The argument on the SXSW Panel

This year at South By Southwest I was invited to appear on a panel.

The panel was, to put it mildly, interesting. The title of it was "Aggregators Get It Together" and featured panelists from The Orchard, IODA, DRA, Verizon V-cast and myself. Prior to SXSW I was interviewed by Billboard Magainze for my thoughts on digital distribution and independent labels/artists. It's not a secret that I believe companies that require a label or artist to assign rigthts to their masters and give a percentage of the revenue generated from every sale of their music in an exclusive deal for many years is just dead wrong. I believe it's gouging and taking advantage.

In the Billboard article I am quoted as saying, among other things, "I despise the economic model of aggregators. They're morally repugnant". In the green room prior to the panel the person from the aggregator DRA launched into me pretty aggressively complaining that I was making a judgement on him and his customers calling them both "stupid". He demanded to know how I could make such a statement. The answer I gave him is the same one I am going to give now.

I can make that statement because I have owned and run a record label for the past 15 years. I understand the way things work and I also understand - and can spot - when someone is trying to take advantage and gouge. Aggregators are taking advantage and what they are doing is wrong. Aggregators require artists and labels they work with to assign rights to their masters (their digital rights) to them for an exclusive period of time. In addition to taking rights to the masters, they also demand an unlimited amount of money from their "clients."

Aggregators take a percentage of the money earned off the sale of your music with no limit. That is, each time your music sells they take a % of your money (usually between 9% - 30%) with no limit as to how much they can take.

This is ridiculous as the aggregators did almost nothing to cause these sales. It's like going into Fed Ex to send your album to iTunes and Fed Ex says the cost for delivering the package will be 9% - 30% of the money generated from the sale of your music for the next three years.

You do the hard work (and if you are signed you and your label do the work), record the songs, mix and master. You let people know your music exists - you call and email, tour, drive hours between gigs, load in and out, max out credit cards, beg, borrow , steal, push, call promoters, sleep on floors, eat Taco Bell, pay for the gas to drive with, pay for radio and/or press promotion, etc., etc. They do none of this, and this work is what causes awareness and sales. Aggregators delivering your music to be made available does not cause it to sell.

Aggregators claim to market you. Forgive me, but in my opinion, what a load of crap. At the aggregators panel the co-founder of the The Orchard (an aggregator) stated The Orchard had over 2,000 labels, over 800,000 songs and approximately 8,000 albums in their system (mind you each one of these labels, songs and albums were tied down into and exclusive agreement with The Orchard). Each month, each label is putting out at least 1 to 5 more albums. This is another 100 - 500 songs a month by another 1 to 5 bands.

How in the world do you effectivly market 8,000 albums and almost 1,000,000 songs? How much staff would you possibly need? And even if you had a staff of thousands "markerting" the music, how in the world do they do it? You can not effectively market this volume music at once. Calling up iTunes and giving them a list of 100 bands they should pay attention to is not going to do anything.

"Hi iTunes, The Orchard here, here's a list of 100 bands this week. We know you are getting calls from all the major record labels and indie labels but I am Bob from the Orchard with a list of 100 bands that you might never have heard. By the way, next week, we'll be back with another 100 bands and have moved on from the bands from last week.."

This means priorities are picked, which means 99% of the music they are supposedly promoting is shoved to the side and ignored. They took your rights, promised you marketing and then ignored you.

The real kicker, at the SXSW panel I was on, The Orchard representative stated " We don't work with bands, we work with labels". I think that statement speaks for itself - if you're an artist, the Orchard is not the place for you.

And what if you hire an independent publicist? Publicist do a hell of a lot more than an aggregator in terms of promoting your music yet they do not take any rights to your masters nor a % of the money from the sale of your music. They take a flat fee. Same with radio promoters, retail promoters and more. The aggregators are the ONLY ones out there claiming to market you ( which in my opinion they really don't do) and then demand exclusive rights and an unlimited amount of money getting paid each time your music sells.

I find this disgusting.

If you believe in your band and music, and you believe your music will sell, you will be paying them a limitless amount of money. That is, each time your music sells, they just keep taking 9% - 30% of the money with NO limit. You do all the work, and they sit back and take the dough.

What if over the next 12 months you sell an average of 4 copies of your album and 25 individual songs each month in just the iTunes US store - not an outrageous number of sales at all.

With these sales, an aggregator taking 9% of the revenue from just music sold in the iTunes US store is $49.14. The total an aggregator taking 30% of your money is over $150.

With a flat rate model the cost will be somewhere between $18 to $22 and thats it. And keep in mind, this is ONLY if your albums /songs sell just 4 copies of your album and 25 individual songs each month in just the iTunes US store. If you sell more, with a flat rate mode the cost for a 10 song album in the iTunes US store stays at around $18. With the aggregators you are paying them more and more and more and your rights are tied down.

Another example, in the next year in just the iTunes US store you sell 100 albums. That's $63 for 9% and over $190 for 30%.

Also note, this is JUST the iTunes US store sales, if your music is selling in other stores, the aggregators make even more money off you. With a flat rate model - like TuneCore - the amount paid for delivery stays at around $18, it is non-exclusive, cancel whenever you want you are not assigning exclsuive rights to your masters.

Then there is how, and when, you get paid.

All aggregators pay out your money in "royalty periods". For example, some pay every three months and send you your money only after they have taken their 9% - 30% cut. What's important to note is that places like iTunes pay out the money from the sale of your music on a month to month basis. This means the aggregators intentionally sit on your money - this means they can earn interest on it. Why not, one more way to gouge and take advantage of you.

This is NOT how it should be. Your money hits their bank account vai direct deposit from iTunes. It is available instantly, no check needs to clear. There is NO reason to make you wait. This is your money. You should be able to log in and take it whenever you want, not when some aggregator feels like allowing you. There is no reason why you should not have control and be at the mercy of someone else to get your cash.

Next, most aggregators will not even pay you your money because they have decided you have not earned enough to justify getting paid. All of the aggregators require you to earn a minimum amount they determine before they will even pay you. Hey, $20 to me is $20. Why in the world should you not be allowed to have your money? Can you imagine if a bank did that. "I am sorry sir, you only have $20 in your account, we won't let you have it. Please earn more and come back when you reach $50. In the meantime, we will sit on your money and earn interest off of it. "

Even as I type this I can not get over how ridiculous this sounds.

Move on to your rights

With most aggregators you MUST give them the EXCLUSIVE rights to your music. They control them and own them for a set period of time - usually the next three to five years. If an opportunity comes up with a label or something else, you will not have your digital rights to offer, the aggregator owns them for that period of time. These companies have now tied you up and can stop a deal going through. It is possible they will allow themselves to be "bought out". That is, let's say a label wants to sign you but requires your digital rights, well, an aggregator could sell your rights for a price. Oh, that's fair.

And then there is choice, with TuneCore you get to pick and choose which stores you want to be in, you are not lumped into everything and just shoved off. Maybe there is a place you do not want your music for sale.

How about your older albums. Let's take the White Stripes. There are three or four albums that came out years before "Elephant" was released and propelled the White Stripes into international rock stardom. If you had the rights to these older albums, did a deal with an aggregator and then the band took off, you would literally be giving up hundreds of thousands of dollars to some company that did nothing at all to cause these sales. Not a single thing. They just sit back and take your money.

The aggregators are aware of all of these things. It's not as if their deal terms contain accidently errors allowing them to own your rights, take you money, keep your money from you etc. They do it because they can, and until TuneCore, they were able to get away with it because there was no other choice.

This is why I believe aggregators are morally repugnant.

So, as you can imagine, the gentleman from the aggregator from DRA had not much to say back. He did try to attack me personally and directly on the panel. One of the highlights is when he attempted to describe how TuneCore worked and what it charged. He just made things up - it was both amusing and sad.

But in the end, how can you defend a model that is just dead wrong and look good?

Comments

[Tim Price]

Hi, great column, very thought-provoking. What about aggregators who don't take a royalty? What are your thoughts?

Cheers
Tim

[F. Alanon]

This is a pretty interesting column, and there are a lot of good points you make. Obviously, you're very pro-DIY for bands even though you've run a label for a long time. I'm curious what percentage of the money all the old spinart artists getting on their downloads when their songs get downloaded on iTunes, (presumably via TuneCore). Also, does that percentage increase if they have an album that came out on another label and they got famous from it?

Thanks,
Fuktrad Alanon