Apple is in talks with the largest record companies as it attempts to boost the iPhone's offering of ringtones and other musical content, according to a report in The New York Times.
Citing several unnamed music industry executives, the Times said that negotiations are "very active" and a final deal has not been set.
A final deal may come after June 9, when Apple CEO Steve Jobs speaks at the company's developer conference, the paper reported. That is when some expect Apple to announce the coming of the next-generation iPhone.
In addition to beefing up ringtones, Apple is also looking for rights to deliver songs from iTunes to iPhones over the cell phone broadband network, according to the Times. The labels are asking for more money for this kind of delivery, the paper reported.
Here's what the music labels are looking at: Apple is not only the country's biggest music retailer but is also becoming a force in mobile phones. If the record companies ask too much money for ringtones and other features, they risk losing sales to the growing number of iPhone owners.
Ringtones are a sweet deal for the labels because they typically are shorter versions of songs but retail for the same price--sometimes higher--of a full song.
But Apple is up against a determined group. The big music companies have signed a score of deals with other music retailers and cell phone companies. It's often written that the music industry doesn't want to be beholden to any one distributor. The top labels want greater flexibility with setting prices on iTunes.
If a deal can't be reached, Nokia and other cell phone makers could gain an important advantage over the iPhone.
How important is music to Google's YouTube.com? Out of the 12 all-time most viewed YouTube clips, nine are professionally made music videos. At least one rock video has been watched more than 75 million times on YouTube.
But do the performers in the videos share in the advertising revenue generated by their work?
Some top music managers have told CNET News.com that their clients haven't seen any money from the licensing deals the four largest music labels have signed with YouTube over the past 18 months. According to a statement from Google-owned YouTube, the Web site is banking ad dollars generated by the artist's music and is sharing that money with the record labels. What the managers want to know is why little or nothing has trickled down to the artists.
"I don't know any artist who has gotten a royalty statement (from their label that includes YouTube money)," said music attorney Chris Castle.
There could be a few reasons for lack of compensation. Several managers charge that YouTube's filtering system is unable to accurately track videos featuring copyrighted songs uploaded to the site by users. Without an accurate accounting of the music, the labels won't be able to compensate artists fairly, said Jay Rosenthal, legal counsel for the Recording Artists Coalition, an organization co-founded by singers Don Henley and Sheryl Crow.
"Whatever figure the labels are getting doesn't mean it's the right figure," Rosenthal said.
Are there grounds for those fears? YouTube's reporting has indeed caused concern at the major music companies, according to three music industry sources with knowledge of the record companies' relationship with YouTube. There have been "lags in reporting" because of technology problems at the video site, said two of the sources, who requested anonymity because they aren't authorized to speak for their companies.
All three music industry sources said, however, that YouTube has "acted in good faith" and has taken steps to improve its reporting. "These are still early days," said one of the sources. "The music managers are always quick to demand money or to shut down a service or to file suit. Sure, maybe down the road the labels will have to flex their muscles but right now they want to give YouTube some time to develop."
The sources also said that so far, the videos on YouTube have earned relatively little money.
In the deals struck with the record companies, starting with Warner Music Group in September 2006, YouTube agreed to pay the labels for use of sound recordings and to also "share revenue generated from playbacks," according to YouTube. The company did not provide financial details of the agreements.
YouTube said in a statement that "payments (to the record companies) are generally increasing over time."
As for its technology, YouTube said, "We partner with Audible Magic, generally regarded by the music industry as the gold standard in audio identification...we are scaling our technology rapidly with very positive results."
At this point, it appears YouTube has been thrust into the middle of a long-running labor feud. All parties agree that YouTube has correctly licensed the music heard on the video-sharing site, and as a YouTube spokesman pointed out: "The record labels, not YouTube, are responsible for payments to the artists."
This is not a new problem. Artists have for decades accused record companies--Universal Music Group, Warner Music Group, Sony BMG, and the EMI Group--of cutting them out of their fair share of profits. At a time when the Web and digital technology have caused the music industry numerous headaches, the issue of compensating artists for downloads and Internet rights is turning into a migraine.
Last week, The New York Post reported that music managers were tired of waiting for their share of the money the labels received in court settlements from peer-to-peer sites Napster and Kazaa.
Two years ago, veteran rock bands Cheap Trick and the Allman Brothers Band filed a lawsuit against Sony BMG for unpaid royalties regarding digital downloads. That case is still pending.
Reached at his New York office this week, Brian Caplan, the attorney for the bands, said he wasn't familiar with the YouTube deal but didn't like the excuses offered about why artists aren't seeing YouTube-generated money. "The bottom line is the labels will feed themselves any rationalization to keep as much money as possible for themselves and not share it with the artist," he said.
Record industry insiders point out that they have been vilified for allegedly being too slow to embrace technology and innovative ideas. But here they are being condemned for helping to develop online video-sharing into a new music platform.
Warner Music flatly denied that its artists weren't getting paid. "Warner Music Group shares all of the digital revenue we receive with our artists in accordance with the terms of their agreements," the company said in a statement. "While those agreements are confidential, they outline a reporting and payment process to which we strictly adhere."
The other three labels declined to comment for this story.
Music managers say part of the problem is that the record companies keep them in the dark. They say artists haven't been made privy to the financial terms to the deals the labels are striking with YouTube or other Web sites. They also don't know how the labels divvy up the artist share or how the music being played on these sites is tracked and reported.
"This is endemic to a lot of areas," said Rosenthal from RAC. "The performers really don't know how they get paid. You just assume you get 50 percent of something. What we want to know is what kind of metadata do they get from these services to show this is what is played. If you can't get metadata then you have to come up with some formula.
"Otherwise if you don't, then the labels sit on their (butts) and don't pay the artists because they don't know how...what's happening here are old contracts are colliding with new technologies. I'm not saying the labels are wrong for not knowing how to pay. But what's wrong is not sitting down and figuring it out all the while they don't pay the performers."
Musicians aren't merchants.
We certainly learned that through Radiohead and Trent Reznor's separate experiments with choose-your-price album promotions.
Trent Reznor of Nine Inch Nails
(Credit: Rob Sheridan)In October, Reznor, the leader of the band Nine Inch Nails, and Radiohead attempted to promote and distribute albums online without the help of a major record label. Both offered fans the opportunity to obtain the music for free. Both saw some success.
But they also illustrated that the music business is probably better left in the hands of businessmen. Musicians are not the new labels. Artists need someone to provide financial support and business acumen. If we end up ridding the world of labels, we'll only have to re-create them--in some other, probably more nimble form.
Last week, I interviewed Reznor about the online promotion of rapper Saul William's album The Inevitable Rise and Liberation of NiggyTardust. In that interview, Reznor said he was disappointed that only 18 percent of the more than 150,000 people who downloaded the album paid for it. He and Williams offered two options: pay nothing or obtain a higher-quality audio version for $5.
By backing Williams with his money, name, and know-how, Reznor essentially thrust himself into the role of a music label. That is, a music label with a lot to learn. The first lesson was that you don't always back a winner. A music company's fortunes can often rest on its ability to discover superstars. Profits generated by a few marquee acts have always kept the companies going while all the other performers break even or lose money.
EMI said this week that only 5 percent of its acts are profitable. This kind of prospecting requires a huge investment.
Reznor said he didn't get involved with Williams to profit, but acknowledged that he spent too much making the album and said he hasn't yet recouped his money. A record company can afford to make bad bets once in a while, said Chris Castle, a music industry insider who has worked as a vice president for both Sony Music and A&M Records. Musicians, even successful ones like Reznor, probably can't.
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