The Tech Attorney Blog » What Are They Thinking? Railing On (and Learning From) The Recording Industry Association of America (the RIAA)

What Are They Thinking? Railing On (and Learning From) The Recording Industry Association of America (the RIAA)

Posted on June 2nd, 2008 by Adamesq

Sue Everybody!
When someone steals from your business or breaches a contract, you sue them. Let the lawyers take action. If you let the bad guys get away with it, the world know that it’s safe to plunder your gold. After all, it’s an open and shut case. File a claim. Get a default judgment. You’ll recoup some of the money you lost and deter people from stealing your stuff. Right??? Well, maybe the music industry isn’t exactly the best example.

Lawyers Gone Wild
For shame, RIAA. Beating up on teenagers and single Mommies? It’s hard to figure out if the lawyers created the business model or if corporate management is just in death-roll with technology. If common sense didn’t lead the RIAA to a revelation, someone should have realized something was awry when the legal department started operating in the black!

The RIAA loves to tell us that it’s protecting artists. If you visit its website (RIAA.com), you’ll see that the RIAA is comprised of a huge number of members representing about 90% of all music manufacturers, creators, and distributors. Most artists aren’t making big bucks from their recording agreements. I’ve been on the both sides of the negotiation table. As a lawyer, recording agreements are fun to work with from both points of view. There are tons of variables to play with. Unfortunately, that’s also the one of the reasons we often hear about unrepresented artists getting bad record deals.

Music Business Basics
Running a label is a risky business. Where 100,000 records would be a good run for an indie, it could be a write-off to a big label. It used to be said that record labels run at about a 20% success rate, meaning that 20% of the artists carry the other 80%. Labels front a tremendous amount of money for products, displays, recording fees, mastering, distribution, producer fees, payola (of course, that doesn’t exist any more, does it?), etc.. A band can sell music on its own, but aside from exceptions like the Grateful Dead, really making it big, particularly today, requires money and promotion. From my days doing production, I realized that just about any track can be huge with enough money and promotion behind it. Of course, the more money that goes into promotion, the more labels want control over the “product” (wouldn’t you like to be referred to as a product?)

On the flip side, artists generally make most of their money from touring, shows, royalties, and possibly related products. (Does anybody besides me remember Debbie Gibson’s “Electric Youth” perfume?). An artist usually earns 10-13 “points” (percentage points) on album sales. But it gets worse. That percentage is on the net and “net” in the recording industry can be spewed over pages of a recording contract. Weird deductions come into play such as payment on only 90% of product (a practice that started in the old-days when a certain amount of vinyl records would break in manufacturing and shipping). Then, there are delays in payments while the recording company waits to see how much returned product comes in. We haven’t even gotten to the seedy side of creative accounting, uneven bargaining power, and the struggling artist’s lack of funds to go after a label.

Considering that the record labels are making somewhere around 85% on sales and taking almost every cost imaginable from the artist, it’s hard to imagine that your average artist is raking in profits from RIAA lawsuit proceeds.

Owning the Sharks Doesn’t Make it Safe to Swim in the Water
The RIAA’s war on piracy shows the signs litigators set loose. As a lawyer, it demeans our profession a bit every time a big corporation goes after a little guy (figuratively; after all, these are often kids under legal attack) for downloading music. Holding the legal cards doesn’t always make it a good idea to play the hand.

Of course, the recording industry would claim that the suits are a deterrent. We would expect that the industry would see a turn-around in sales then, right? According to the Wall Street Journal, music sales in the first 3 months of 2007 were down another 20% from the previous year! Why am I not surprised that 13 year-olds aren’t deterred by the threat of a lawsuit? Maybe if the RIAA ran around with a paddle we’d see some improvement. If lawsuits were the answer, parents would send their kids cease and desist e-mails for misbehaving.

“Getting” Your Demographic
The RIAA’s actions are a foreboding teller of the music industry’s future. Lawsuits where you’re suing kids, single Mom’s, grandparents, or estates of the deceased are about as ugly as they come. The RIAA has created a public relations nightmare. However, it’s given us a great example of why they need some fresh faces who understand today’s marketplace.

While EMI and Apple appear to be on the right track with $1.29 non-DRM downloads, the infrastructure should have been in place ten years ago. Now, it could be too late. The music industry has been turned upside down with the advent of digital technology.

Today’s consumer doesn’t fit within the business model of the entertainment conglomerate. The consumer buys tracks, not albums. The consumers are kids and young adults. They want to be able to move their music from one electronic device to another. The young adults generally do things the right way. They buy their music. It’s not worth the scavenging and guilty conscience. As for kids, any parent knows what happens when you threaten a kid. I’d be willing to bet that your teen isn’t quivering with fear that the RIAA is going to show up on their doorstep. P2P clients are only one way to move files around. The RIAA’s efforts to stamp out piracy today are doing more damage to the recording industry and to the artists it claims to protect than the kids who are doing the downloading. (Recently, I heard someone comment that the RIAA is doing more damage to the recording industry than Sanjaya.) It all comes down to tempering legal action with business advice and knowing your demographic.

The big labels need to learn how to cope with technology. The inability of these behemoth corporations to stay on the cutting edge, listen to their customers, and endure the ever-turbulent music market amazes me. Are we witnessing bureaucracy at its worst? Possibly, but, at least for now, it looks like lawyers are at the helm of this sinking Titanic.

As for the rest of the entertainment industry: stay tuned! The RIAA’s foul balls won’t keep you from your turn at bat.

Filed under: Tech Tips

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What Are They Thinking? Railing On (and Learning From) The Recording Industry Association of America (the RIAA)

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