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, 15 May 2008 @ 11:05pm

    Starting to see

    Still confused.... by Anonymous Coward on May 15th, 2008 @ 7:18am

    "Some writers only have one or two good songs in them"

    "Then they are not a songwriter. They are an amature who got lucky and they should probably pursue another line of work. If I write one awesome poem in my lifetime I don't declare myself a poet and quit my job."

    No, thats not true. It's not that they got lucky in particular. Although, luck plays a big role in it. Some people spend hours upon days upon years making songs that are very good. They just don't catch the right person's ear or are only popular for one particular "fad" or current "sound." See, when you do finally get a hit record, you have a choice to make; 1. Stay at your current job and not capitalize on all of the offers to write for more artists or 2. run with the ball because you have your foot in the door. You can't do both. The demands of writing more professional quality material in the quantities needed to get that next hit won't allow you to. No matter how good you are, not every song you write will be something that people will want to use. Much of what you do will get rejected. That means you don't get anything for it. Once again, this isn't a tech job when you can schedule your hours of work. You must work when the inspiration is upon you for the best results. With all that said, you may only have one hit in you. Doesn't mean you're not good, just means your stuff isn't what they're looking for. But, you will never know unless you take that chance. Would you take that chance or play it safe?

    "Let's see, I pay Rose $1000 to design a website. Then I turn around and sell her design for $10 a pop to 100,000, or a million other people. That would work great for me, but I think she'd be a little pissed."

    "This happens all the time. Do you actually believe these titan sized companies pay their developers royalties, hell...that's if they even employ them. Most of the time it contracted out for a flat fee which usually ends up being one bazillionth of the profits generated from the product."

    You are still missing the point. Developers are creating "tools" or pieces of a larger application. They aren't creating content. Content is king. But, if someone where to make a website(because that is what Rose does) and someone else resold that very same site, exactly as she made it, over and over again without cutting her in, that would be wrong. If that's the way it is in your industry, then I understand why you feel the way you do.

    You guys think just because you're getting taken for your labor, that everyone else should too. Sorry, the world doesn't work that way. Don't try to bring your fellow man (or woman) down because the industry you choose to be in doesn't compensate you fairly. You get paid once for something you created while someone else make millions from it? And you think that's fair? Keep thinking that way and you will always be the rat, while people, who couldn't care less about you, have the cheese. I'm not trying be mean or put anyone down, I'm just asking that you really think about all sides of the argument.

    "Seems like the vast majority of the time people want to be paid forever for one job is when that work actually has no value or function besides entertainment. Harry Potter books aren't curing cancer and Wish You Were Here isn't carrying me to work in the morning."

    For centuries people have valued art, music and literature. Why? Because the people that can make it, and make it well, are far and few between. Not only that, but whole movements and ways of thought have been started or influenced by books, art, and song. But, for the sake of argument, let's boil it down to a simple pop tune. A song can make a person feel something that he or she didn't know was there or hasn't felt in years. Music can lift someone's mood from depression to happiness then slam them back down again and leave them wanting more. No matter how rock solid or cleanly written, I don't think there has ever been a piece of code that could do that.

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