Tuesday, July 21, 2009

How to Be a Small Pureplay Webcaster

Until recently the only person who got paid when a song was played on the radio was the person who wrote the song. Now we have a fresh new "performance right in sound recordings." I've noticed that this "performance right" has been mischaracterized in some places as a royalty for the person or band singing and playing. It's not; it's a royalty for the person or company that owns the master sound recording. Ownership of sound recordings will probably start to emerge as a thorny issue in the next few years, but for the moment we can assume that the entity next to the (p) --not the (c)-- on the compact disc or liner notes is the owner, and it's usually the record label.

The Copyright Royalty Board set minimum rates for webcasters in 2005, and webcasters--particularly smaller ones--protested loudly; saying that pay-per-play rates would put them out of business. The courts were unsympathetic ("The [Copyright] Judges are not required to preserve the business of every participant in a market"), but Congress stepped in and told webcasters and content owners that they were free to work out their own rates if they weren't happy with the Copyright Board's.

They did, and the Copyright Office just posted the industry-wide agreement. The terms mark a big distinction between the largest players on the webcasting landscape (revenues over $1.25 million per year) and the smaller "pureplay webcasters" that Congress was worried about. The terms for the big players are complex, and they certainly have people more qualified than I am to explain them, but for you mom-and-pop internet radio stations, it looks to me that you'll have to think about the following. (Capitalized terms are defined in the agreement.)

1. Track the total number of "Aggregate Tuning Hours;" e.g., 1 hour with 10 listeners = 10 ATH.

2. Track your Gross Revenues.

3. Track your Expenses.

4. See which amount is greater: 12% of your Gross Revenues, or 7% of your Expenses.

5. Pay the greater amount to SoundExchange, quarterly.

That's a very bare-bones summary, and the percentages go up as your revenues climb, but I think this shows the basic flow of records and payments. Note that you won't be qualified for the mom-and-pop rates if you:

1. Earn over than $1.25 million in gross revenue; if it looks like you will in any given year, be prepared to pay much higher "Commercial Webcaster" rates for the full year;

2. Exceed 8 million ATH;

3. Get yourself bought out by a big player. Not only will you lose the favorable rates going forward, but you'll also have to pay retroactive Commercial Webcaster amounts for the previous four years.

These are just my first impressions from looking at these terms; if you think I've gotten anything wrong, please post your protest.

Tuesday, July 14, 2009

Mixed Messages

This is an article by Brewster Kahle, "Digital Librarian" of the Internet Archive, whose aim is to provide access to "all human knowledge." I'm saving up to buy it.

Wednesday, July 1, 2009

Photographers and Illustrators Under Siege

I interviewed a couple of photographers last weekend as part of an ongoing attempt to get a sense of how artists can make a living in the digital age.

The answer: they can’t.

I went to this pair because they were the early adopters; at least five years ago they let me know that they had switched from assignment work (where advertisers hire you, front the money for a shoot, choose from your proofs, etc.) to stock work. For a stock shoot the photographer comes up with the concept, pays for the expenses of the shoot out-of-pocket, and submits the pictures to a stock agency (Getty’s the big player, and getting bigger every minute). If the agency chooses your pictures, you get paid a royalty on subsequent uses.

At the time, stock was not the most prestigious branch of the photography field—it wasn’t where the quality work was being done. The photographers I spoke to were among the first professional group to enter the fray, uploading high-quality work that stood out against uninspired catalogues. So at first royalties were steady, and offered a living wage. Arguably this was a more efficient system—the photographer took the conceptual risk and made the up-front investment, while the advertiser saved the time and effort of engaging photographers and setting up shoots for an end product the higher-ups might not even find acceptable. In return the artist could be reasonably certain that the initial investment would pay off in a steady stream; discussions with an editor or point person at the stock agency would ensure that the idea wasn’t way off base before the photographer went to work.

Two developments arose hand-in-hand to upset the picture: overentry into the market by amateurs and hobbyists, and the stock agency’s shift from agent to competitor. The first was the unsurprising result of the widespread availability of digital cameras; the second development was simply economic: the conditions were ripe for monopoly. Pressure on the professional photographers by the competition of passably competent hobbyists reduced their leverage with the stock agencies. Buyouts and lopsided terms began appearing in stock agency contracts with the photographers—minimal one-time fees for the photographer’s perpetual signing away of the rights in the photos, for example. The cooperating editors disappeared from agency payrolls; photographers now had no guidance and had to invest much more time and money in preparing and retouching hundreds of works per shoot, with dwindling chances of acceptance and royalty-bearing use.

The contracts offered by the stock agencies are on a take-it-or-leave-it basis. If you leave it, the photographer is blackballed by the agency. My interviewees couldn’t go on record with their names, rightfully concerned about retribution.

If this trend continues, the middle-class professional photographer will become extinct. A tiny handful of known superstars will continue to take pictures of Kate Moss and artfully nude celebrities, but we will lose a group of professionals that devote themselves full-time to learning and mastering the craft. Here’s artist and advocate Brad Holland’s assessment of the stock agency’s gleeful view of this scenario:

“Henry Scanlon, founder and CEO of Comstock, gave an interview…in which he explained the strategy by which they had successfully lured major clients away from freelancers. Using direct mail, he said, they had ‘hammer[ed] away at the market’ and flooded clients with catalogues. ‘[A]fter a long struggle,’ they created a market ‘position’ for stock that, he frankly admitted, would ‘decimate’ the ranks of assignment photographers. Photographers who could not compete, he said, should ‘go to night school.’”

Brad Holland, “First Things about Secondary Rights,” Columbia Journal of Law & The Arts, Volume 29, No. 3, Spring 2006, p.297, available here.

Scanlon appears to reflect the view that competition merely weeds out the inefficient players and lets the cream rise to the top, to the benefit of the consumer and the market. That might be the case with a level playing field, but the increasing leverage of the stock agencies distorts the picture. In a monopoly environment it’s very difficult to say that the best work will be the most successful. Hobbyists, for example, have less investment in retaining copyright to their photos; they don’t need to plan their back-to-school shoe purchases based on ongoing royalties. For the amateur photographer, anything that the stock agency pays is “found money.”

But aren’t the hobbyist images good enough? Some are excellent, of course. But it seems hard to say that generally those that are inspired to devote their careers to learning a technical and creative skill won’t, on balance, create work that is more innovative and interesting than that produced by hobbyists that simply haven’t spent the same amount of time and resources thinking about and refining their craft.

Admittedly, customers only select pictures that they like. But the trend pushing photographers out of the field will, I’d argue, lower the quality of the pool from which they can choose. The trend will continue until the minimum acceptable quality can be purchased at the lowest possible price.

All’s not lost. The Graphic Artists Guild seems to be pushing back on multiple fronts. It has posted a recent entry warning photographers away from “all rights in perpetuity” contracts. And it’s pressing hard in Congress and in the courts. GAG played a big role in putting the brakes on “Orphan Works” legislation that could have allowed use of images if the user couldn’t find the owner through a “reasonably diligent” search. The Guild didn’t oppose the legislation outright—it just pushed for changes that would protect photographers whose work too often gets flung around the Internet without attribution.

Brad Holland’s article sums up the issue in much more detail; it’s very readable and I recommend it highly. He also addresses some issues particular to illustrators.

More recommendations to come, once I look into this some more.

Sunday, June 21, 2009

What's a Song Worth? (Part One)

I've taken some work home from the Kernochan Center at Columbia University, where I'm doing research this summer. (See disclaimer below--the opinions on this blog are mine, not those of the Center). The question I'm looking at is this: How do you put a dollar value on an author's intellectual property interests when he or she dies? Inquiring IRS agents and estate planners want to know.

Some people think that intellectual property shouldn't be inherited; I'll come back to this issue often in this blog. But as the law stands right now these rights can and need to be valued at a number of points: when an author wants to sell the rights, when the heirs want to cash in instead of holding onto them, when a judge wants to split up the value in a divorce settlement, when the IRS is valuing an estate, when a bank is taking them as security for a loan, etc.

To answer the question, you've got to answer two others first: what are the contours of the rights, and what standard do you use to value them?  

The "contours" question is less vague than it sounds.  In 1978 a Copyright Act went into effect that completely re-envisioned how a copyright is born and expires. That was fine for copyrights that came into being after the new act kicked in, but what about works that were created under the old act? People had made plans based on the rights in existence. They purchased them, sold them, traded them, licensed them; authors bought bungalows on the Jersey shore with the rights as security. If Congress was going to change how long these rights last, some were going to get less than they bargained for, and some were going to get more. Matters got more complicated in 1998, with the controversial "Sonny Bono Copyright Extension Act" that added another twenty years to the life of copyright.

So Congress made some retroactive changes to the lives of these existing copyrights to try to bring them in line with the principles of the new act, without upsetting people's "investment-backed expectations" arising under the old act. Some of these changes involved giving authors the right to take back copyrights they had sold to others--"termination rights." There was already a way to do this under the old act (in theory only), but in order to treat everybody more or less equally under the new act, some special termination rights were given only to certain categories of authors or heirs.

As far as I've figured, eighteen basic scenarios apply when an author or other artist dies today, based on all of the questions that determine whether or not the works fall under these exceptions. When was the copyright registered? Under whose name? Was the author alive 28 years later? Was the work created between 1951 and 1963? And so on.

But eventually you get to the end of the decision tree and you have a number of formulas that tell you how long the copyright will last, who owns it, and who can get it back when. Although we don't know yet how much this makes the copyrights worth in absolute terms, we can get an almost complete scale of relative values, since the formulas all use the same limited set of variables. For example, we can say that one copyright will be in the publisher's hands for the next five years, at which point the heirs will have the option to negotiate for a higher royalty rate, which will remain in effect for a remaining nineteen years until the work goes into the public domain.  In another case you'll have the same scenario but with different numbers of years at the old royalty rate and the new one.

Then it's up to the IRS, or the potential purchaser, or the bank, or the divorce court, to decide what value to give to a year of copyright ownership.  Then it's just plugging numbers into the formulas.  Sounds simple, right? I'll talk about this in Part Two.


Saturday, June 20, 2009

MH Records Reel Up!

I just finally made a myspace page to feature all of the recording work I've done with and for the excellent musicians that have passed through my little studio.  This is one step in my nascent media empire.