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The Orchard’s Response to the MySpace Deal – TAKE 2

After discussing this post with Dan last night, I’ve made a bunch of edits and clarifications (all in bold):

If you were at all interested in my last post on the MySpace-Label joint venture, then you should read this email The Orchard sent out to its members. It’s a few days old, but I’m not an Orchard client so I just came across it.

Overall the focus is on independent musicians and the theme is one of concern over their potential fate in the new MySpace-Label world. Most of The Orchard’s customers are independent musicians, so this perspective is not surprising. Read the full text here.

An interesting excerpt:

“If reports are true, the apparent MySpace licensing approach is troubling. It hearkens back to a time none of us wants to revisit … Where independent artists and labels were third-class citizens in the global music economy, instead of the second-class citizenship (with a good chance for an upgrade to first) that we enjoy today.”

I believe the folks at The Orchard are referring to revenue sharing between MySpace and the labels, without including any slice of the pie for independent artists and the indie labels The Orchard represents.

I completely agree with the sentiment that inclusion of indies is critical (as I stated in my last post). MySpace empowered independent musicians in the global music economy, but so did many other events over the past several years that have made independent labels more viable (digital distribution, payola crackdowns, internet radio, etc.). It light of all this positive change I obviously agree that it would be a shame to distort a great tool of empowerment to favor one class of artists over others unfairly.

But I think the situation is more complicated than that.

Because this licensing arrangement is the result of a lawsuit, it reflects the bargaining power the majors have to insist on a share of MySpace Music’s revenue. I could potentially see some collective of independent artists (dare I say a union?) suing for similar revenue-sharing, however individual artists choose to put their music on MySpace knowing full-well that they will not receive a share of ad revenue. They also receive an empowering promotional platform at no charge. MySpace Music’s retention of these artists will depend in part on its ability to continue providing enough value so as to outweigh the artists’ “loss” of unshared ad revenue. As long as artists derive positive net value from the site they will continue to use it. As Dan pointed out to me last night, these facts just highlight the disadvantage to indies, since the value proposition is the same for majors as well. In Dan’s words, why wouldn’t everyone get their fair share of revenue? True, the situation highlight the indies’ lack of leverage. But continue through the rest of my argument to see the whole picture…

The calculation is the same for the major labels, except they obviously felt that the result of these mathematics was starting to swing in the other direction. Labels felt that they were losing more than they were gaining, and so chose to take the matter to court to get what they thought they deserved. Now, as Dan and I both pointed out, indies had no mechanism for doing this, which puts them at a disadvantage.

To use The Orchard’s language, digital tools have empowered more “second-class citizens” to “upgrade to first” than was ever before possible. As far as we know, the value independent artists derive from MySpace isn’t going to decrease with the new JV, so compensating some copyright-holders doesn’t seem unreasonable (in this case it’s the major labels). This is a presumption that assumes indie content isn’t going to get de-emphasized on MySpace. If this presumption isn’t correct, then I agree, indies are immediately disadvantaged by this deal. Of course, we could also argue that indies are entitled to their fractional share of revenue, but part of being an independent musician is aspiring to one day make a good or even great living through music. The new JV’s licensing system sends money to the labels yes, but now that they are equity partners in a new digital medium it could also create more money for the artists who succeed through that medium. This is the part of my argument that admittedly requires the most vision and the biggest leap of faith, so read on to see what I mean…

I am conceiving of this joint venture not as a traditional major label but as a new type of music company we haven’t seen before – one that can share revenue with labels and artists and provide them with empowering digital tools. From this point of view, partial ownership by labels could actually mean more money passing through to successful artists. This is obviously theoretical and ambitiously framed, but I could see an artist saying something along the lines of this: “If I’m going to generate ad revenue on MySpace and you own a piece of that income, then I want to own a piece of it too, so I want it included in my deal.” Until a few weeks ago, all the cash was staying with MySpace. The way label contracts are negotiated and the entire label business model needs some significant adjustment for this to work, but we could be stepping in the right direction. And, as Dan also pointed out, the indie labels that The Orchard represents would need a seat at the table too (or could decide to remove their content from MySpace), and right now it doesn’t look as if they are getting one. The company I am describing here requires serious change to the way indie label and artists and major labels and artists interact with one another and participate in this new joint venture. I bring it up here because I think it’s a more ambitious, visionary approach to the future of MySpace Music (which is now a reality everyone needs to deal with) than others have put forth.

And now, a recap (since this wasn’t the clearest argument):

1. It’s great that the major labels are truly engaging in the digital world.

2. We need to make sure that indie artists and labels continue to derive value from MySpace and aren’t treated unfairly.

3. It’s possible that since the new MySpace Music is owned by a large internet company AND the major labels it could become a new type of music company with access to content, promotion, distribution, and new compensation models.

4. #3 relies on the following presumptions: 1) Labels take advantage of their role in MySpace and use it as an opportunity to discover a more diverse array of talent and to compensate that talent fairly, 2) MySpace Music does not completely subordinate indie content to existing major-label content, thereby impeding the discovery of indie content, and 3) MySpace Music offers and increasingly diverse array of digital tools to indie AND professional artists to help them develop, reach fans, and get paid.

In addition, there are orders-of-magnitude more independent artists than label artists online and off (including on MySpace), so I have to believe that any business intending to serve artists needs to appeal to indies and majors, not just big-name label stars. If this new company is to make money off of digital distribution or advertising for example, it will need volume, and volume requires independent artist participation and retention. It would be bad business to squeeze the indies on this one, and I’d be surprised if the folks at MySpace Music weren’t aware of that. After reading my post Dan agreed with this paragraph, but convinced me that The Orchard is probably talking more about the few hundred independent labels they represent – not necessarily the hoards of indie artists I am talking about here (so it may not be as relevant to this argument).