In a recent article, Apple has agreed to pay Universal Music $100-$150 million for the right to include Universal artists in the iCloud: “According to CNET’s sources, the agreements call for the record labels to take 58% of iCloud revenue, while publishers will get 12% and Apple will receive 30%.” The amount paid to Universal will be an advance on the royalties to be paid out. All four majors are now on side for the launch of iCloud.

So, it seems that the much talked about “cloud model” is actually happening. But what does this mean to labels, manager, artists and other music stakeholders? So far, the subscription services seem to form the smallest portion of most online sales royalty statements, with iTunes downloads being the most significant portion of sales. If the download model is going the way of the CD (note the dodo reference), how will this impact on a very thin bottom line for artists and indie labels? Hard to say really at this point. Some have argued that the “music as water” model where everyone pays a small monthly fee is the way to go as this would generate billions of dollars in revenue. Others feel that the new model waters down the revenue streams even further and erodes copyright to an even greater extent than has been happening over the past few years.

The fact is that the world of music has changed forever and we all have to adapt to the new paradigm. We now have a generation of consumers who have never paid for their music and have no intention of doing so unless forced in some way. There is nearly a feeling of entitlement to free music downloads amongst many young consumers.

If recording artists cannot make money from their sound recordings, then how do we sustain the buisness? Many labels have moved to “360 deal” model to start sharing in live, merchandise, publishing and endorsement revenues. But often, they don’t know what to do with those rights as they are not savvy in those areas of the business. The roles of mangement, label, publisher, producer, studio and artist have all blurded to the point that it is very hard to draw clear lines as to who is doing what.

It will take some time to settle out, but it seems that this is the time where artists have the upper hand. With the majors losing their stranglehold on ditribution and the rise of digital aggreggators such as IODA, Tunecore, CD Baby and The Orchard, artists are able to release their own music directly. This means when negotiating deals, artist who own their masters are able to ask for more than they have in the past. On the flip side, labels are offering less and less in terms of advances and are signing less artists every year. Artist are having to develop themselves.

Will iCloud and other cloud services be the answer? Will labels rally due to these new services or continue to clounder? Will artists forgo labels all together? Only time will tell…but we are certainly living in interesting times.

 

Bob and Kurt are entertainment lawyers with extensive experience drafting/reviewing all forms of contracts related to the entertainment industry. Some contracts that the firm has been working on a lot lately include:

- management contracts
- license agreements
- publishing deals
- investment agreements (to secure funding for your next album/project)
- record deals
- band agreements
- producer agreements

Email us for a quote, and we would be glad to help! Whatever you do, don’t just sign without getting advice first! Click on Legal Services above for more.