The Heavenly Jukebox

Rampant music piracy may hurt musicians less than they fear. The real threat—to listeners and, conceivably, democracy itself—is the music industry's reaction to it
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They're Paying Our Song

Every year Austin, Texas, hosts South by Southwest, the nation's biggest showcase for independent rock-and-roll. Hundreds of bands play in the city's scores of enjoyably scruffy bars, which are thronged by young people with the slightly dazed expression that is a side effect of shouting over noisy amplifiers. When I attended the festival this spring, I was overwhelmed by the list of bands—almost a thousand in all, most of them little-known hopefuls. I had no idea how to sort through the list for what I would like. Luckily for me, I ran into some professional music critics who allowed me to accompany them, which is how I ended up listening to the Ass Ponys late one night.

Illustration by Jose CruzLed by a husky singer and guitarist named Chuck Cleaver, the Ponys crunched through a set of songs with whimsical lyrics about robots, astronauts, and rural suicide. At the back of the room, beneath an atmospheric shroud of cigarette smoke, was a card table stacked with copies of their most recent CD, Some Stupid With a Flare Gun. By the bar stood a tight clump of people in sleek black clothing with cell phones the size of credit cards. With their Palm hand-helds they were attempting to beam contact information at one another through the occluded air. They didn't look like local students, so I asked the bartender if he knew who they were. "Dot-commers," he said, setting down my beer with unnecessary force.

Silicon Valley had overwhelmed South by Southwest. In a festival usually devoted to small, colorfully named record labels with two-digit bank balances and crudely printed brochures, the slick ranks of the venture-capitalized were a distinct oddity. It was like a visitation from a distant, richer planet.

Music, especially popular music, has been a cultural bellwether since the end of World War II. Swing, bebop, blues, rock, minimalism, funk, rap: each in its own way has shaped cinema, literature, fashion, television, advertising, and, it sometimes seems, everything else one encounters. But the cultural predominance of the music trade is not matched by its financial import. Last year the worldwide sales of all 600 or so members of the Recording Industry Association of America totaled $14.5 billion—a bit less than, say, the annual revenues of Northwestern Mutual Life Insurance. As for the tiny labels at South by Southwest, many of the dot-coms in attendance could have bought them outright for petty cash.

After the show I asked Cleaver if he was concerned about the fate of the music industry in the Internet age. "You must be kidding," he said. With some resignation he recounted the sneaky methods by which three record labels had ripped off the band or consigned its music to oblivion, a subject to which he has devoted several chapters of an unpublished autobiography he offered to send me. (He had nicer things to say about his current label, Checkered Past.) Later I asked one of the music critics if Cleaver's tales of corporate malfeasance were true. More than true, I was told—they were typical. Not only is the total income from music copyright small, but individual musicians receive even less of the total than one would imagine. "It's relatively mild," Cleaver said later, "the screwing by Napster compared with the regular screwing."

Although many musicians resent it when people download their music free, most of them don't lose much money from the practice, because they earn so little from copyright. "Clearly, copyright can generate a huge amount of money for those people who write songs that become mass sellers," says Simon Frith, a rock scholar in the film-and-media department at the University of Stirling, in Scotland, and the editor of Music and Copyright (1993). But most musicians don't write multimillion-sellers. Last year, according to the survey firm Soundscan, just eighty-eight recordings—only .03 percent of the compact discs on the market-accounted for a quarter of all record sales. For the remaining 99.97 percent, Frith says, "copyright is really just a way of earning less than they would if they received a fee from the record company." Losing copyright would thus have surprisingly little direct financial impact on musicians. Instead, Frith says, the big loser would be the music industry, because today it "is entirely structured around contracts that control intellectual-property rights—control them rather ruthlessly, in fact."

Like book publishers, record labels give artists advances on their sales. And like book publishers, record labels officially lose money on their releases; they make up for the failures with the occasional huge hit and the steady stream of income from back-catalogue recordings. But there the similarity ends. The music industry is strikingly unlike book publishing or, for that matter, any other culture industry. Some Stupid With a Flare Gun, for example, contains twelve songs, all written and performed by the Ass Ponys. From this compact disc the band receives, in theory, royalties from three different sources: sales of the disc as a whole, "performance rights" for performances of each of the twelve songs (on radio or MTV, for instance), and "mechanical rights" for copies of each song made on CD, sheet music, and the like. No real equivalent of this system exists in the print world, but it's almost as if the author of a book of short stories received royalties from sales in bookstores, from reading the stories to audiences, and from printing each story in the book itself. The triple-royalty scheme is "extraordinarily, ridiculously complex," says David Nimmer, the author of the standard textbook Nimmer on Copyright. Attempts to apply the scheme to the digital realm have only further complicated matters.

As a rule, the royalty on the CD itself—typically about $1.30 per disc before various deductions—goes to performers rather than composers. After paying performers an advance against royalties, as book publishers pay writers, record labels, unlike publishers, routinely deduct the costs of production, marketing, and promotion from the performers' royalties. For important releases these costs may amount to a million dollars or more. Performers rarely see a penny of CD royalties. Unheralded session musicians and orchestra members, who are paid flat fees, often do better in the end.

Paying back the record label is even more difficult than it sounds, because contracts are rife with idiosyncratic legal details that effectively reduce royalty rates. As a result, many, perhaps most, musicians on big record labels accumulate a debt that the labels—unlike book publishers—routinely charge against their next projects, should they prove to be successful. According to Whitney Broussard, the music lawyer, musicians who make a major-label pop-music compact disc typically must sell a million copies to receive a royalty check. "A million units is a platinum record," he says. "A platinum record means you've broken even—maybe." Meanwhile, he adds, "the label would have grossed almost eleven million dollars at this point, netting perhaps four million."

As a standard practice labels demand that musicians surrender the copyright on the compact disc itself. "When you look at the legal line on a CD, it says 'Copyright 1976 Atlantic Records' or 'Copyright 1996 RCA Records,'" the singer Courtney Love explained in a speech to a music convention in May. "When you look at a book, though, it'll say something like 'Copyright 1999 Susan Faludi' or 'David Foster Wallace.' Authors own their books and license them to publishers. When the contract runs out, writers get their books back. But record companies own our copyrights forever."

Strikingly, the companies own the recordings even if the artists have fully compensated the label for production and sales costs. "It's like you pay off the mortgage and the bank still owns the house," says Timothy White, the editor-in-chief of Billboard. "Everything is charged against the musician—recording expenses, marketing and promotional costs—and then when it's all paid off, they still own the record." Until last November artists could take back their recordings after thirty-five years. But then, without any hearings, Congress passed a bill with an industry-backed amendment that apparently strips away this right. "It's unconscionable," White says. "It's big companies making a naked grab of intellectual property from small companies and individuals."

The other two kinds of royalties—performance and mechanical rights—go to songwriters and composers. (The Ass Ponys receive these because they write their own songs; Frank Sinatra did not, because he sang mostly jazz standards.) Songwriters receive performance-rights payments when their compositions are played in public—executed in concert, beamed over the radio, sprayed over supermarket shoppers from speakers in the ceiling. Individual payments are calculated through a complex formula that weighs audience size, time of day, and length of the composition. In the United States the money is collected primarily by Broadcast Music Incorporated and the American Society for Composers, Authors, and Publishers, known respectively as BMI and ASCAP. Mechanical rights derive in this country from the Copyright Act of 1909, which reversed earlier court rulings that piano rolls and phonograph recordings were not copies of music. Today the recording industry pays composers 7.55 cents for every track on every copy of every CD, pre-recorded cassette, and vinyl record stamped out by the manufacturing plants. The fee is collected by the Harry Fox Agency, a division of the National Music Publishers' Association, which represents about 23,000 music publishers. In 1998 performance and mechanical rights totaled about $2.5 billion.

Because U.S. labels, publishers, and collecting societies do not break down their cash flow, it is difficult to establish how much of the $2.5 billion American songwriters actually receive. But in an impressively thorough study Ruth Towse, an economist at Erasmus University, in Rotterdam, ascertained that in Britain from 1989 to 1995 the average annual payment to musicians was $112.50. Musicians in Sweden and Denmark made even less. Although the system in the United States is different, the figures, as Towse drily observed, "do not suggest that performers' right considerably improves performers' earnings."

A few composers—the members of Metallica, for instance, who perform their own songs—do extremely well by copyright. But even some of the country's most noted performers and composers are not in this elect group. Among them was Charles Mingus, who wrote and played such now-classic jazz pieces as "Goodbye Pork Pie Hat" and "Better Git It in Your Soul." According to Sue Mingus, his widow and legatee, "Charles used to joke that he wouldn't have recognized a royalty check if it walked in the door." She meant royalties on record sales; Mingus did receive checks for performance and mechanical rights. But when I asked what Mingus's life would have been like without copyright, she said, "It would have been harder. He took copyright very seriously. But what kept him going financially was that he toured constantly." Few rock performers have this alternative: their equipment is so bulky and expensive that their shows can lose money even if every seat is sold.

Illustration by Jose CruzMusicians, who are owed many small checks from diverse sources, cannot readily collect their royalty payments themselves. Similarly, it would be difficult for radio stations to seek out and pay every label and publisher whose music they broadcast. In consequence, there are powerful incentives to concentrate the task into a small number of hands. Further driving consolidation is the cost of marketing and advertising. Promotion is expensive for book publishers and movie studios, too, but they aren't trying to place their wares on the shrinking playlists of radio-station chains and MTV. Because singles effectively no longer exist, playlists are not based on their sales; songs on the radio function chiefly as promotional samples for CDs. Instead playlists are based on criteria that people in the trade find difficult to explain to outsiders, but that include the expenditure of large sums for what is carefully called "independent promotion"—a system, as Courtney Love explained, "where the record companies use middlemen so they can pretend not to know that radio stations ... are getting paid to play their records." Although Love didn't use the word, the technical term for paying people to play music is payola.

Payola wasn't always illegal, and similar schemes still aren't in many industries: consumer-products firms, for example, pay supermarkets "slotting allowances" to stock their wares. According to the author and historian Kerry Segrave, one early payola enthusiast was Sir Arthur Sullivan, who in 1875 paid a prominent singer to perform one of his compositions before music-hall audiences. Until his death Sullivan sent a share of his sheet-music royalties to the singer.

Although the payola market thrived in the vaudeville era, it did not become truly rapacious until the birth of rock-and-roll. Chuck Berry divided the royalties from his hit "Maybelline" with two DJs. Dick Clark, the host of American Bandstand, had links to a record company and several music publishers. After a chest-thumping congressional investigation, highlighted by appalled evocations of the evils of rock-and-roll, anti-payola legislation was passed in 1960. The labels outsourced the practice to "independent promoters," a loose network of volatile individuals with big bodyguards and special relationships with radio stations. Millions of dollars went for payola—much of it recouped from artists' royalties. A second wave of investigations, in the 1980s, did not end the practice.

At present the music industry is dominated by what are called the five majors: Warner, Sony, EMI, BMG, and Universal. (Warner and EMI have announced plans to combine; the joint label will become part of the merged America Online and Time Warner.) The majors control about 85 percent of the market for recorded music in this country. They do this by routinely performing the paradoxical task of discovering and marketing musicians with whom a worldwide body of consumers can form relationships that feel individual and genuine. "You want to fill up stadiums with people who think that Bruce Springsteen, the voice of working-class America, is speaking only to them," says David Sanjek, the archives director at BMI and a co-author, with his late father, of American Popular Music Business in the 20th Century (1991). "The labels are often incredibly good at doing this."

Music critics frequently sneer at the practice of manufacturing pop concoctions like Britney Spears and the Backstreet Boys. But in this way the labels helped to create Elvis, the Beatles, and the Supremes—musicians who embodied entire eras in three-minute tunes. As Moshe Adler, an economist at Columbia University, has argued, even listeners who grumble about the major-label music forced on them are probably better off than if they had to sort through the world's thousands of aspiring musicians on their own. But this benefit to consumers comes at a cost to musicians. Records that are hits around the world inevitably draw listeners' attention from music by local artists that might be equally pleasing. "The money is made by reducing diversity," Adler says.

For better or worse, the star-maker machinery behind the popular song, as Joni Mitchell called it, is the aspect of the music industry that would be most imperiled by the effective loss of copyright to the Net. If the majors can't reap the benefits of their marketing muscle, says Hal Varian, an economist and the dean of the School of Information Management and Systems, at Berkeley, "their current business model won't survive." The impact on their profits could be devastating. Musicians have much less to lose, and much less to fear.

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Charles C. Mann, an Atlantic contributing editor, has been writing for the magazine since 1984. His recent books include 1491, based on his March 2002 cover story, and 1493.

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