Net Profits

Online music distributors are banking on indie musicians' lack of business savvy.

The Internet is a capitalist's dream come true: Slap up a virtual storefront, talk someone into giving you a product to sell, then sit back, relax and watch the dollars roll in. Everyone's getting involved -- "dot-com" is almost as ubiquitous as "the" these days -- but only a handful last longer than the time it takes to download their products. In the digital age, companies are a blue-chip stock one minute, an error message the next.

Online music distributors (OMDs) are among the few start-up companies that do manage to stay up -- and all too often, they do it by balancing on the backs of musicians who don't know how much their product is worth. Using a potent mix of techno-speak and marketing hype, OMDs like MP3.com, Tunes.com and Yahoo Broadcast Services (formerly known as Broadcast.com), along with a bevy of look-alikes, are gobbling up free music (er, content) in staggering quantities.

OMDs have been enormously successful at painting a full-color media picture of themselves as virtual Davids out to slay the mighty recording-industry Goliath. By promoting themselves as cool, underground, anti-establishment sites fighting the good fight on behalf of poor, downtrodden musicians everywhere, OMDs have convinced thousands of musicians (a whopping 28,000 in the case of MP3.com alone, according to that company's CEO, Michael Robertson) to hand over their tunes, no questions asked.

People like Robertson want consumers to believe that the Internet puts the reins of power back into the hands of the artists. But what he and other OMDs really mean, of course, is that the Internet puts the reins of power into theirhands.

It's a mighty attractive business model: scot-free use of inventory with minimal accountability to the owners of that inventory, which generates revenue from music fans, from advertisers, from the artists themselves -- even, according to one industry insider, from the recording industry. But why on earth would artists want to give up all rights to their singles -- historically, the very cuts that have generated the most revenue -- and, for the most part, to a start-up company at that?

"No one's paying independent artists right now," says Brandon Barber, product manager of digital music for Tunes.com, a music hub that controls RollingStone.com, TheSource.com, and DownBeatJazz.com and offers professional music reviews and Webcasts in addition to downloadable music. According to Barber, Tunes.com is considering paying artists in the future but is "trying to be as agnostic as possible until a standard emerges."

A standard does exist, of course, and has for years -- it's just being ignored by OMDs. It's called copyright, and it ensures that artists get paid when companies make money off their music. Basically, there are two types of music copyrights. One is the right of songwriters to get paid every time someone performs one of their songs. The other is the right of the performer to get paid every time his performance of a song is reproduced or broadcast. It's simple, really. Furniture makers own the furniture they make; songwriters and performers own the art they create.

But because songs and performances are harder to track (and easier to steal) than, say, a sofa, copyright owners have the option of registering their work with performance organizations (ASCAP/ BMI/SESAC) and reproduction licensing organizations (the National Music Publishers' Associations' Harry Fox Agency). These organizations exist to track the use of copyrighted songs and pay royalties back to the rightful owners. Specifically, the performance licensing fees that radio and television stations, film companies, live venues and even jukebox owners pay to ASCAP/BMI get kicked back to performers; the reproduction licensing fees that recording companies pay to the Harry Fox Agency get kicked back to songwriters.

Contrary to popular opinion, which still views the Web as a kind of anything-goes frontier, United States copyright law already addresses music distributed over the Web. So do performance and reproduction licensing organizations. Whether they admit it or not, OMDs follow the radio model when they allow visitors to stream song files, and the record-pressing (distribution) model when they allow site visitors to download MP3 tunes. So why aren't they coughing up licensing fees like everybody else?

"This is all still in the infancy stage," says Steven Phenix, director of publicity for WorldNet Box Office Inc., a company that Webcasts and archives live music performances at ClubCastLive.com. "We plan to renegotiate the contracts artists sign with us in the future so that eventually they will make money."

Phenix and many other OMD operators seem to operate under a premise that no one knows just what will happen with online music -- or who will eventually benefit from its electronic distribution.

History begs to differ.

According to the National Music Publishers' Association, every new advancement in music reproduction and distribution technology has spawned the same tired argument. First it was TV and radio broadcasters who claimed they should be able to use music for free, arguing that broadcast exposure helps sell records. Then it was film and television producers; then restaurant and club owners. In all of these cases, organizations representing musicians -- from established record-industry alliances to unions -- finally forced companies to follow the law and pony up for the value they were receiving.

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