Warner Music May Give Spotify Windfall Back To Artists

Major record labels aren't known for being particularly generous to their artists, but in at least one case, that might change a little. Warner Music has made it known that should it ever sell its stake in Spotify, at least some of the proceeds will go to its artists, according to a post on Music Business Worldwide. WMG CEO Stephen Cooper made the announcement when speaking to investors yesterday.

This is an unprecedented step as any income from these types of equity sales have traditionally made their way directly to the label's bottom line in the past, bypassing the artists.

The major labels own around 15% of Spotify, which came as part of the company's negotiations for licensing rights to the major label's catalog. It's estimated that WMG owns between 2 to 3% of Spotify, which at its current $8 billion valuation, is worth around $200 million.

Spotify has signaled its intention for an IPO (Initial Public Offering - where shares of the company are offered to the public for the first time) this year, which would mean a windfall for its shareholders, including the major labels.

Knowing the potential blowback from artists should they not see any money from the sale of the company they helped build, WMG decided to get on the right side of the situation instead of having to react to it after the fact.

Any resulting bad publicity from a Spotify IPO could harm the streaming side of the music business, which has grown into a major source of revenue for the industry as is quickly replacing physical sales.

As a result of this story, Sony Music announced that it would also give back a piece of the proceeds from any sale (no word on exactly how big a piece). The question now remains, will Universal Music feel compelled to follow?

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Universal Music To Get A Piece Of Soundcloud

Soundcloud is trying hard to go legit and if industry insiders have it correctly, a deal with Universal Music is imminent. This would be the second of the 3 major labels to license their music to Soundcloud, the first being Warner Music Group in November of last year.

As with most licensing deals these days, Universal is said to have pushed for equity in Soundcloud as well as an advance in exchange for the deal. Warners already owns 5% of the company, and it's said that Universal will actually receive a larger piece based on its market share, which is much larger than WMG.

This is a continuing trend in music distribution today where the 3 major labels will not grant a license unless they receive equity in the company. This worked out well for Warners in the Beats Music deal when Apple purchased the company, as the holding company that owns Warners walked away with a hefty profit.

The major labels are hoping that happens again with Spotify (they all hold equity), and now also with Soundcloud.

Of course, none of that income goes to the artist, falling instead to the company's bottom lines. Once again the artist only sees a trickle of the major income. Same as it ever was.

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Users Up In Arms As Soundcloud Begins To Remove Content

If you're been using Soundcloud to distribute your songs you know that it's a wonderful service that's almost too inexpensive to be true. The problem is that the company hasn't been able to be profitable and now they're under some pressure from investors to turn that around.

In an effort to stem the tide and perhaps even turn a profit, Soundcloud recently entered into licensing deals with Warner Music Group and Merlin (the organization that represents a large number of indie labels), but part of that deal meant that the platform had to begin to enforce copyright rules.

As a result, last week Soundcloud began an offensive on variety of copyright violations including unlicensed tracks, tracks that include unlicensed samples, remixes with unlicensed tracks and even bootleg remixes that that bear a recognizable resemblance to an original. Not only that, the platform has even deleted accounts of users that it deems to be major offenders.

This has caused a group of Soundcloud users, mostly DJs, to go ballistic since they're the ones that are mostly being targeted. That said, any musician with an unauthorized cover song or sample could also feek the company's wrath.

To be clear, Soundcloud has long been a welcome home for copyright violations, but it's only now that it's had the will to actually clamp down. That said, money (or lack of it) has a way of making you do things that you don't necessarily want to, something that musicians, artists and bands are faced with every day.

A sample takedown notice

UPDATE: Sources are saying that Soundcloud has also reached a licensing agreement with Universal Music Group, which might further explain the takedown spree last week.

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To Pay Or Not To Pay Interns

The connotation of the word "intern" is now changing as it has gone from "free worker" to "paid temp employee" thanks to a class action lawsuit on behalf of 3,000 former unpaid interns that felt abused by the system.

Recently Warner Music Group became the largest music company to resolve litigation over its past internship program by agreeing to settle for an amount of $750,000.

Other similar lawsuits in film and television have ended in the same way, prompting all media companies to reevaluate their intern programs, which potentially means far fewer opportunities for those seeking the few internships that are available. The laws governing internships are different from state to state, but a precedent set in one tends to carry over to the others, which is what's happening here.

To be sure, this applies mostly to large corporations, but could possibly have a chilling affect on even smaller studios as well. While most interns are just too happy to have a job that allows them to learn from a pro and would never conceive of bringing an action against an employer for fear of what might happen to their career, just the threat of something like that happening can have a chilling effect on a potential employer.

I have a friend who owns an upscale but small studio that was sued by a former intern because he didn't get the promised studio downtime simply because the studio was busy with bookings. The studio owner won the case but it still cost him time and lawyer's fees. That person now runs a no-intern shop.

So paid internship is now a double-edged sword. It's nice to get paid for the work you put in, but the opportunities to learn will now be far more limited.

Warner And Shazam Hold Hands

Shazam is a great service that can tell you what song you're listening to, which millions of people use around 16 million times each day. In fact, it has 420 million users who are consistently using the app to identify songs, which provides it with a very powerful set of data of who's listening to what and when.

Warner Music Group wants to tap into that data, and has made an agreement with Shazam to verify the play data from other sources, but also find new unsigned artists. You can almost think of it as crowd-sourcing new talent.

Other social networks have been sharing their big data for some time, so the fact that Shazam is now doing it isn't particularly earth-shattering. What is different about the deal is that it establishes a Shazam-branded label for the new artists that are discovered.

Shazam has a database of 35 million songs and adds more than a million new ones a month. Chances are pretty good that if someone is listening, Shazam knows about it, and now that can benefit new artists.

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The Clear Channel - Warner Music Deal: Not What It's Cracked Up To Be

It was announced last week that radio station group Clear Channel Communications and Warner Music Group (WMG) entered into a “historic” agreement where the label and its artists would finally be paid for airplay performances on Clear Channel’s 850 terrestrial broadcast stations. The United States is one of the few countries in the world where that hasn’t happened until now, as broadcasters have been resisting the notion for years, successfully fighting any legislation that promises to do so. Performance royalties are paid on satellite and digital radio streams however.

Although the terms of the deal haven’t been released to the public, insiders have intimated that Clear Channel will pay WMG 1% of advertising for terrestrial broadcasts and 3% for digital, which could amount to some $50 million over three years, including an up front payment. For that it receives a discounted rate on digital streams from the 22 cents per 100 streams it pays now to no less than 12 cents per 100 streams. WMG will also receive special product promotion from Clear Channel stations that would include album previews, interviews or other kinds of special broadcast segments, as well as artist appearances at events like the iHeart-Radio Music Festival. 

While there’s generally been praise for this agreement, I’m afraid I can’t be so kind, as it may not be all it’s cracked up to be. When looked at closely, it seems to provide possible downsides for all parties involved, especially the one generally missing from the conversation - the artists. Read more on Forbes.

Warners Makes A Deal With The Indies, Or Does It?

The record label business as we know it has changed immensely in the last year or so and those changes continue to come hard and fast. Take for instance the fact that when Universal Music Group purchased the assets of EMI last year, they were forced by European regulators to sell off much of the catalog and several labels (including Parlophone, Chrysalis, and Virgin Classical among others) to Warner Music Group in order to make the deal.

Now it looks like WMG is getting the same treatment, as Merlin and IMPALA, two of the most powerful indie label trade groups, have been threatening to raise a fuss again with the EU regulators as they had with Universal/EMI and BMG/Sony before that. So Warners became proactive in the matter and announced an agreement with the two groups to sell or license "a significant portion" of that music to some of the indie companies (which were not specified) within those groups.

Now let's get this straight. WMG tells the trade groups it will help their clients make money, but lays out no specifics on how that will happen or with what companies. Doesn't this sound like a bait and switch where WMG makes a nebulous promise that it can easily forget about as soon as the regulators give their OK? Or, WMG can just give some token feel-good deals that doesn't substantially alter the status quo of either company.

This seems to be a classic deal to make everyone look and feel good, but without much substance. If I were one of the member companies of Merlin or IMPALA, I'd be upset. It looks like more of the same from the majors, but with the seal of approval from the organization that should be helping the indie label's cause. It should be interesting to see how this plays out.

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Major Warner Reshuffling Actually Makes Sense

It was reported last week that Warner Music Group was restructuring following the departure of their former music chief Lyor Cohen. Usually these types of reorganizations are more about consolidating power into new fiefdoms for the remaining or incoming executives, but this one actually seems to make sense.

According to an article in CMU:

Under the new structure, Warner in the US will have three divisions, frontline recorded music, publishing and catalogue, and label and artist services. The first division will consist of Warner’s record labels, principally Atlantic, Warner Bros and Warner Nashville, and will handle current talent and new releases. The second division will replace the Warner/Chappell publishing company, and also include catalogue marketing and the major’s catalogue label Rhino. The third division will bring together distribution operations and those Warner units working outside records and publishing. 

The second of the new divisions is the most interesting, with the major allying the marketing of its sound recording catalogue with its music publishing operations. 

A couple of things here are interesting. First is that Warner/Chappell is being replaced, which is hard to believe, since it's such a powerhouse brand. OK, brand aside, the fact that they're now combining publishing with catalog is huge, since they're now thinking more in terms of licensing, rather than sales. Licensing can be a much more profitable way to do business, since the overhead is far lower and manufacturing costs are essentially nil because the licensor does it all.

Many have predicted that this would be the business model for the next generation major label. Now it seems that we'll get to see the prototype in action and can evaluate whether those predictions are really valid.

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When A Label Just Doesn't Get It

When it comes to major labels, some are much hipper than others. Warner Music Group (WMG) has always been thought of as pretty progressive in terms of keeping up and buying into the latest technology, but that doesn't mean that all departments get it.

Here's a rather sad commentary on not only the old-school way of doing business, but bad marketing as well.

WMG recently wanted to alert radio program directors to a new single by the Crystal Fighters. Now most companies these days (not only those in the music business) would simply send an email with a link to a download. Not WMG. Instead they:

• sent an standard letter via snail mail.

• included a 104 character link that the music director would then have to type into a browser.

• didn't indicate that a password was required.

OK, let's count the ways that this is particularly crazy in our Music 3.0 world.

1. Imagine what it cost the label to send this in the first place. There's the cost of the letter and envelope, the 45 cent stamp, and the labor cost of the person printing out the letters, attaching postage and putting these in the mail. Money that didn't have to be spent.

2. You're asking someone to type in a 100+ character URL complete with underscores, slashes and numbers? Ever hear of a QR Code?  

3. Then even if you happen to luck out and get all the characters in the URL correct, find out that you still need an password to download the music.

Of course, it's the poor artist that has to suffer with the end result of this boondoggle. They get charged for an expense that they never should have, plus some bad will has been generated with radio music directors on their behalf.

Boggles the mind, doesn't it?  Click here to view the letter.

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This Is Why Artists Hate Major Labels

The prevailing wisdom in today's music business is that any artist signed to a major label (and many indies as well) will get shucked and jived out of hard-earned royalties in that rare case when an artist has a hit. It was certainly like that way back when the record business began, and even though artists have made great strides since then in protecting themselves, it's still happening now.

Case in point - iconic balladeer James Taylor. JT is suing his former label Warner Music Group (WMG) for several million dollars, and even after several audits where his accountants have found over 50 contract improprieties, he's still having trouble collecting. This is all laid out in a wonderful article over at Digital Music News by Paul Resnikoff called "52 Ways To Screw An Artist."

It takes a long time to get through every one of the points, so I'll summarize them here.

JT's accountants first did an audit way back in 2004 and found that he was underpaid by $1,692,726. After Warner's and Jame's representatives got together to hash things out, they settled on a figure of $764,056 and WMG immediately cut a check for only $97,857. After trying to get the balance paid over the next 8 years, WMG finally decided to officially dispute the remaining amount, claiming they owed just around $147k instead of the $666k balance, but of that money that even the label agrees is owed, they paid a grand total of $0.

So basically it turns out that JT finds that WMG owes him $1.6 million, they settle on a figure of $764k and pay him $97k and let him twist in the wind for the balance ever since.

What's funny is how blatant some of the royalty "mistakes" are, from charging manufacturing costs (which is on the label) as recording costs (which is owed by the artist) to paying a royalty rate under the agreed amount of points, and on and on.

But it doesn't end there. In 2010 JT initiates a second audit, and this time discovers that he's owed $1,147,559 for the three year period between 2007 and 2010. WMG basically blew him off and never responded to the audit inquiry. And that only appears to be the tip of the iceberg, as there were several additional revenue sources where royalties should have been paid that the auditors couldn't find.

The bottom line is that if James Taylor's high-powered accountants and attorneys can't get paid, you have almost no shot if you're a new artist. And the labels still wonder why artists want to go the DIY route?

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