Adam Lambert’s Star Power from an industry perspective 57 music clearances, electronic distribution, DMCA, DRM, iTunes, diminishing revenue, live performances, new media, opportunities July 15, 2009 at 2:26 pm

 

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With huge thanks to Stacy Jenel Smith, you’ll see the answers to your questions are posted here at nymichael.com, there are a few others she’ll answer later and we’ll update the message.

With respect to music clearances, as you may have seen in my referenced blog post Adam Lambert’s Star Power from an industry perspective 4 any musical material that is broadcast requires clearance. It’s also true that any visual likeness or copyright references need to be cleared (that’s why you’ll see in the rules that contestants when they audition may not wear T-shirts with celebrity photos and/or corporate logos; that’s also why you’ll see brand names blacked out). Obtaining clearances can be somewhat complex and time-consuming, so my expectation is that because of the number of contestants there are preapproved song lists all along the way. With eight years of history, 19 Entertainment has a pretty clear idea of material that may present an issue (like “One” — you’ve all heard the story about Bono). American Idol is such a powerful brand that most publishers are delighted to participate because of the enormous exposure their material will receive, but there are exceptions. Because the production schedule is so tight, if the contestants can select a song that’s preapproved, it’s one less action item for the AI team.

Welcome to our new members for joining us! Your questions are fascinating, and as a company in the nexus of technology and entertainment perhaps I can provide a bit of insight. My answer is bifurcated because there’s a difference between audio presentation and audio/visual presentation (which is addressed in the previous blog post).

With respect to straight audio, the music industry faced very complex challenges when consumers were first able to copy and distribute music electronically. Two precedents that were invoked were the original Betamax ruling, and the “common carrier” rules. The Betamax ruling (http://en.wikipedia.org/wiki/Sony_Corp._of_America_v._Universal_City_Studios,_Inc.) basically acknowledged the right of consumers to copy intellectual property for their personal use. As modem speeds and technology improved and increased (and we’re talking mid-90s at this point), there was a great concern as to what rights and remedies the music industry had. Simultaneously, online services like AOL, Prodigy, CompuServe and others operated under what’s known as “common carrier” which basically claims that a network is not responsible for individual content as long as there is no arbitrary moderation. This is the stance of, say, AT&T, with respect to 900 services. This concept is integrated into what’s known as “Safe Harbor” and the Digital Millennium Copyright Act (DMCA), which continues to be the basis upon which online services/providers disclaim responsibility (until they are notified as you’ll see in most websites’ terms and conditions, including here at nymichael.com).

At the same time, remember that because the Internet was so new many of the executives in the music industry were not online. Many of the senior officers were older individuals who were steeped in the traditional music industry. I can’t tell you how many times I was told “we wish it will just go away.” But of course it didn’t, and then the bell began to ring that not only was there a important promotional platform, but also revenue potential. The Betamax issue still presented a challenge, so the industry utilized technologies called DRM, or Digital Rights Management, to protect individual files from duplication. Unfortunately, with so many different types of hardware and software, often DRM created more of a burden than a benefit. The result was the proliferation of services like Napster, which using peer-to-peer technology facilitated unauthorized duplication of music. So the question became, “Is it better to receive something or nothing?”

Then along came Apple with iTunes. For the first time, there was a meaningful way to sell musical content in a proprietary environment, allowing control and revenue. This was an astonishing breakthrough that set the stage for the transformation of the music industry. But because of the continuing concern over duplication, iTunes initially was restricted to including DRM on all tracks; this created the same problem of portability and consumer choice (if you buy a song, it makes sense that you should be able to hear it anywhere you want). So now we’re seeing the removal of DRM on musical tracks (on iTunes, Amazon.com and other services). I mention all of this to provide a perspective that this is a moving target — technology improves, download speeds increase, and business models change. What record companies are seeing is that the sale of traditional CDs has been greatly diminished because consumers can cherry pick individual tracks. But as with everything in new media, the Genie does not go back in the bottle, so they’ll need to find creative and innovative ways to supplement revenue. At the moment, revenue derived from the sale of digital tracks is less than the drop in traditional sales, which is why there’s such worry in the industry.

So we’re still dealing with the business model issues of individual digital tracks. But along the way came part two… increasing hardware storage capacity and bandwidth speeds began to allow video to be downloaded and shared in a short amount of time. On the one hand, media conglomerates knew this was coming, but on the other there was (and is) no clear-cut business model that replaces traditional television advertising revenue. As you’ll see if you search for news on last week’s Sun Valley conference, this issue is paramount in the minds of media companies. Truly, their survival as we know it is at stake. Until there’s a way to induce consumers to pay for content, earnings will be severely impacted, and some companies may not survive (Sony’s Sir Howard Stinger and Fox’s Rupert Murdoch discuss this complex scenario).

Sorry this is so lengthy but it’s the prelude to the question. Because of the complexities of music clearance for broadcast (including, importantly, international clearance — with the internet’s global availability, as has been discussed in several blog entries, straight music tracks are often not available on iTunes America for international listeners), and the lack of a profitable business model, there isn’t enough of an incentive yet. As you’ve seen, most music videos are made available on YouTube and other official channels; but only now are ads beginning to be delivered within and around program content. Until there is a clear path to financial benefit, media companies are going to be hesitant to spend dwindling resources on the creation of digital content.

The final complication in your question is that live performances add yet another layer of complexity, because now you need to deal with the unions that are producing the physical production (as well as the music clearance rights as well as the broadcast rights). Some very cool developments are happening in this area — – for example, an innovative company is producing on-the-fly performances of superstars like Elton John, where you can buy video and audio of that night’s performance before you leave the stadium. We’re moving in that direction, but ever so cautiously, because if you can buy Elton John’s concert, it’s unclear whether you’ll still buy a ticket to the live show. Does that make sense?

I’m totally in agreement with you that there’s an important need to utilize new media more comprehensively in the promotion and sale of audio and visual content. As you mention, the proliferation of new hardware (handheld devices, connectors between PC’s and TVs, remote access to stored content like Slingbox) and convergence present great new opportunities. But the question is, how do you make money? That billion-dollar question is what marketing and production people like yourself need to and are considering. Looking at it from a promotional standpoint, I think we’re seeing a lot of forward motion in the sophistication of new media marketing; but when it comes to that “magic moment” where money changes hands, it’s still elusive, and therefore not at the highest level of priority.

(There’s a great line in the musical “You’re a Good Man, Charlie Brown” — after a long, complex soliloquy by another character, Patty pauses, reflects, and then replies, “We had spaghetti at our house three times this week!” :) My point is I understand this is more complex than many of you are interested in, and as you can imagine it took some time to prepare, but I feel that that’s the mission of this project, and I hope this is of some interest and benefit.

The last point I’d like to make is that I truly believe that Adam presents one of the best possible and most marketable new media opportunities. Between the vast demographic fan base he has, and the global popularity he’s demonstrated, there is huge potential to create and promote exciting and innovative new projects online. I’m eagerly looking forward to watching his online world unfold, and really appreciate everyone’s contributions here in keeping us all posted on new developments.

Congratulations again Adam and everyone on his team for making this so fun and exciting!

Best, Michael

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