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Trade Press

Digital Devaluation Makes Fan Relationship Central, Labels Say
Washington Internet Daily, Sept 18, 2007

Forget the no-name band hitting it big through MySpace or iTunes: Small labels aim to form fan bonds the old-fashioned way, executives said Monday at the Future of Music Policy Summit in Washington. Ring tones especially drew derision as a "byproduct" of commercial success, not a booster of small label bottom lines.

Sales keep falling, and the Tower Records closing "hurts all of us," but there's "more vitality in the music industry than there's been in a long time," said David Bither, senior vice president of Warner Music Group's 12-employee Nonesuch Records. Nonesuch is "not the 501(c)(3)" of WMG, and it would close quickly if it weren't profitable, he said.

Today's artists have to answer the question "How do you rise above the clutter?" said Mobile Entertainment Americas Forum founder Ralph Simon, considered the father of the ring tone. An enterprising new company, Artists Without a Label -- fittingly, AWOL -- helps artists seek long-term success rather than "get exposure on a whim," he said. Finding "artful" employees at digital music distributors like Apple is "like trying to find a pork chop in a synagogue," he said.

The free music bundled with his AT&T Internet installation CD convinced him "it's over" for music's "spirituality," veteran rocker Bob Mould said. "People sit and download 100 songs a day, and they're all icons on the desktop and maybe one or two make it into the iTunes folder," the former Husker Du guitarist said, reminiscing about spending his youth in record stores and reading magazines to find music to buy. "I'm not trying to paint a horrible picture... but somewhere along the way we've also conspired to lessen the value" of music, Mould said. The industry once was full of "skyscrapers" and a few organically successful bands like REM and U2, but now music is "two-level tract housing," Mould said.

Fans still are willing to buy music in an era of instant unpaid gratification, Bither said. Indie darlings Wilco had an album held hostage by WMG's Reprise Records for months before the band moved to fellow imprint Nonesuch, Bither said. When the band got its album masters and posted them online before joining Nonesuch, fans grabbed them right away, in the process e-mailing the label to say they would buy physical copies as soon as stores had them, he said. Wilco's most recent album had the band's best first-week sales ever, Bither said. Fans will buy, "if you give your audience a reason to believe in you," he said.

"I have such a hard time getting interested in ringtones," said Mac McCaughan, co-owner of Merge Records, home to crossover hit group Arcade Fire. A staffer recently showed him the company's ring tone folder of about 80 clips; he thought, "Oh God, is this really part of my job?" McCaughan said. Nor will he visit an artist's MySpace page even if given the link, he said. "You've really got to do some sifting" to find good music, a role in which labels still can function, he said. A couple of years ago, digital sales made up 30 to 40 percent of Merge total sales in the first few months of a recording's availability, then slid as physical sales grew; now for many releases digital sales hold steady at about 30 percent well after a year, McCaughan said.

Labels must cater to and build long-term relationships with hardcore fans as artists gain more control over their work, Bither said. A five-CD collection of jazz pianist Brad Mehldau's weeklong stand at the Village Vanguard may work financially if aimed at diehard Mehldau fans, he said. And labels should be more tolerant of live material and mashups floating on the "darknet" of P2P networks, McCaughan said. "We don't sit around worrying how we're somehow going to make money off that," instead seeing such material as brand promotion. -- Greg Piper

Reprinted by permission of Warren Communications News, www.warren-news.com, 800-771-9202

Broadband Expansion Replacing Neutrality on Hill, Staff Say
Washington Internet Daily, Sept 18, 2007

Net neutrality isn't dead, but it's being discussed in a broader context, Democratic congressional aides said Monday at the Future of Music Policy Summit in Washington. "The sword of Damocles" hangs over Internet service providers in the form of congressional oversight, said Kenneth DeGraff, aide to House Internet Subcommittee Vice Chairman Mike Doyle, D-Pa. But DeGraff said he fears that outright blocking of Vonage by Madison River, which set off the neutrality debate, may be the last such overt episode of abuse, with future instances of network discrimination invisible to technical staff, never mind to Congress.

Jessica Rosenworcel, Senate Commerce Committee staffer, said Justice Department comments against net neutrality that missed an FCC deadline illustrate the White House approach. "I don't think it dramatically changes the dialogue," as some neutrality partisans claim, she said. "We're long past time" for raising the minimum speed that the government identifies as "broadband," now 200 kbps, Rosenworcel said. Amateur video director DeGraff said creative professionals should harp on Congress to get providers to raise upload speeds, which he called essential to their success as artists.

S-1492, the broadband mapping bill, is key to expanding broadband and easing neutrality concerns, Rosenworcel said. "You can't manage problems that you don't measure," she said. Such small, targeted measures are the new norm for Congress after the 109th's failure to pass a major telecom bill, said DeGraff. "I don't think there's much appetite" for another multipurpose measure, he said.

For months consumed with patent reform, Senate Judiciary plans hearings on terrestrial radio and extending the performance right, said counsel Aaron Cooper. DeGraff said to watch must-pass year-end spending bills to see if performance-royalty language gets inserted. "Anything can happen [at] the last minute."

Neutrality Opponents Have Empty Heads?

Senator Byron Dorgan, D-N.D., liberally used folksy proverbs at the conference to rib his opponents on net neutrality. Told that his neutrality arguments didn't make sense, Dorgan said: "When you hit someone over the head with a book and it makes a hollow sound, it doesn't mean the book is empty."

Media ownership rules affect net neutrality, Dorgan said. Big-media companies that own vast Web properties say there are more "voices" on the Internet than ever, but there are really "more voices for one ventriloquist," he said. Telcos that want to control access to their "pipes" can't be allowed to preempt the next Google. "You know who owns your pipes? Your customers. You have no right to set up a tollbooth." Dorgan said he has "a lot of hope" that the next administration will reverse gears on media ownership and neutrality.

Dorgan's neutrality bill will be back and needs activists to help get 60 votes for floor passage, he said. It narrowly lost as an amendment to the telecom bill last Congress, and the larger bill was killed before it could come to the floor. Dorgan said, "The success of a rain dance depends on the timing." With the Justice Department and FTC intervention against neutrality, activists must strike now, he said: "I don't wake up in the morning thinking we're not going to win." -- Greg Piper

Future of Music Notebook...

The Digital Millennium Copyright Act "did what it was supposed to do" and has worked "pretty good," though the law is showing "some signs of age because nobody anticipated peer-to-peer" swapping, U.S. Register of Copyrights Marybeth Peters told the conference. Other issues the law didn't anticipate and may not resolve are the YouTube infringement litigation, "reasonable steps" to prevent reposting of removed copyrighted material and the "making available" theory of infringement, she said. The last is winding its way through a handful of courts in P2P infringement cases. Peters at first strongly opposed the Copyright Office's newfound role in evaluating technological access control exemptions every three years, "but that's actually something that seems to have worked," she said. The new assignment gives her agency a chance to see where the market needs a nudge from government, she said. It finished its second triennial review a year ago. Generally the DMCA has given people access to unlocked content, perhaps not "in the most convenient form," she said. Peters joked that she hopes to see a performance royalty instituted for terrestrial radio "in my lifetime," because although "pure justice says that recording artists need to get paid" when their work is used, the NAB is formidable opposition. "Once you hit the Senate with the holds, if there is a provision that is anathema to any particular group, I think that is a difficulty." Asked how the Copyright Office has changed in her 40 years there, Peters said it was "much more genteel" when she started in 1967. More industry players now jockey for influence, and there's actually a notion of consumer interest, a concept originally pushed by libraries, she said. Lawmakers once simply pushed through changes if combatants couldn't agree, but that's largely gone, she said, citing the negotiations between webcasting parties after House and Senate leaders told them to settle it themselves. -- GP

Reprinted by permission of Warren Communications News, www.warren-news.com, 800-771-9202

Small Music Stores Hold on through Web, Rare Titles
Washington Internet Daily, Sept 19, 2007

Challenged by the convenience, selection and cozy label deals of iTunes and big-box retailers, small music retailers are finding a new life in digital distribution through their own nascent Web storefronts and e-mail interaction with in-store visitors, some of them told the Future of Music Policy Summit in Washington on Tuesday. But their stock is bound to become more specialized as prices fall and fans seek scarce content with higher margins. "Everybody in my office now buys way more vinyl than they do downloads or CDs," said Sean O'Connell, president of Music Allies, which does consulting for independent music companies.

New York-based Other Music recently opened a download store, built on its weekly e-mail blast and online mail- order store, which started around 2000, said co-owner Josh Madell. All items, picked by staff members, are sold at 320 kbps with no DRM, and Other Music is expanding promotion nationwide after a "soft launch," he said. New England pop-culture chain Newbury Comics will ship its millionth online mail-order purchase -- it's in Amazon's top three sellers -- in the next month, CEO Mike Dreese said. The chain, which has a 95,000-entry e-mail list of store visitors, is grabbing exclusives to avoid the "destructive" trends in online pricing, he said. Every store is after "account status with a fan," or a billing relationship that keeps customers coming back, Dreese said.

Stores with no Web presence probably will have to "diversify" beyond CDs to stay afloat, O'Connell said. In 2020, music stores will be "curators" that live by their reputations for hand-picking excellent music, he said. A leading conventional music retailer will be among the casualties the next 5 years, Dreese predicted. That's about how long the CD format will last as a consumer staple, he said: Newbury's CD sales recently fell below 50 percent of total sales for the first time. Artists don't worry much, seeing recording sales as "promotion" for concerts more than a revenue source, said musician Franz Nicolay, founder of "punky chamber music collective" Anti-Social Music.

Consumers used to buy albums simply for their covers, but now they do so based on full-album streaming, said Tim Quirk, Rhapsody vice president of music programming. Rhapsody found that bands that allowed on-demand streaming of albums, not just downloads, saw downloads triple through the service, with more non-Top 40 music downloaded, he said.

Exclusive tracks heighten the tension between artists and stores, speakers said. A week of being the only shop with a certain album or version with bonus material can give a store a long-term leg up, or boost full album sales if a few tracks are released early in digital form, Madell said. The downside is if iTunes or Best Buy gets the exclusive, which major labels are apt to give them, he said. Artists are pressured by labels to add live material or acoustic versions to albums already released to "cut the bleeding" by enabling new sales at higher prices, O'Connell said. Nicolay said a typical label might tell its artists to do exclusive tracks for iTunes and for eMusic, two different album covers for domestic and international markets, and several acoustic versions of album tracks. Artists are wary of label demands, for fear of being scorned for making fans repurchase an album to get a few new tracks, Dreese said.

The new landscape is simply "the march of progress," said Dreese. Of rocker Bob Mould's lament that music has lost its "spirituality" (WID Sept 18 p5), Dreese said, "he's a really poor focus group of one." A song's value depends on its "ecosystem" -- a friend of Dreese's recently made a bundle licensing a song for Guitar Hero. Madell said he recently had his biggest payday ever, $10,000 for penning a song for a band he once played in.

Store owners aren't concerned about Starbucks' new role as a music retailer, they said. The chain carries too few titles to compete, O'Connell said. When now- bankrupt Tower Records came to a town that was home to a Newbury Comics store, Newbury did more business, Dreese said. "Coffee drinkers are hardly a niche market," so his stores' most loyal customers aren't likely to leave. -- Greg Piper

Reprinted by permission of Warren Communications News, www.warren-news.com, 800-771-9202

Wyden Wants CRB Dead No Matter How Webcast Talks Go
Washington Internet Daily, Sept 19, 2007

Even if SoundExchange and webcasters agree on royalty rates and side issues, the process that led them to such a morass can't be allowed to stand, Senator Ron Wyden, D- Ore., said Tuesday at the Future of Music Policy Summit. Wyden promised to continue the push for his Internet Radio Equality Act regardless of how webcasting negotiations turn out. An aide later confirmed that Wyden wants to abolish the Copyright Royalty Board and its enabling legislation. The board set new rates in March eliminating the percentage-of-revenue payment option and required webcasters to pay royalties by the song.

Wyden promised before recess to resurrect the push for his bill (S-1353) if SoundExchange and webcasters didn't make "great progress" in negotiations by Labor Day (WID Aug 6 p2). Recent accord between the sides on a limit to the board-set per-channel minimum fees, which could have bankrupted some popular webcasters without corporate parents, is "a little bit of a breakthrough" for Internet radio, Wyden said Tuesday. But the system itself doesn't work for webcasters, Wyden said. "Internet radio may not die, but it's sure going to be hurt" regardless of negotiations, he said. "The statute needs to be changed."

A Wyden spokeswoman said the senator wants SoundExchange to resolve outstanding issues in negotiations, "permanently" -- making obsolete the board's next webcasting rate proceedings in 2010. If no permanent resolution comes, Wyden will keep at his legislative push, and try to shut down the board. He asked activists at the conference to e-mail him ideas on a better way to devise webcasting rates but didn't say he wanted the board nixed. A source close to Senate action on the topic said the results of current negotiations between SoundExchange and webcasters probably would be a starting point for new legislation.

Hours after Wyden's declaration, SoundExchange said 24 small webcasters have accepted its offer to let them pay below-market rates substantially similar to the terms of the Small Webcasters Settlement Act of 2002. More webcasters are "in the process of signing" the agreement. "This is a great deal for someone who wants to start or build a webcasting business," said SoundExchange Executive Director John Simson.

Webcasting is the "third fight" for Internet freedom disciples, following the Internet access tax moratorium, which expires Nov. 1, and net neutrality, Wyden said. He's the sponsor of bills on each subject. The government must not exercise "ham-handed regulation" over the Internet, he said. Big media companies are "much more interested in government protecting them" than the Vermont entrepreneur selling maple syrup online, the Christian webcaster or the grassroots activist, he said. Wyden said he was touched by a letter he got from a soldier in Iraq, who said access to the Pandora Internet radio stations he shared with his wife and kids back home kept him going in the conflict.

Next year's election make it unlikely a "major piece of legislation" on net neutrality will get through, Wyden said. Alluding not only to Democratic frontrunners but also his webcasting bill cosponsor, Senator Sam Brownback, R-Kan., Wyden said: "Virtually everybody in the United States Senate is running for president except me." The action on neutrality rests with the FCC now, and "I would encourage vigilance" to make sure the agency doesn't give service providers a free pass to monkey with networks, he said. Neutrality opponents "have so much money and have good message control," to the point that they place anti- neutrality ads in the escalator corridor at National Airport at the spot where lawmakers board the Hill shuttle. But never fear, because "we're on the right side of history," he said.

Media ownership remains relevant in the age of do-it- yourself Internet publishing, Wyden said. Communications have come far since his first campaign, when he bought half-hour blocks on the four Oregon TV stations to field callers. Now constituents can post video of his town hall meetings in 15 minutes, he said. "Obviously there's still heavy lifting to do" on ownership limits, though, as "market researchers" seek a nationwide network of "homogenized" stations, he said. -- Greg Piper

Reprinted by permission of Warren Communications News, www.warren-news.com, 800-771-9202