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Threat to silence iTunes

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Remember how the digital music revolution was supposed to tip the balance away from big record companies, and towards the people who actually create the music? A vignette being played out behind closed doors suggests that digital music companies are only too keen to ally with Big Music when it comes to screwing creators.

At issue is the revenue split between composition and sound recording royalties. Typically, this has heavily favoured the owners of sound recordings by about 85:15, 90:10, or more - a number which astonishes outsiders. Why isn't closer to 50:50?

Well, the record companies argued, with large investments needed to create and manufacture the recording, and few outlets for promotion and retail, the music wouldn't get sold without the major label muscle. In other words, the revenue split simply reflected the the dominance of production, distribution and marketing in a world of physical goods. Songwriters, composers and publishers would have to be satisfied with the crumbs that were left.

Fast forward to the Brave New World, and you may expect to see the creator's value proportionately increase. Alas, the digital music companies are doing little to redress the balance - even though they can afford to. According to Fortune magazine, Apple threatened to close down its iTunes Music Store if the composer's share rose from nine cents per song to 15 cents per song. The threat was made in a submission to the US Copyright Royalty Board, the arbitrator which sets the rate for statutory licences.

Apple and the Digital Music Association had wanted to screw composers even harder: pushing for a reduction in the rate to 4.8 cents per track, or six per cent of "applicable revenues". Since Apple barely makes a profit on its iTunes store, that would be six per cent of bugger all being returned to the people who actually make the music.

Cheering them on are the major record labels.

"The record companies are in no mood to pay the proposed royalty increase out of their pockets," Fortune's Devin Leonard notes. They've pushed for a rate of eight per cent of wholesale revenues of music sales.

Instead of creating a new settlement, the digital music companies are riding a wave of antipathy towards the music business to do what big record labels have traditionally done: diddle the creators out of a fair share of the value created by music. The new boss looks very much like the old boss, as we've noted here many times before.

But they couldn't have done this without the "Boycott the RIAA" crowd, characterised by their dumb inability to distinguish between majors and indies, and composers and record companies. Such sloppy thinking is endemic, and means that any economic activity around music is met with jeers.

This not only helps prop up a lot of non-viable new digital companies that don't have a prayer, and wouldn't even if they paid their main suppliers zero, as the Web 2.0 wish. But more importantly, it validates decades of music business inequity.

"See?" the major record companies can now say. "To survive in this business, you should pay the songwriters as little as you can. That's what we've said all along!"

The Freetards are proving to be the best friend a dying business model could ever have. As an exercise in joined-up thinking, this is one epic Fail. ®

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