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 @ 6:49pm

    My argument must be very heavy indeed

    Factually wrong makes your argument wrong. by Rose M. Welch on May 14th, 2008 @ 4:16pm

    "If your facts were correct, your argument would hold alot of weight. But they're not.

    Warner Bros. holds the copyright to anything having to do with with movie versions of Harry Potter, including merchandise. Other companies, including her publisher, own rights to different parts of the HP empire. On most of those items, J.K. Rowling got paid just as I do, one time. One big check and nothing ever again. With the books, she received one paycheck to cover expected royalties and she only gets paid more if the books sell more than the anticipated royalties. So that kind of makes sense. Instead of demanding a flat fee, she's taking a smaller fee and a percentage of future sales. But she does NOT get a portion of everything HP everywhere, just as songwriters shouldn't get a portion of everything everywhere."

    You kind of made my argument for me. Here's how; Now, none of us know the exact details of anyone's movie deals. But, I can say Warner Bros. "licensed" the right to be the only movie studio to be able to make HP films. Rowlling still owns the character and receives residuals from those films' profits. The same goes for any merchandising (also known as ancillaries). These companies "license" the rights to use the HP "brand" for their merchandise. Those licenses are also temporary, non transferable and she has the final say over how her characters will be portrayed (WB can take creative liberties but it can't be too drastic). No entertainment lawyer in his or her right mind would allow anything less. Any money she received upfront was an advance in lieu of potential profits. This is the standard industry practice. Anyone saying anything different doesn't know the facts of the business. So, she is, in fact getting a portion of HP everywhere and this will go on for at least 75 years.

    What percentages she receives? I don't know. But I do know how things like this are done. Also, any money she is paid upfront for any of her books is also an advance plus, she still owns the rights to HP. Writers aren't paid once for a novel, then receive nothing more. Thats just not how its done. "She gets paid more only if the books sell more than the expected royalties." Hello, thats what an advance is. Anything past what they expected she gets MORE MONEY. That doesn't exactly sound like a "one time payment" to me. If you have any evidence to the contrary, I would love to see it. I'll admit I'm wrong if I'm shown the facts.

    Your arguing on opinion, but I'm just relaying the facts. If you ever write a successful book, I hope you get a good lawyer to handle your movie deal. Because you'd be "frakked" if you tried to handle it yourself.

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