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 @ 3:16pm

    A previous post that should be re-read.

    This was originally posted in Feb. But it applies here.

    Songwriting is all I do. No day job, no school, just writing songs. I wake up, I get clean, I eat and then I get to work. Some songs almost feel like they write themselves. Some are like pulling teeth. But, they require real work and a passion to do that work. And this work is done 9 - 12 hours a day. Every day.

    One must be talented to do this work. It's not something you can go to school to learn. You are born with it or you're not. It's just that simple. Couple that with all the years of sacrifice we put into our craft to actually turn our natural talents into a honed skill, and you have something that should be compensated for. And our compensation should be handsome.

    Without us, there literally would be no music. Of course there are artist who can write for themselves. But most cannot. As a matter of fact, a lot of artists who you think are writing their own material, aren't. They have ghost writers. And those ghost writers are paid well because they are giving up the rights to their compositions. If I'm going to be paid a one time fee for my work, it's going to have to be in the six figures per song. Which, if one thinks about it, isn't a lot. Some writers only have one or two good songs in them. So, if a songwriter gets one hit and that brings he or she $100,000, but that person has been writing for 10 years and never has another hit, that writer has really only made around $10,000 a year. Less after taxes.

    Contrast that with the artist that records that song who will continue to make money from it through touring and what not. Why would I except some measly one time fee, while the person who didn't write it continues to make money as long as they are able to perform it? In other words, the artist makes a living, but the writers starves. I don't think so.

    Writing songs isn't writing code or assembling a car. I'm not trying to down anyones job or abilities. But, if one goes to school, make decent grades, and is a reasonable hard working person, he or she can get a job and make a nice living. And, can expect to do better as that person gets older and more experienced. As long as one is healthy, the average person can work well into their old age.

    Songwriting is the exact opposite. Some of the best songwriters I've ever known can't get arrested let alone a hit record. These are men and women you may never hear of because they don't "know" the right people. So, if you are lucky enough to get your song(s) covered by a chart topping artist, you have a huge problem; time. As you get older, styles change, and your songs begin to loose their appeal. Your still good, but you begin to sound "dated." A prolific songwriter can expect a span of 10 years in the "game." Maybe less.

    Songwriters step out on a wing and a prayer. We take a huge chance with our lives while everyone else takes the "safe route." No health insurance, no 401k matching funds, no severance pay or unemployment "net" should things not work out. That's why we get royalties. That's our retirement plan. So, to all those saying we should get a one time payment for our work, I say to you; quit your job and leave your security blanket behind. Step out on faith and struggle for a few years for no other reason than believing in your talent. No school, no day job, no back up plan. Do that for 5 years. Be a real artist for 5 years. Then, come back and we'll have this conversation.

    See, this is what's wrong with the music biz. Too many people who, are not artist and don't understand or respect the art of making music run the industry. Just a thought.

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