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What’s Really Going On With Soundcloud And Royalties

Posted by on Jun 9, 2014 | 0 comments

What’s Really Going On With Soundcloud And Royalties

What’s Really Going On With Soundcloud And Royalties

With Soundcloud removing people’s work at the speed of sound, Sal Amato, head of our sister site EDM America TV (and PD of all of Q101.com’s channels) took the time to lay out what’s going to happen and what to expect back in April regarding Soudncloud. It’s in plain-speak and told in a manner that you’d hear if you were in a closed door meeting with industry personnel. Check it out below.

edm-america-tv-soundcloudIt looks like Soundcloud is about to feel the wrath. If you know copyright law like we do, Soundcloud has some issues they’re going to be spending alot of money on when they walk into discussions with the labels, Soundexchange and others. YouTube went through this too and as long as Soundcloud can keep going to the well like YouTube did (for capital) they should be OK.

What sites like Soundcloud have done is create a paradigm shift in how people access music. Like YouTube, the cat’s out of the bag, it’s too late for the music industry to “Napster” them so we assume there’ll be posturing galore coming out of both camps in the next few months and all throughout 2014.

How do we know all these things. We’ve run record companies, we’ve been in the streaming business for almost 20 years, we’ve been artists, we’re DJ’s, we’ve lobbied on the Hill, we’ve been in radio for 40 plus years, in movies, on TV. We’ve owned and worked all sides of the business so we have a pretty good idea on how it all works and why.

These are exciting times we’re living in, we’re laying out foundations and groundwork for how media will be consumed and monetized in the future. When we’re all gone, our legacies will be the foundations we lay out now in the ever-changing landscape of media for others to carry forward.

Soundcloud is a great idea, Mixcloud is too, these companies changed the face of how we listen, watch and discover music. They gave outlets to anyone with a musically artistic idea to share with the world instantly, that’s some powerful shit. What’s not a good idea is allowing anyone and their mother to download the content for free without any qualifiers in place to verify that the person offering it has the right to do so. Without that qualifier, you wind up in an area that leaves your ass wide open for the labels to buy influence on the Hill and make you pay dearly. This is where Soundcloud is today and others may be in the near future.

DJ’s, artists, even labels use these types of sites for their own needs, their own agendas. Some put up their work to SHARE, some put it up toedm-america-tv-soundcloud-download give away their music. That’s all fine and dandy but to be giving away someone else’s work (as a free download) unless you have the rights or clearance to do so is illegal and a violation of copyright law.

You can bullshit yourself all day long if you want and shroud all the free downloads of everyone else’s music in the word “SHARE”. But it is what it is, offering someone else’s music for free.

In the ‘streaming’ world, internet radio broadcasters got shafted so badly that they even had to pay for an ephemeral copy which is built into the royalty structure they pay. Soundcloud gets off pretty easy so far. The word “SHARE” should not turn into “DOWNLOAD” if you do not own the content and right now, that’s the dilemma Soundcloud is facing.

Internet radio broadcasters got blown out of the water for just playing music when the royalty wars were going on [and still are]. We can all thank Mark Cuban for that stiff arm. In fact, when you get the time, read this article. Your love of the ‘fantasy’ of who he is may change. So many small businesses got destroyed because of that and many people lost their jobs.

Mixcloud, DJ List and others like them are in a rather nebulous grey area regarding copyright law in the U.S. until it gets to the downloading of copy-written material. It’s always been our experience that whomever has the deeper pockets will win and get a deal favorable to their side and one that all sides will have to live with, resent and deal with from the day the agreement is signed.

Sites like Soundcloud, DJ List, Mixcloud and others allow people to listen to, upload and download free content. What’s the benefit?

A) Growing a following gives the impression that the person is a hot commodity – even if no one knows most of the work being offered isn’t that person’s work
B) That following can be built on the backs of other artists who get nothing from the free downloads being offered by someone who has no right to do so.
C) The bigger the ‘following’, the bigger the rates the individual being followed can charge for live gigs (most of the time).

Once again, if most of the music being given away on that person’s ‘Soundcloud’ page is not theirs (but in a ‘compilation’ or ‘mix’ form) then the artists included on those get the shaft, they get nothing. This is something that needs to be remedied.

Now, if that person posting free downloads grew their following with music they own or created or had the rights to? Cool, no harm no foul. But, if there’s tons of content up there that the artist never had clearance for and simply offered it up in a mix or song by song remixes? That’s an illegal use of copy written material. If someone put up content (say, a fan) that they recorded from the radio or a show, live event, concert etc and enabled people to download it for free, without any proof of copyright ownership to all those tracks? That’s a violation of copyright law and guess what? The facilitator of that content is liable.

The similarities between what is up on these types of services is no different than what a ‘compilation’ is. The main difference between them is one has the right to put those songs on a compilation to sell, the other has no right to offer the songs on a website to download for free without proper clearances.

Beatport has an interesting system where if you bought the music from their site, you can put your mixes up and offer them for download because there’s a rev share for the songs used on that mix. Soundcloud has nothing like that in place that we know of but maybe they do, but we’ve not seen that option.

edm-america-tv-now-thats-what-i-call-musicLet’s look at a ‘compilation’ for a moment and how it works. Let’s look at the most obvious, the incredibly successful “NOW” series. They have to obtain clearance on every single song on every compilation. They pay a chunk up front to license each song. After all that, they pay points on each song and publishing on each track when a sale or download occurs.

Why doesn’t that happen with all these people posting free downloads of everyone else’s music? Because very few people know anything about the business. We know very few have the money to pay a licensing fee upfront for each song. Most of them are bedroom producers etc. just trying to make a name for themselves and get some visibility in a very cluttered marketplace. Many of them have no clue what the statement I just made even means.

Many bedroom producers, DJ’s, remixers etc have no contacts in the music business, they have no knowledge of how to go about doing that or whom they should contact. To say “I remixed a Beyonce’ song and it’s on Soundcloud” sounds far more impressive than someone to say “I remixed Joe Schmoe’s new song”.

However, I always ask, “Was it sanctioned by the artist”? The answer is usually no. I’m not dumping on people re-producing a song to show off their skills but you can’t just allow people to download that shit! You don’t own it!

That’s the eco-system today. That’s where we’re at and with electronics. It ain’t back to the days of the Edsel or Yugo and the labels either so copyright owners and people who produce are going to have to come to a happy medium here.

Production today is different than production 10 years ago. Back then, you went into a studio or someone’s home studio, you paid for that, you needed musicians, microphones, an engineer, vocalists. if producing dance/EDM, you may have needed a programmer or a musician to bring your idea to life [in areas where you lack the ability to program the sequencers, samples, drum machines etc.]

With electronics today? You have the equivalent of a studio that used to cost 2,000.00 an hour on your friggin’ iPhone with an entire array of sounds, drops, samples, instruments etc. Today, anyone can be a ‘producer’. Once you ‘produce’ something, BAM! You post it to Soundcloud and sites like it (Zippyshare, Mixcloud etc) and you’re on your way. This is a new dynamic in our industry that needs clarification for providers as well as talent/artists.

Never before have we been able to produce something and deliver a finished product with no clarifications to ownership with such speed. It used to be that, after a song was ‘produced’, it had to go out to get mastered, then manufactured, then packaged and shipped to retailers, distributors etc. Today? Not too may people have any memory or knowledge of that because its all done on a wireless device, on a tablet, on a cell phone. What used to take weeks now can take an hour for the entire production-to-release process. The problem with that is that laws always lag behind our lives and many people think history started 20 minutes ago.

The problem here is allowing anyone to offer anyone else’s work without permission for free to download. That’s where Soundcloud gets in trouble and to be fair to Soundcloud, people can skirt Soundcloud’s copyright protection systems and that puts Soundcloud in hot water.

Soundcloud grew its soon-to-be-adjusted-business-model by allowing people to upload music. People would upload their productions, their remixes, their music. People also started doing their own remixes and re-productions of other people’s works, then people started uploading mixes with music on the mixes that they did not own and yet the system allowed it all to be downloaded for free. That’s facilitating the downloading of copy written material and a massive violation of the law and that’s where the sticking points are going to be in the negotiations.

The initial concept was cool. People upload their work, some share it, others follow that artist, the artist builds a following, some offer free downloads of their work. Mixcloud does not allow you download music or the mixes. Other services like Hulkshare do and it’s just a matter of time before they get a knock on the door.

Keep this in mind too. There’s never been a rule or regulation [thought up by any of the over-educated in D.C.] until some human [and then masses of humans] did shit they weren’t supposed to do. That’s what prompts public outcry to ‘do something’ and then, the self-enriching ruling-class in D.C. come up with some half-baked scheme because

A) They really didn’t know anything about what they were passing

B) The lobbyist with the biggest pockets wins. In many cases, “Big Entertainment” finances some of the most important people on key Committees in D.C. and that’s how legislation gets passed, to the highest bidder. This doesn’t happen all the time but many times.

The idea of sharing is a great idea, it keep creativity flowing, it fosters ideas, concepts, new ways of doing things and new possibilities. But, when it gets to the epidemic proportion it is now on Soundcloud, something’s going to change.

The way the laws are written, its not like they’re offering ‘near perfect’ copies of anything either. However, people appear to be quite content with the new “dumbed down version” of ‘high quality audio’. In other words, lower audio grade versions that people get from YouTube or Soundcloud and others are truly low grade reproductions of these song but they’re good enough for people who now have no reason to buy the artist’s music or work.

Perhaps its time to upgrade the definition of ‘near-perfect’ copy because people have now accepted a new precedent in low-grade audio as superior. Why? Their ears have been conditioned so long to not know its shit.

edm-america-tv-siriusAt one time Satellite radio was broadcasting using 96K WMA audio files – THAT IS ABSOLUTE SHIT! And yet people were so enamored with the idea of the choices they now had at their fingertips, they thought the audio quality was great because it was ‘digital’. Their minds were programmed.

I was the architect of their defunct House channel a little over 10 years ago. With that crap audio quality, people still paid for it and tolerated a lower grade audio form as the new ‘norm’.

With that in mind, perhaps the music industry may say in negotiations with Soundcloud and others, “sure, we’ll tolerate the free downloads but you’re going to pay for it and you’re going to lower the audio quality to 64K”. It’s not out of the realm of possibility. Soundcloud might not be too happy with that. They know lower audio quality means people may just say screw it and go underground or to another service that may take five years for the labels to realize exists.

We believe that will become another negotiating point that the labels will use in their favor to up the amount of money they’re going to get out all these ‘negotiations’ when they’re completed.

The easiest solution for Soundcloud is to have a qualifier system that can allow it to determine if someone has the right to offer a ‘free download’ of the content. The problem with that is that no one wants to wait for the amount of time it will take a few hundred thousand requests each month to be reviewed by Soundcloud. We think they’re smart enough to come up with a system to benefit all.

After the public flogging,edm-america-tv-soundexchange (we imagine is coming in the next few months) we believe that Soundcloud will get fisted for about 25% of revenue to Soundexchange and the industry when it’s all said and done.

What is Soundexchange? Well, let’s define it for you in a theatrical way: Soundexchange is like the mob. They have a ‘license’ to collect money for the labels in a new arena, streaming. Soundexchange was basically set up to do what the labels couldn’t do. Kind of like the mob setting up a front to collect dough and the ‘collector’ pays its ‘respect’ to the boss who allows them to operate. They collect ‘royalties’ and [supposedly] some of that money goes to the ‘artists’. There’s some debate on the realities of ‘how much’ has been paid and other bizarre things about SX but that’s for a different article.

Let us be very clear here, the major labels are no angels, there’s deviants among all the five families that are all foreign owned. They’re in court forever, winning some and losing many for screwing over more artists than you’ll ever know.

But in Soundcloud’s case, the dynamics are all over the place. There’s majors, indies, artists – all uploading, sharing and offering free downloads. It really is a mess.

It will take some time to iron it all out because what Soundcloud, Mixcloud and others have done has changed the dynamics of how music and media are consumed. There’s new expectations now based on that, people have new habits and if you try to take that away from people, the music industry runs the risk of alienating even more people.

There’s many affected here and many still to weigh in. Once all grievances are heard then a solution can be crafted to move forward that [hopefully] does the least amount of damage to all, including the public.

You can’t just take what Soundcloud has done and toss it to the curb the way the music industry probably wishes it could. It’s a great concept, it just needs to look at what its doing to make sure its not infringing on anyone’s rights. And again, the labels screwed up, they’re so busy hanging on for dear life, they’re not creating new products and avenues that people want to make their music worth more.

edm-america-tv-dmcaLegislation on these types of issues are always suspect. We can thank our Government for selling everyone down the drain, the labels are no exception and neither is terrestrial radio. We can all thank Bill Clinton for selling your radio stations industry down the drain. Clinton lined his pockets pretty well on the De-Reg Act of ’96 as well as the D.M.C.A. Sorry, if we woke you up and thought he was one of those who really ‘cared’, reality sucks and those two pieces of legislation set the stage for what we’re doing and reacting to today.

The problem on the Hill [with any of this stuff] is that when you have the head of a committee [who knows NOTHING about the internet] the music andedm-america-tv-washington-hand-job the eco-system of it all, that person’s vocabulary is controlled by the people with the most money. If the politician is a real rube then they will spew out whatever they’re told to say to justify their position on the matter, no matter how screwed and flawed it may seem.

Sometimes artists ain’t the brightest bulbs in the bunch either. Many are irresponsible. Many blow through money like drunken sailors and then come back to their ‘pimp’ (the record label) for more ‘advances’ (money given to the artist in advance of sales the artist may have in the future). The downfall of that is the artist may wind up in perpetual recoup. (Recoup means the artist gets no more money until the advances given to them are repaid in sales etc. of the artists work, back to the label). Then there’s the artists who are victims of a manager who should be dragged from a car on a freeway doing 120 MPH. This business has all kinds of malfunctioning humans in it. This is the business of music, not a free-for-all. You either learn about it or pay dearly for it.

edm-america-tv-label-loan-advance

The label is like a ‘bank’. A label may ‘loan’ an artist money for a variety of reasons; produce work to be released; buy some back catalog of an artist to distribute on a wider basis than the artist could ever reach and more. Those monies paid upfront [before the artist earns a dime] are called ‘advances’. They’re paid in ‘advance’ of sales because the label believes in the artist and feels it will get all of its money back in time.

A label ‘invests’ in an artist, not like they used to but they still lay out capital and deserve to get that back through time. That ‘advance’ gets paid back to them. How? As the artist’s music is sold, the label will not disperse any payments to the artist until its records show the artist no longer owes the label for that money it ‘advanced’. Some artists can negotiate better deals, some can’t.

Don’t believe all the sob stories you hear about the ‘poor artist’. Many of them put themselves in the trick bag because they were too busy pissing all their money away. Some don’t understand that they are essentially a CEO of their own company, they’re not just an ‘artist’. With that in mind, they don’t deserve to get screwed and neither does the label. This is why more and more artists are controlling their own work online. Their own labels, their own businesses. Some are successful, some getting there, some should consider a career at Wal-Mart.

Let us take you back to a time before most of you were even a thought in Mommy and Baby Daddy’s mind….

edm-america-tv-mixtapeThere used to be a mix tape market. Mix tapes were ways club DJ’s could get music out that wasn’t necessarily easy for people to find. In fact, way back then, you didn’t have any alternative other than AM and FM radio – that’s it – NOTHING ELSE… other than mix tapes.

Chicago was pretty much where it started. Sure, in NYC you had people like Russell Simmons selling bootlegged music, tapes etc. out of his trunk. (and now he’s a Deity, go figure) DJ’s were selling club music tapes because none of it was available anywhere for the average person to find. For most club music back in the day you had to go to specific “DJ” type stores. In Chicago it was Importes Etc. The Loop Records, Grammophone, Dr. Wax and a few others including The Hip House where DJ Sneak got his start. In NYC you had Carmine’s and others, L.A. had Streesounds and more.

Back then, the average person never knew where these “DJ Stores” were or that they even existed. All the masses knew was what was fed to them; MusicLand, Sound Warehouse, Sam Goody etc. The big national chains that never stocked with an ounce of club or dance music. They simply sold rock, pop, all the college puke shit you could handle, jazz, some country (depending on your market) and a small amount of R&B that was allowed on white radio at the time and old stuff. That was it.

Mix Tapes were a viable option and many of the labels that produced it were cool with the exposure (for the most part) because there was no other way to get their music exposed to the public because of the limited outlets.

Right around the early-mid 90’s, the music industry started to crack down, they were busting flea markets left and right where vendors were selling bootleg CD’s, bootleg cassettes etc. Primarily because many mix tapes were filled with less and less indie dance label stuff and more and more major label stuff.

Then, because of their power already with being on the radio, Bad Boy Bill and others in Chicago and NYC turned the tables by offering legit mix tapes, legit CD mixes. They were playing their own label’s music in their mixes on the radio and that generated interest in the tracks. Those tracks were on their mix tapes and CDs. They were also playing other labels tracks in those mixes so everyone kind of just worked with everyone by clearing each other’s tracks.

edm-america-tv-bad-boy-bill-baingin-1DJ’s on the mix shows could create instant demand. They’d play their own stuff and others who were friendly to them, create legit mix tapes/CD’s with music on them that they’d not get in trouble for using any of it.

Bill was really a pioneer in how it all went down because he was one (if not the first) of those who penetrated the major retailer stores with his mix CDs and vision to enter the multi-media field. He took it all to a whole new level. His name recognition was so strong in Chicago that the major retailers started getting requests for his mix CDs and had to start stocking them, that kicked the legit mix tape/cd market into motion – pre-digital download days.

Bill’s “Bangin’ The Box”, his DVD’s and other forms of media were decades ahead of what anyone was doing. There’s a reason he’s in the U.S. Dance Music Hall of Fame.

The way most of it worked was that DJ’s like Bad Boy Bill and others (the crew at Aqua Boogie, UC, Strictly Rhythm and others, steering away from anyone that could be a problem) all would have Carte Blance’ on each other’s tracks (for the most part). Most were mix show DJ’s on major market radio stations exposing people to these songs that otherwise would have NEVER heard them. You have these DJ’s in the mix shows banging your tracks in the mixes and the DJ shops stocking up on your tracks and selling them, it made sense. DJ’s had found a way to do what the majors were doing for 50 years and then went one better on them by showing that the majors material wasn’t needed for a radio station to draw a 10 share 18-34 female on Friday and Saturday nights in markets 1-10edm-america-tv-aqua-boogie-records

With Soundcloud, many know their shit is up there and don’t care, its good exposure, it grows their numbers and their booking rates go higher as their followings grow. Many don’t know their shit is up there and that pisses them off.

For Soundcloud? What do we think will happen? As we said above, about 25% of all revenue is what they’ll wind up paying to the owners of copyright (that doesn’t necessarily mean the ‘artist’ either).

They’ll be fine but changes are going to come after they pay through the ass for the ‘sins of the past’. That’s just our expert opinion. We smell another round of financing coming around. They’ll get their tally-whacker slapped around in the public eye [possibly] to make it all look good, the labels always want to appear as if they care about the artists. They’ll all work behind the scenes and in time, new and interesting revenue streams for the artists and those posting the music to capitalize from will appear. Again, based on how things go in this business, that’s our opinion.

edm-america-tv-mixcloudIt’s going to be a wild ride for them, and Mixcloud and others. If you don’t think Spotify and others are filling the ears of their ‘friends on the Hill’ to make it painful for Soundcloud and the others? You’re delusional.

This is a lot to digest, but as we stated in the headline, this is a frank discussion about what will be involved in all that goes on in the negotiations between the record labels and Soundcloud in the coming months. All the arguments Soundcloud may make in its defense, all the arguments the labels may make in their attacks and our realistic analysis in plain English.

After Soundcloud? The rest of them better be prepared. Why Soundcloud now? Because they’re the biggest of all those types of sites right now. Why are they the biggest? Look at all the freebies there. They have a target on their back right now.

This is our thoughts, our opinions, we’ve been in these types of negotiations so we wanted to give it to you straight with color commentary. We’ll keep you posted on updates.

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