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No need to feel sorry for Warner Music Group
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Artists deserve their royalties. No question about it. And while there are still rogue sharing sites on the web that allow you to obtain music for free, the days of the glut of gratis Napster and Kazaa downloads are becoming rarer. In fact, new research even shows that the number of teenagers illegally sharing music has fallen sharply in the past year. Still, record labels fear the age of mp3s will render them obsolete. And as consumers switch to online and wireless formats for their music, revenue from online music sources is projected to overtake actual CD sales by 2012. 
Call me old school, but I prefer having the jewel cased CD in my hands. The lyrics, the liner notes, the credits - it all completes the listening experience. It reminds me of pouring over album artwork and sleeve details when I was a kid. I've never given artists' royalties much of a thought before, so I was surprised to find out some statistics on songwriters' profits. Under the current U.S. mechanical/statutory rate (royalties from the sale of downloads), songwriters and publishers get just 9.1¢ per song (or 1.75¢ per minute). So, that means a million downloads/unit sales of a song would be worth a total of $91,000 in combined royalties to the publisher and writer.
A little over a year ago, US federal judges rejected music publishers requests to raise the royalty rates on downloads. That means sellers like Apple and Amazon.com will continue to pay publishers nine cents per song downloaded. Now I don’t claim to understand the distribution of royalties and who gets what and I have have the slightest understanding of macroeconomics, but it seems like the artist isn't getting the best deal in this whole "Agreement." True, artists are entitled to a negotiated royalty payment from the sale of each record, but with download sales surging, it seems like the big companies more so than the musicians are set to gain.
In 2008, CD sales fell 20% to 362.6 million from 450.5 million, while digital album sales rose 32% to a record 65.8 million units. Digital track sales like you find on iTunes Music Store, were up 27% from 2007, breaking the 1 billion mark for the first time ever. Ironically, as digital downloads grew, vinyl album sales also climbed. In 2008, more vinyl albums were purchased (1.88 million) than any other year since Nielsen SoundScan began tracking sales in 1991. Still, those increases are small potatoes compared to the digital sales juggernaut.
What do all of these numbers mean? And why should I care? Let’s look at the Warner Music Group. By the end of 2008, Warner’s shares traded at $3, down from $23 less than two years before. Again, I’m no economist, but that suggests a pretty undesirable business. However, taken in the context of the rest of the economy, it may not be as out of whack as it seems. Come on, if my paltry IRA can drop over 40%, why can't Warner’s stock plummet as well?
To get you up to speed with the Warner Music Group, they own quite a few famous music labels like Reprise, Eleckra, Sire, Rhino, Atlantic, Asylum, and, of course, Warner Brothers records, They also are home to a cavalcade of artists you may be familiar with: Faith Hill, The White Stripes, R.E.M. Rob Thomas, Eric Clapton, Neil Young, Genesis, Seal, and Fleetwood Mac. I really think quite a few of these will hit it big some day. Oh yeah, and they are responsible for the catalogs of Frank Sinatra, Ray Charles, The Doors, and The Grateful Dead. Not exactly a bad roster of acts.
So, how does Warner go about strategically combating their dwindling market share? Well of course, they do so with the logical removal of all Warner music from YouTube. That means if you try and post a homemade video you did for your favorite Warner-owned song, say Seal's Love’s Divine, it will not be appearing on YouTube – or it will appear briefly until Warner finds out and sends you a takedown notice email. YouTube offers its Audioswap feature, which lets you select from a pre-licensed library of songs to replace music for videos that initially used Warner’s music, but you made the video for Love’s Divine, not for Terry Jacks’ Put The Bone In or some other completely unrelated song.
Perhaps I’m sensitive to this topic since my aspiring seven-year-old filmmaker and puppeteer Lukas finished his latest short film, Laid Off and Blue, and we immediately received an email about its removal. Here’s what it said: Your video, Laid Off and Blue Part2, may have content that is owned or licensed by WMG. No action is required on your part; however, if you are interested in learning how this affects your video, please visit the Content ID Matches section of your account for more information. Sincerely, The YouTube Team ...Under certain circumstances, you may dispute this copyright claim. These are: (1) if the content is mistakenly identified and is actually completely your original creation; or (2) if you believe your use does not infringe copyright (e.g. it is fair use under US law); or (3) if you are actually licensed by the owner to use this content.
Twenty years ago, I recall writing to record labels for permission to use some songs in a “movie” I made with friends. In those pre-home computer days, I actually wrote the letters by hand, and even got a couple of responses saying it was OK to use the songs as long as the “movie” (I use quotes because calling it a movie is sort of like calling Terrell Owens a team player) was to be used for our own entertainment and that we wouldn’t make money off its showing. Thus, we were legally permitted to use New Order’s Bizarre Love Triangle, which, ironically, we didn’t use at all. But I digress.
Fast forward to 2009, and here is my soon-to-be second grader getting his video yanked because he decided the best song to use over the ending credits for a mockumentary about Muppets getting laid off at the Sesame Workshop was Kermit the Frog’s Rainbow Connection. Well, we aren’t making any money off this film; number of YouTube hits is Lukas’ reward. And I’m still not sure how playing a song is detrimental to its sales potential. If anything, exposing a song to a new audience seems like it would increase its chances of receiving more iTunes downloads, and, gasp, even more sales at the record store. I hate to surmise what others would say, but Jim Henson himself probably would have approved of a little boy's creativity and fondness for the Muppets.
My son and I aren’t the only ones befuddled by this agreement, but we are not ready to join any anti-Warner groups. But I have little sympathy for Warner. Universal Music Group claims it’s earning tens of millions of dollars from YouTube and expects to earn more in the future. So, I can't really fault YouTube in this debate. Anyway, who’s doing the negotiations for Warner, Cosmo Kramer after being promised free coffee for a year? Basically Warner is saying even if you buy one of their CDs at Best Buy and burn it to your computer for your own personal usage, you can’t use it in a film to be aired on YouTube even if your purpose is to let the world know about a great song. Again, the innocent consumer is the one penalized, and it even seems that during this whole shift in the music industry, artists may not even be getting their fair share, either.
I suppose it makes perfect sense. Prevent a kid from posting a video because he is using a song his dad owns – even though in this case, it's a 30-year-old vinyl copy of The Muppet Movie soundtrack - and non digital sales will start surging again. That could be marketing and economic genius that I just don't understand. Either way, you stay classy, Warner Music Group.
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