gross sales dollars.

Without exception, OMDs assert that they are, in fact, giving musicians something of value in exchange for the music they receive: exposure.

Sounds good on the surface — as long as somewhere, at some point, exposure turns into dollars (or landlords and grocery stores suddenly start accepting “exposure checks”). And there’s no reason why it shouldn’t: Exposure has been recognized as a quantifiable, profitable marketing concept for years. Radio and television stations, for example, earn ad revenue based on exposure — specifically, on how many pairs of eyes and ears they calculate are being reached. Of course, in broadcast and even print media, marketers have to make educated guesses; no one knows for sure how many people are tuning in to a particular Hee-Haw rerun at any point in time.

They do on the Web. Webmasters can track who visits a Web site, how long they stay, who’s downloading which MP3 files — virtually every exposure detail in the book. Automatically, with no guessing required. Web software gives artists the unprecedented ability to track and quantify their exposure so they can turn it into something tangible, like CD sales or bodies at their next gig.

What artist wouldn’t want to know that 90 percent of their fans are concentrated in Altoona, for example? What artist wouldn’t want to be able to send a message to all of the fans who’ve downloaded his MP3s, letting them know where he’s playing and that he’s got a new project in the works? Or show up at a label exec’s office waving proof that 50,000 people loved his last self-produced single? That’s putting exposure to work, and that would be something of value to independent artists.

Unfortunately, for all their self-conscious breast-beating about being on the side of independent musicians, OMDs seem to feel that details about how artists’ own work is being promoted is too valuable a commodity to share with the musicians themselves. “Tunes.com provides that information [comprehensive download details] for the labels we work with, but not for the individual artists,” Barber admits, though he declines to give a reason.

Andy Atherton, director of business development for the Internet Underground Music Archive (IUMA), isn’t so gracious when asked whether IUMA (now a subsidiary of EMusic.com) shared pertinent marketing data. He says only that the topic wasn’t up for public discussion and that, to his knowledge, “no artists have requested details on our financials to support their decision [to sign with us].” Atherton is surprisingly uncooperative, since his company’s Web site boasts that “IUMA is the one place to post your music where actual musicians are watching out for you — not weasels watching the numbers.” Apparently, the term weasels refers to musicians interested in understanding who’s benefiting financially from the use of their music.

So how do artists — who have the most at stake in the free-for-all the Web has become — feel about all this free exposure? While most of the artists interviewed for this article admitted to not understanding the issues well enough to comment, others understand all too well, having seen the downside of downloads. And some are actually optimistic.

“I’m still getting royalties from a song I wrote over 20 years ago,” says longtime professional musician Sue Collins, who also happens to be a contract administrator for the Los Angeles office of the American Federation of Musicians. “I wouldn’t be if I’d given my rights away. You never know what’s going to happen in this business. Your tune can get recorded by somebody else, picked up in a movie, and then slapped on a soundtrack or a commercial. If you’ve kept control over your work, you get royalties every time someone else uses it, period — whether it’s on the Web or somewhere else.”

Collins believes musicians who are serious about their music tend to have a different attitude than so-called garage bands. “If you really believe in what you’re doing, that it has value, then you should get paid for it. That’s really what it all boils down to.”

Everyone agrees that the Web offers an unprecedented opportunity to promote and distribute music. The disagreement, as so often happens, boils down to who should have the ability to control this new channel. Record labels? OMDs?

Or how about the musicians themselves?

OMDs aren’t privy to any special Web technology or marketing savvy: Everything they can do, musicians (or their business managers) can do for themselves. This is the real revolution, the one nobody talks about: For the first time in history, artists can promote, sell, and physically distribute their own music from somewhere other than the stage without having to beg crumbs from a corporate middleman.

With the free tools and access available from just about any $20-a-month Internet service provider, a musician can whip up a Web site with performance calendars, e-mail, and gig announcement lists. Encode his own tunes in whatever audio format he chooses — a streaming format like RealAudio that lets fans listen to the music but not own a copy, or a downloadable format like MP3. Sell his own CDs. (Third-party companies like CDNow will take care of credit-card processing of individual CD orders for a mere nine percent off the top — far, far less than MP3.com’s 50 percent.) With a little effort, a musician can even promote himself on the Web as effectively as an OMD can.

“MP3.com used to be a great way to get attention,” says independent Austin musician and MP3.com contributor Karl Rehn. “But now that the record companies have started putting money into MP3.com and the number of artists online has jumped exponentially, it’s back to the way it’s always been.”

Artists who have made the leap into cyberspace with sites of their own are unanimously pleased with the results.

Guitarist Ian Moore turned to the Web after his recording career hit a sticking point. “It’s great,” he says. “It gives me the opportunity to talk to my fans in my own words, not through press releases.” Moore uses his official site to sell CDs and interact with his fans. “Anything that puts more control in the artist’s hand is a good thing.”

Still, despite the feverish claims of the online music industry, there’s little chance the Web will force the major recording companies into bankruptcy. After all, it’s not as though the Web is some deep, dark secret that label executives haven’t heard about. The fact is, the traditional recording industry is already using its bucks and business savvy to promote signed artists on the Web. If the past is any indication, the smart OMDs will join forces with the established players, and the not-so-smart ones will fade away. And that extends to musicians as well.

“To tell you the truth, I think the smart musician realizes that, for the next year or year and a half, MP3 is pretty much nothing more than a promotional tool,” Jeff Liles says. “There are artists that do sell and they do make money. A lot of the older catalog rockabilly stuff sells a lot. People in Japan buy that stuff all the time. It’s going to take a while for the typical American consumer to get used to buying a downloaded file of music. They still want a CD. They still want a jewel case and artwork and all that stuff.”