Do Songwriters Deserve A Cut Of Yahoo Search Revenue?

from the highway-robbery dept

You may recall a couple weeks ago that a judge set new rates to be paid to ASCAP by AOL, Yahoo and RealNetworks. ASCAP represents the songwriters, and those three companies and ASCAP could not agree on licensing terms for music streamed online. While ASCAP ran around touting the (somewhat made up) $100 million owed, there was plenty more in the decision that deserved discussion. At last week's San Francisco Music Tech Summit, I got into an interesting discussion with a few folks who had read through the 153 page decision thoroughly, and noticed a variety of problems. You can read the whole decision (pdf) yourself, if you want, but there are a few key points that are extremely disturbing, and could spell a lot of trouble. Basically, there's a meaningless "formula" that's applied to a very large segment of these companies' revenue, taking a huge chunk of money that seems beyond reasonable.

The judge seems to consider what AOL and Yahoo do somewhat equivalent to the way TV stations use music, and refers back to the rate agreements set up with various TV networks, despite vast differences in the way these websites operate. It suggests a misunderstanding between the difference between broadcast and interactive content. But what's really troublesome, is when you look at the overall formula for how the royalties are set. It clearly overvalues the music, and undervalues just about every other part of these three companies' businesses. The formula is, basically, the total revenue made by any business unit (minus a few specific costs) multiplied by a bizarre fraction (called the music-adjustment fraction): total number of hours that music is streamed, divided by total number of hours used on the website. Then, you take the result of that and multiply it by the "rate fee" of 2.5%.

This formula is applied to revenue coming in from any business unit that is considered to have used music. This includes things like Yahoo's search engine. That's because Yahoo (smartly, from a consumer perspective) allowed users who searched on a musician or song to stream that song directly from the search results. But, in making that so user friendly, the company has now opened up its cash cow search revenue to this formula, despite the fact that it's incredibly difficult to think that music has anything to do with nearly all of the revenue Yahoo makes from this site. Similarly, RealNetworks has almost its entire consumer division revenue included in this formula, despite the fact that it makes a ton of revenue from its gaming business. Wondering why RealNetworks decided to spin off the gaming business a week after this decision was announced? Maybe because a rate court judge just chopped off a huge chunk of revenue from it and handed it over to songwriters who have nothing to do with these games.

As for the formula itself, it makes little sense. The "music-adjustment fraction" is a totally meaningless number. The number of hours music is streamed is hardly an indicator of how much of a site's revenue is actually music based. If I have music streaming in the background all day, but am still using the site for other purposes, it seems ridiculous to include all of that as music-based revenue. The denominator of the fraction is "total number of hours on the website" which is also a totally meaningless and unrelated number. Even worse, since the court notes that none of these sites actually track that information, the judge ruled that everyone should just use Comscore's numbers instead -- the same Comscore that most people admit is not particularly accurate. So, basically, you're dividing a meaningless number by an even more meaningless number and multiplying it by the total revenue of units who often have very little to do with music, and then taking 2.5% of that. If anything, this ruling should make any site think twice before including any streaming audio from any ASCAP-affiliated songwriters.

Filed Under: ascap, copyright, rate court, royalties, songwriters
Companies: aol, ascap, realnetworks, yahoo


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  1. identicon
    Tee, 14 May 2008 @ 3:49am

    From a real songwriter Pt.2

    You guys are right on some points, but on others, you just don't understand. Here's where you're wrong:

    1. -"Wow by Alimas on May 13th, 2008 @ 11:40am

    When I fix computers, maybe I should be charging for all the time the computer spends working properly after I'm done with it."

    Wrong: You didn't create that computer, the operating system or anything on it. You fixed something that was broken. Nothing more.

    2. -Wal-Mart Owes Me. by Drax on May 13th, 2008 @ 11:48am

    "I wrote a song today. I stood out front of Wal-Mart and sang, and sang, and sang.

    By the reasoning found here, I believe Wal-Mart owes me a substantial chunk of all sales while I was outside singing because it's totally okay to just assume those profits had even the slightest bit to do with the fact that I was outside singing."

    Alimas, if your song brought customers to the store who would otherwise not have come, you would be entitled to compensation. Because, in this case, there is no true way to find out who is there and why, a flat fee for the day would be more appropriate. This would be agreed upon before you start your "performance." That is usually how it's done.

    4. -Re: Parasites by Anonymous Coward on May 13th, 2008 @ 11:50am

    "Oh, I'm quite happy to pay for music. Once. Same with art: I pay for a painting at one time, and do NOT continue paying for it each moment I continue to enjoy it..."

    Art is different. You pay for it and hang on your wall. It's the same as music that you buy for your own personal use. Once you buy it, you're not making money from it. You are just enjoying it.Broadcasters, whether they are on the web or over the air, derive revenue from the advertisements they sell time to because of the traffic (or listeners) that are generated from the music. If it were not for the music, they would have no demographic to sell time to the advertisers.


    5. - Re: Parasites by Rose M. Welch on May 13th, 2008 @ 6:09pm

    "How about someone who 'creates' hot dogs at a Bar-S factory? Should they get a royalty when you enjoy a hot dog?"

    No. That worker didn't "create" anything in the same sense of the word we are talking about here. He or she simply followed his or her employer's direction. However, that hot dog is branded. It is created by the company, "Bar-S." That means no one may make any money off of that brand name unless they have permission from the company. Which, for the most part is a lot stricter than the copyright laws governing music.
    If I wanted to remake an existing song there isn't much the copywrite holder can do to stop me. All I have to do is make sure that person(s) gets his or her royalties.
    Now, try that with with a Bar-S hot dog. In other words, take their recipe, add your own twist, then try to sell it as a new style of Bar-S hot dog without the company's permission. Betcha' they sue the "S" off of you "Bar" quick, fast and in a hurry.

    6.- I think YOU'RE the parasite by Anonymous Coward on May 13th, 2008 @ 1:22pm

    "Do you pay Robert Moog every time you write a song that uses a synthesizer? Does he make royalties every time a song is played that uses a synthesizer?"

    Robert Moog created a piece of hardware, like Dell creates a brand of PC. However, he gets a share of anything bearing the "Moog" name.

    "A songwriter should be paid a fee. You want more money? Charge more money then."

    If no one really knows what song is going to be a million seller and which one will flop, how do you come up with an appropriate fee? Do you just pay everyone a couple mill and hope for the best? Or, does everyone get a grand or two just for trying. Talk about affirmative action gone wrong ...lol

    Also, what if sometime down the road another artist does a remake and the song becomes popular all over again? That artist and his record company get's millions. Should the person who wrote song get something? Or, what if the song is used in a commercial to help sell millions of shoes or iPods, or whatever? In this scenario, by your reasoning, everyone involved with the song except the songwriter(the person who created the song) makes huge amounts of money from it's exploitation. The artist gets paid for his performance, the record company gets paid because they own half(or more) of the publishing rights, and the shoe company (or whatever) makes money from the additional sales of their product because it been paired with that "hot" new song. How is it fair that the person who actually, literally created the work from thin air, get nothing from this transaction?

    "If you're talented enough to write an amazing piece of work then guess what....you'll be in demand to write more and you can charge more for your work. Just like the rest of the world."

    You're right on that. And for the most part, thats how it works. If you get a hit record you can command bigger advances and percentages from future projects. Except, the advances are just that: advances. Money that is given to you against any potential profits. Think of it as a pay day advance. Except, if the song flops, you don't have to pay it back. So, hopefully that advance was a big one. Because, your career is more than likely, officially over.


    Hopefully, I've cleared up some misconceptions of how and why songwriters get compensated the way we do.

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