FMC's DC Policy Day: Highlights

Future of Music Coalition held its third annual DC Policy Day at National Geographic's Grosvenor Auditorium two weeks ago on Feb. 11, 2009.

I arrived just in time for the Keynote Address from Michael J. Copps, Chairman of the FCC. The tides have truly changed at the FCC with the advent of the Obama administration. Copps follows two infamous predecessors, former chairmen Michael Powell (2001-2005) and Kevin Martin (2005-2009). Powell became famous for fining shock jock Howard Stern for profanity and Viacom for the memorable wardrobe malfunction of Super Bowl XXXVIII. Martin continued Powell's legacy by issuing $150 million in fines and setting the record for any chairman in history.

Michael J. Copps distanced himself from the behavior of both Powell and Martin. The FCC "is a consumer protection agency. It's time to start acting like one." He advocated rule of law over whim in issuing fines and condemned "mindless deregulation." Copps addressed net neutrality on the internet, an issue which Future of Music Coalition has championed for several years. He prioritized protecting the internet from heading down the destructive path of media consolidation. He vowed to preserve openness. In light of the recent bank failures, Copps pointed out that free markets are not the be all, end all. Where then does the FCC come in? Oversight, provided by the FCC he argued, is paramount to the preservation of the internet as we know it. Finally, Copps addressed the transition to digital television. He defended the decision to push the transition to June, although he didn't need to in this crowd. Attendees didn't react with much emotion to this issue.

Next up was the most heated panel of the day, Win-Win When? Copyright and Innovation in the Digital Age. Panelists included Zahavah Levine, Chief Council of YouTube, Gigi Sohn of Public Knowledge, Steve Marks of the RIAA, and Rick Carnes of Songwriters Guild of America. Despite a full roster of panelists, the discussion could be summed up as follows: Zahavah Levine of YouTube versus Rick Carnes of Songwriters Guild of America (SGA). Other panelists simply took sides. We got into the nitty gritty of copyright: of mechanical licenses, Section 115, and public performance and reproduction distinctions.

Rick Carnes didn't do musicians any favors by demonizing songwriters with his aggressive and irrational blind devotion to anti-piracy. If you entered the room sympathetic to the plight of musicians, you left apathetic. Carnes was blind to the slippery slope of regulation and advocated the end of piracy at all costs. His ideas were both illogical and regressive. Police the internet? Moderate downloads? Panelists and audience members burst out in mocking laughter several times. He found a friend in Steve Marks of RIAA, but Zahara Levine's contingent seemed much stronger.

Youtube's Levine and Gigi Sohn proved a force to be reckoned with. Levine argued for a more accessible database of publishing rights. They've got a big fat wallet to pay the songwriters with and no idea to who to open it to! In addition, Levine discussed irrational royalty requirements imposed on YouTube. Publishers force YouTube to pay for both a public performance (due to the stream) and a reproduction for the copy they must keep on their servers. Levine argued that YouTube should pay only for the public performance and that the server copy was simply a necessary means of providing the stream. The audience nodded in agreement, frowning upon the greed of publishers.

The transaction costs are simply too high to seek out the information for publishers of millions of songs. Unless the publishers and songwriters work to establish a more transparent database, the problem of unpaid rights will perpetuate. Rick Carnes showed an unwillingness to work with the digital age. He effectively demonized internet users for illegal downloads and scoffed at the potential for business models of free. Like I have written about before, free can and does work.

Rick Carnes and publishers will not find sympathy by being geezers of the music industry. They must look to new models and progressive answers to solve their copyright woes. They must work with major players like YouTube rather than against them.

Time for Change

Sony has reported this week that its profits are down 95% from last quarter. Included in the downward spiral is Sony's music division, which experienced a 41% decline in profit resulting from a 22% decrease in sales. (Source: Hypebot)

Even so, it's not time to lose our heads. In the same week, the music/tech blogosphere has been buzzing over the success story of indie artist Corey Smith. He reportedly made about $4 million in gross revenue with his DIY business model. A main component of the model? Giving his music away for free. Most of his revenue comes from concert tickets that he sells for approximately $5 per show. This, claims Mike Masniak of Techdirt, encourages fans to drag along their friends; to go to multiple shows; and to buy merchandise at shows.

The Corey Smith model contributes to a growing amount of evidence that models of "selling for free" can be profitable. Buying music today is simply too expensive, and those who give music away for free or sell cheaply tend to do better. Fans react negatively to a cd priced at $16.99. If you look at a full 120GB Ipod, how much would you value it at? If it's full of legally purchased music, it's worth $24,000 to $30,000. At that rate, it's not surprising that music fans tend to download music illegally. Even so, Corey Smith and others show that musicians can still come out on top. In order for the music industry to survive, they need to change their dramatically change their business models. At this point, experimentation is warranted.

Perhaps that's why songwriter Amanda Ghost was recently named president of Epic Records, a label owned by Sony (Source: Hypebot). Ghost is a successful pop songwriter and has penned such hits as James Blunt's "You're Beautiful." This unusual choice is a move in the right direction for Sony, which has little to lose following this quarter's losses. Perhaps the music industry should be run by musicians rather than business executives. The outdoor industry, for example, has thrived of the outdoor industry is run by skiers, climbers, and surfers. There's even a recent article at CNN Money about its unique model.

Amanda Ghost's appointment at Epic Records will hopefully bring a little bit of Corey Smith flavor to Epic. Companies are well-advised to continue appointing musicians to higher level positions within record labels. They bring a musician's sense as well as a point of view that cannot be acquired simply by earning an MBA.

Read the full story about Corey Smith over at Hypebot.