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The Music Business – Revenue Streams and the Future

The Music Business – Revenue Streams and the Future

The music industry is a highly complex and extremely profitable. Popular music is seen by many as the only truly universal mass medium, and the industry as a whole is estimated to be worth between $30-40 billion. However, for many people starting out in the music industry; whether their composers, artists or session players, are unaware of the complicated process of how this money is generated and how it is distributed between the relevant parties involved. There is a large ‘hierarchy’ in the industry which money flows through and it is essential for someone that is starting out to know how the Music Industry works.

The Phonographic Performance Limited (PPL) The PPL is the UK music industry’s licensing body. The PPL licenses sound recordings and music videos for use in broadcast, public performance and new media. They represent the recording rights owner, which is usually the record company but due to recent developments in the industry sometimes the recording artist can also be the record label. Unlike other licensing bodies the PPL is a non-profit making organisation and only take a cut for operation costs. Their aim according to Fran Nevrkla is to ‘get some recompense for the tracks that play in the background of nearly every place in Britain’.

The PPL was formed by EMI and Decca in 1934 to protect songwriters’ copyrights. The PPL is also heavily linked with the VPL. The VPL was created in 1984 to carry out the same role for music videos that PPL was already carrying out for recorded music. The PPL collected ? 115 million in 2007 distributing ? 99. 5 million of this to their registered performers and record company members. This income is calculated by using play lists from commercial radio stations, television networks and Public Performance Licenses. Therefore the labels who have more of their recordings played on the play list will get more money.

Broadcasters bring in the majority of the PPL’s revenue, the BBC being the largest. They also receive licence fees from more than 300 terrestrial commercial radio stations, 157 internet radio services and from all television channels. However, its fastest growing revenues are coming from Public Performance Licences for business such as hairdressers, pubs and restaurants that play music. There was ? 48 million worth of these licenses in 2007. 50% of all these collections are paid to the record label and the other 50% will go to the performers on the recording, broken down into 32. % for featured performers and 17. 5% to session players. The PPL also has created the Repertoire database which is where a record label can submit all the relevant data for its releases and can also act as an agent for mechanical licenses. The database was updated this year to reflect ownership transfers, merges and other changes within the music industry. Performing Rights Society (PRS) Set up in 1914 the PRS is the UK collection society for composers, songwriters and music publishers and is charged with administrating the public performance and broadcasting rights in music and lyrics.

The PRS generate revenue for its members by collecting licence fees from radios and public places where music is being played. Public places and radio stations must provide play list information to the PRS or they may be visited by a representative who will note what is being played, with this information the PRS will calculate a fee or a tariff to charge the venue/station. Each Composer/Writer must register with the PRS separately; they each pay an annual fee to join. By joining a member not only assigns their performing right but also their film synchronisation right to the PRS.

The PRS will then collect for their compositions but will take a commission of anything from 12. 5% for a BBC broadcast to 16% for an MTV broadcast. For performances the PRS will take anything from 16% for a cinema performance to 20% for a ‘popular concert’. More recently the PRS has started to collect and charge for internet broadcasts; taking a 12% cut, and for ringtones; taking 12. 5%. After the PRS take their cut the remainder of the royalties will be passed onto the relevant members. If a publisher represents the composer then 50% of collections will be paid to them.

If not then all the royalties will be paid directly to the composer. In recent years this has became more popular as it is a way of cutting out the middle man. However, a publisher is usually better at exploiting music in many ways, thus getting material played more which in turn would generate more royalties for the composer even if they do take a 50% cut. Furthermore, the PRS also offer to collect for tracks being played internationally. For example BMI collect in North America and will distribute any collections back to the PRS who would take a ut; between 1% and 8%, then pass it onto the relevant members. The PRS and MCPS entered into an operational alliance in 1997, Ten years since joining forces, the MCPS-PRS Alliance is one of the world’s most efficient combined rights collecting operations. Offering its members more money, more often, at less cost and its customers the most efficient means by which they can use music. Music Copyright Protection Society (MCPS) The MCPS was set up in 1911 in order to collectively licence the mechanical reproduction of music.

This includes producing reproductions of music onto CD’s, DVD’s, Vinyl, ringtones and downloads. The MCPS members are made up of Publishers and songwriters. Its main objective is to negotiate and administer collective licence schemes with record companies in the UK by granting licences and collecting royalties. However, the MCPS do not take away the copyright of its members. It simply acts as an agent to manage and administer their mechanical copyright in the UK. The MCPS will also use its best efforts to prevent infringements of its member’s rights by taking legal action in their name.

There are numerous licences that the MCPS offer to record companies. Their main licence is the AP1 agreement. An AP1 licence is given to record companies who have a good trading record and meet the financial and accounting criteria set by the MCPS. With the AP1 licence a record company can record any work in the MCPS repertoire provided the MCPS is notified at least seven working days before its release. For this licence Royalties are calculated on actual sales; from these royalties the MCPS will take a 6. 25% cut then pass the rest onto its members.

Another popular type of license is the AP2A. This type of licence is provided to record companies with trading history but cannot satisfy the financial and accounting criteria. With this type of agreement a record company must inform the MCPS before manufacture and must provide royalties for every record manufactured even if they are never sold. For internet exploitation there is the Joint-Online-Licence (JOL) which covers performing and mechanical rights in musical works for most types of online and mobile music services offering music to the UK public.

Royalty rates are 8% of gross revenue for on-demand services including downloads and subscription streaming services, 6. 5% for interactive webcasting services and 5. 75% for non-interactive webcasting. After taking their cut of the revenue collected the MCPS will then pass its collections to publishers; who will then take a 20-40% commission, before passing the remainder onto the songwriters. In recent years songwriters have tried to cut out the publisher but as mentioned above publishers are much better at exploiting music than anyone else. New Revenue Streams

Music has a broad appeal; from London to Tokyo there is a mass market for the sale of music and many ways to distribute it. But whereas many media products are often limited wither their exposure, music on the other hand can be listened to by anyone and anywhere whether they intended to or not, as not only do we listen to music in our homes and at concerts but also as a background to our lives in cars, bars, aeroplanes, restraints and shops. Thus, the sale of recordings and the sale of concert tickets for performances are only a few ways of generating money through music.

Every time a record is played on the radio it can be heard by millions of people who haven’t bought the music directly and this is another way the industry generates money. Radio stations are charged for the commercial use of music and pay licence fees that eventually are distributed back to the musicians and other people involved in the creation of the records being played. These licence fees are generally known as Royalties. Royalties are paid to artists, writers, recording owners and performers for use of their work.

Other than radio stations licence fees also come from pubs, clubs, and the internet and from television stations that all play music. Thus, the best way for artists and composers to generate money for themselves is to get their music exploited as much as they can. This is where the role of the publisher comes in. A publisher looks to exploit their catalogue of music as much as they can by getting it played and sold on as many formats as they can such as advertisements and computer games. Hence, more money being generated as the record is being played more often.

But a Consequence of this is that with so many ways to make money in the industry it is impossible for artists, record labels and publishers to keep up with what monies are owed and to whom. Thus, there are a number of societies that collect for different areas; such as the PRS-MCPS alliance and the PPL. Although these bodies have been collecting for almost one hundred years successfully they do have some major flaws and in the current state of today’s rapidly changing music and media market these societies are finding it hard to keep up.

For example there are many problems for the PPL when collecting. Although many larger venues and business provide their play lists electronically, many small business slip under the radar without paying a license fee. Furthermore, it is nearly impossible to work out exactly how many times a recording is played in a shop or a pub. Thus, musicians won’t always receive a payment for their public performance of records. Another area which all the collecting bodies are currently having problems is with ‘New Media’; such as music being played online and on mobile phones.

There is a debate consisting whether or not the ‘new media’ should follow the same collection model as other formats. Although downloads have recently been administrated they have been a part of the popular music world since 1999; when Napster first allowed people to download music for free. Nine years later and the bodies that administrate the music business are only just beginning to work out how to generate royalties and how much cut publishers and retailers should take from downloads and other new formats.

It took until September 2004 for an official download chart to be created, meanwhile, artists and record companies were missing out on millions of pounds in revenue due to the lack of administration by collection societies and the government to try and stop illegal downloads. Eventually Napster was shut down in 2001 after a law suit from A & M records and other peer to peer sites followed as the legal precedent was set. Since then legal downloads have prospered and Apples iTunes has been the most popular legal download service, helping to make downloads the most popular format of purchasing music.

In January 2005, downloaded tracks outsold physical singles for the first time in UK music history and in 2008 iTunes has announced download sales of $3. 5 billion. But now that downloads are being paid for there is a problem with how much royalties should be paid. Apple threatened to shut down iTunes in October as the National Music Publishers’ Association wanted to raise royalty fees paid to its members on songs purchased from online music stores claiming that a 6cent rise would mean iTunes operating at a financial loss ; even though Research analysts Piper Jaffray predict that Apple has an 85 per cent share of the digital usic market. Thus, there is a threat of iTunes operating as an illegal monopoly dictating prices and royalties which will affect artists and composers revenue largely. On the other hand, iTunes will argue that although it is the market leader in the sale of downloads it is still some way off obtaining the estimated $69 billion worth of illegal downloads in circulation. Thus, iTunes may have a large part to play in winning over the people who download music illegally. If so then everyone in the music business will benefit.

One way in which this could be done is through more marketing and providing an incentive that illegal downloads can’t provide. Many people argue that artwork from albums would be a factor to win people over but this too can be copied and provided in illegal downloads. A more recent success that I have seen is with The Killers new album ‘Day and Age’. At this stage it hasn’t been released, is not on any illegal downloads sites but is in the iTunes top 5 downloaded albums already. Thus, the internet ‘pirates’ have been beaten to it in this case simply by successful marketing.

What they did was offer numerous deals when the album was pre-ordered, including three free T-shirts and a few free bonus tracks only available when pre-ordered. Hence, inventive marketing could be the key to defeating illegal downloads and creating more revenue for the composers and artists who have built this industry. Moreover, Judge Miriam Hall Patel; the judge responsible for shutting down Napster, has recently voiced her concerns of how music royalties are collected and the need for a reform of copyright laws.

She has proposed that as a solution to the problem could be to set up “a joint public/private administrative body made up of representatives of all competing interest, including the public, and authorized to, among other powers, issue licenses; negotiate, set and administer royalties; and adopt rules and regulations to carry out these purposes”. In doing so many of the costs of administrating many bodies will be cut along with the number of times different collection societies take a share of royalties as a consequence writers, artists and record companies would earn more for the work that they have created.

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