The Real Problem For The Music Industry Is… Interest Rates?

from the say-what? dept

Cybeardjm points us to a story from Billboard about a claim from the head of PRS in the UK, noting that the real problem with the music industry today is low interest rates. You see, the way collections societies work is they collect money and hang onto it for a while before actually giving it out (if they give it out at all). During that time that they hold it, they hope to earn money on the interest, but with interest rates so low, apparently revenue is expected to be way down. The article points out:

But while overall revenues are being hit by falling CD sales and lower income from music in advertising, Porter said 80% of the decline can be blamed on interest rate cuts.

I’m assuming they just mean on the publishing side of the business, but it’s worth noting this stat the next time you hear people complaining about how much songwriters are “hurt” by file sharing. If the impact of fluctuations in interest rates are a much bigger revenue concern, than the impact of file sharing really isn’t that big. On top of that, any organization that bases expected revenue on something as variable and out of their direct control as interest rates is going to run into serious trouble pretty quickly.

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Companies: prs

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Comments on “The Real Problem For The Music Industry Is… Interest Rates?”

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18 Comments
AJ says:

What ever...

What ever happened to the tax on rewriteable media? The recording industry, shouting DOOM AND GLOOM at the top of their lungs, succeeded in getting a surcharge on all blank CDs. This money was to be paid back to the artists in case any of them lost money from blank CDs. I hear that, of the multi-millions collected, not one penny went back to an artist. Why isn’t the justice department going after these thieves??

Evostick says:

Hedging

If interest rates were such a risk then they should have hedged their risk with interest rate swaps.

That said, it’s a shoddy business model that inserts inefficiencies (delayed payment) as part of their revenue generation. If a rival collection agency were set up with a fixed % commission then artists would go their as they would get their money quicker.

Ent Atty says:

Sneaky Money

Great post. Everyone knows (or should) that one of a label’s or publisher’s jobs is to try and not pay their artists. Even when an artist does actually get paid, the label/publisher will hang on to as much money as it can for as long as it can, thus the importance of the interest rate. It’s a neat trick, and no, this isn’t unique to publishing, nor is it unique to collection societies. Everyone does it.

For example, every record deal has a reserve clause, where the label will hold onto the money due the artist in order to cover its costs in the event loads of cds get returned because they couldn’t sell. Contracts commonly give the label power to hold onto something like 50% of the money for 18 months and only after that is it paid to the artist (known as liquidating the reserve), but not all of it as the label always gets to keep a reserve in place. Apply that across all artists on every label’s roster and that’s a lot of interest that goes straight into the label’s pocket and isn’t shared with the artist. Not to mention that checks go out quarterly at best.

dennis parrott says:

Taxes on Blank Media

@AJ, #6

According to

http://en.wikipedia.org/wiki/Private_copying_levy

there is a 3% tax levied on blank _MUSIC_ CDs in the US. In the old days there were CD recorders that were capable of digitizing an analog source and directly recording a CD. You had to use “music” CDs though; the recorder would reject any media that didn’t have the correct “markings” written to the blank CD.

Those devices are pretty much gone the way of the buggy whip (unless those all-in-one phono/CD recorder gadgets you see in various catalogs and womens magazines still use them).

I am certain that most CD media sold today is of the “data” variety. Most people are not converting analog music to digital and if you’re doing it all on a computer anyway you just don’t need “music” CDs.

Hulser (profile) says:

"Revenue"?

But while overall revenues are being hit by falling CD sales and lower income from music in advertising, Porter said 80% of the decline can be blamed on interest rate cuts.

I’m no accountant, but it seems like they are mixing up (perhaps purposely) two different categories of money. One category is the money they collect on behalf of the artists. (This is affected by “falling CD sales”.) The other category is the additional money they make by using the money from the first category before it’s passed back to the artists. (This is affected by “interest rate cuts”.)

If they’re using the term “overall revenue” to include both of these catagories of money, I take this to mean that the 80% drop is affecting the second category, not the first. In other words, all the article is saying is that the profits that the collection agency gets to keep for itself are going to be a hell of a lot less than they were last year. Based on my reading of the original article, they never actually touch on the effect on the money distributed back out to artists.

Given this, I don’t see how this is relevent to the issue of “people complaining about how much songwriters are ‘hurt’ by file sharing”. While I think the article uses wording that, at best, doesn’t make clear the distinction between the money made by the collection agency and the artists, it really is just about how much the collection ageny is hurting, not the artists.

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