Original URL: http://www.theregister.co.uk/2006/11/03/peter_jenner/

Big labels are f*cked, and DRM is dead - Peter Jenner

Clash, Pink Floyd manager lifts the lid

By Andrew Orlowski

Posted in Media, 3rd November 2006 17:04 GMT

Interview Few people know the music industry better than Peter Jenner. Pink Floyd's first manager, who subsequently managed Syd Barrett's solo career, Jenner has also looked after T.Rex, The Clash, Ian Dury, Disposable Heroes and Billy Bragg - who he manages today. He's also secretary general of the International Music Managers Forum.

And he doesn't pull his punches.

The major four music labels today are "fucked", he says. Digital music pricing has been a scam where the consumer pays for manufacturing, distribution, and does all the work - and still has to pay more. Labels should outsource everything except finance and licensing.

But he's also optimistic that for almost everyone else - indie labels, musicians, songwriters and budding entrepreneurs - as well as network providers - the future's going to be pretty bright. The Big Four know that the DRM era is nearly over - and within two or three years, he predicts, "most countries" in the world will have a blanket licensing regime where we exchange music freely, for a couple of quid a month.

In the future, he also suggests, artists, co-ops and managers will raise their own investment on behalf of artists - and pick and choose their marketing teams.

Jenner is organising a conference in London on November 15 to discuss these issues. Billed as an "Urgent Blue Sky Debate", for once a music event may live up to its billing. Earlier this year, France almost voted to legalise P2P and bring in a blanket license - the necessary stepping stone to the future.

While Jenner elaborated on these in a report for MusicTank recently - it's only available to the public for a fee. So we were delighted when he dropped by Vulture Central yesterday to lift the lid on the business. Strong language follows.

You said that at In The City, the big label executives have lost their faith in DRM - they don't believe in it any more.

They don't. Not anymore.

And that was done by Sony BMG - what the fuck was that [rootkit DRM] about? The other was iTunes - and they've seen how kids don't like it. The unitary payment doesn't suit the technology, it doesn't suit how they're actually using downloads - which is to explore and move around. You don't want to pay a dollar for each track when you want to explore music.

And they're pretty crappy services, too. eMusic works, but when the others time-bomb the songs it's more annoying than the per-machine restriction. Because it's suddenly robbing you of something you had.

Oh yes.

And three years later you go, "Oh, shit!" - You basically have to pay twice for it.

Yes, that's outrageous. You've got to provide stuff that people can keep, and they don't mind paying you $3 a month for.

So how long can the big labels keep up this charade?

Earlier I was talking about the ground moving underneath the industry. At In The City people are beginning to realise they have to do something. So I think in two or three years blanket licenses will be with us in most countries.

And France nearly voted for it this year.

Yes, it got shot down - but the people who shot it down really shot themselves in the foot. They tried to get away from being too unpopular by saying "it's like a parking fine" - and the court said no - if it's an infringement of copyright, it's an infringement of copyright, and there's a huge fine.

So of course they can't enforce the law - it's completely unenforceable.

With the DRM, I think they've realised it just isn't working. People don't like the CDs, they find their way around it; they don't like the DRM, they don't use the DRM services; they resent - as you say - having subscriptions wiped.

Rock manager Peter Jenner

So do you think a blanket license will be introduced bottom-up through industry agreement, or top-down as in France - where there was some political leadership? It just isn't on the mainstream media, or think tanks' radar just yet. And I don't see much political leadership.

No, the political people have to be just well informed enough so they don't fuck it up, and they have to be encouraged to help it. I think it would be wonderful if the government could lock everyone in a room - the music industry, the unions, the performers, the record companies, the publishers, the ISPs - and tell them you can't be let out until you sort it all out.

They won't do that, but I think some way will be found to get that result.

So it's a fear of losing the distribution channels?

They won't have any control over distribution. A blanket license is a blanket non-license, really - it's simply saying "we won't sue you". But if you have commercial services exploiting music, we will want to pay you more. You're licensing the anarchy.

It's interesting where we'll end up drawing the line between commercial and non-commercial, but in the end the numbers will be so huge it'll iron itself out. Someone from England might pull in a lot of hits from Spain - but again, it doesn't matter. I don't then worry how they'll pass the money to each other, but it'll all come out in the wash.

Like it does today with collection societies?

Yes

I saw some reaction to the first step - "Value Recognition Right" here in the UK, and very few people seemed to understand it - especially not from the value-for-money point of view.

It was a very important first move but it was also a bit clunky. "Value Recognition Right - what's that? You're inventing a new right to make people pay - but you're also suing people - huh?"

But if you say that if mobile phones and ISPs want to distribute music in a non-commercial fashion, then they should pay for that right.

And if you swear that you're not going to listen to any music, you're not going to pay. It's going to be very hard for you not to pay, and the network is keeping an eye on you to see you don't download any music. And if you do without a license, we'll sue the hell out of you - because you've been offered a cheap deal like the TV license.

That's a lot cheaper than a TV license.

And fairer. If you don't have a computer, you don't have the internet, you don't have a 3G phone - and you don't listen to music - you're not going to pay!

They had to do it I think, and it was necessary to flush out critics who have no realistic alternative - other than that artists should go begging...

The "freedom" people are telling us I have to go out and sell more T-shirts - it's an argument I find tremendously insulting.

To me if someone gets some earning from their creativity it's one less person who's going to spend their life on a production line, or in a cubicle

Well, all the people who are writing this have salaries

Or they're rich tenured American professors.

They're getting paid very nicely, thank you. No, I certainly agree.

I don't think the positivehello side of Recognition Rights came in. Here's some place you won't be sued - you can do what you like with it - explore the world's music, share it, download it.

So the Big Four can't give up control?

Well, they know that they've built their power around their monopoly, and their manipulation of the market, and that's how they cover up their incompetence - by being "the only people who know how to buy stuff in", and so on. They've spent a lot of money establishing it.

And it's only through distribution, through black boxes, and their control of the existing copyright regime.

But it's not just that. You've also got this incredibly complicated rights structure. They've got to sweep it away online - they don't need to fuck with it offline - but they need to say there will be payment for music, and it's for the [artists] to claim under some kind of regulation.

We can have an 'OfRoy' - an office of royalties, or whatever you want to call it. Someone just to keep an eye on things to see people aren't be shafted, and that there's arbitration in the long run.

Doing it through the courts is just too complicated - it just becomes nit-picking. What we are doing today with radio, PRS, is actually riddled with holes. Money gets lost, misattributed, deductions are taken for this or that - but we can all live with it. It's not some malicious plot. It's just compounded human error.

For readers who've never heard of the black boxes, what are they?

Any money that comes in through collective payment and you don't know who it belongs to for any reason - or you can't pay it to them because you don't know where they are - goes into what's called the black box.

Which everyone in the collection societies insists doesn't exist. You ask Fran [Richard, ASCAP] about the black box and he will give you the most fantastic bullshit. He'll say "We don't have a black box".

Of course he has a black box. With the best will in the world you cannot distribute all the money accurately.

In a blanket license system, there'll be huge black boxes, and we'll have to learn to hold the money for a long time. People will learn to register, then we can work out how to deal with the black box fairly - rather than giving it to people who know it's there. That's what's happened in the past, really.

We don't talk much about it - so no one know who's got it. And the people who get it don't say much about it - it's not top of their conversation at music conferences. They don't come in and say "we cleaned up on the black box". What they will say, is "our market share was fantastic." That's because it's divided up by market share. It's non-attributable income and it doesn't have go to the artist - it goes straight to the bottom line.

The industry dreams of black boxes! (laughs)

But now it's going to be in the collection agencies' hands - or some intermediary.

If it's the publishing side, you get 50/50 at least, or 70/30 if you have a modern or newish record deal. And that 50 per cent is not recuperable against any advance. It's the same with PPL - you get some substantial proportion of the income. [The PPL is a members' society that collects royalties from public performances and and divides them between the recording rights holder and musicians] It's not quite as much as they try and tell you get, but it's quite a lot. So it's another income.

But it's quarterly and they can't wait to get rid of the money. The agencies know the regulators are watching them closely and can come in and ask "what are these pools of money you have here?" The EU watches them very closely.

So in collection agencies, while money can get systematically stolen, it's like petty theft. It's like retail losses from shoplifting. The agencies are really just shoplifters, but the major labels are burglars, and the worst of them are like armed robbers!

You mention Clive Rich [Sony BMG] in your report who modernised the recording contract - but that cut the rate for songwriters, didn't it?

No, I don't think it cut the rate for songwriters. I think it kept the rates online very low - but it was much clearer, much simplified and absolutely a move in the right direction. But you see, because of the stock market, they're obsessed with "margin".

If you're talking about your margin you should be doing things completely differently. They should be talking about their bottom line. But they talk about "unit margin" because that's what analysts look at.

That's true. It's a house joke at The Register when we cover earnings calls that the analysts have this Pavlovian response. I've been on calls where a company's sales have fallen 50 per cent and all the analysts ask about is "margin" Er, guys, what about your sales drop!

What's important is what's your bottom line, for Christ's sake.

The blanket licensing thing is obviously going to slash your unit margin. The record companies have increased their margin on downloads, because the costs have been ripped out. So they've cut the artists royalties and raised their margin.

But because they've replaced an album with a single they've helped destroy the retail industry, they're now in a position where they're completely fucked.

No one's got any sympathy or love for them, because they've systematically been shoring up their figures in the short run - squeezing money into Universal to make up for their catastrophies; Warner Brothers have been coping with huge debt; EMI have been desperately trying to hold their stock price up so somebody would buy them; BMG has been wondering how the fuck they're going to pay somebody back money for whatever it was, so they don't go public - and Sony are in a terminal mess.

So all of them have been draining profit. It's "get the money in, boys, get the money in. "

So they've raped them. They've raped their whole business model, and no one's got the time or energy to think about their business.

Then you've got people like Barney [Wragg] at Universal, their new technology man, and they've got these High Priests of DRM in there.

One thing you strongly hint at is that the distinction between royalties for a physical thing, and performances, is out of date and needs to be rethought.

The difference between a download and a stream now is now purely just a question of what you want to call it. Both are streams, both can be downloaded and it's whether you want to call it a download and charge for a download.

The record companies have managed to establish, and I think incorrectly and it should be challenged, that a download is a replacement for a sale. Here's what they're saying - it's a mechanical, so it's the same as selling a record. Then the logic goes on: a download is a certain technical process that puts it onto your machine. So anything which does that is a download. Therefore, anything delivered in that way is a sale: so we'll pay you as a sale.

Which then means you've got to track everything. It's not discriminating - it's not looking at what people are using the music for. It's creating an artificial distinction so they can distinguish the payment of royalties. So you get paid 15 per cent of the dealer price net of some things - whether they call it "packaging deductions", or "new technology", or "Mid-Price", or some combination of those.

They have all sorts of ways of slicing down the royalty rate. And the net result is that if you're getting only five per cent of the dealer price actually paid to you - as the person who made the record - you're doing well. The writers, because they've got the publishers fighting for them, get more. They went to tribunal recently and got eight per cent of the dealer price. So if you wrote your own song you might get 11 per cent of the dealer price, and that's top money. If you allow for the Paul McCartneys, maybe 15 per cent. But that's tops for a big label.

Now, if you're an independent, you get in the region of 35 per cent of the dealer price, because they go 50/50. And that's what gives the game away.

And all your net is a payment to an aggregator - maybe 15 per cent, and paying the distributor, and paying the publisher. So instead of five per cent of dealer price you're going to get maybe 20 per cent of dealer price. It's a huge difference!

If you say it's a performance, however, it's a neighbouring right, it might be argued that it goes through PPL, in which case you get 50 per cent with many less deductions. So a performance split between members of the band, sessions musicians - a complicated formula but it goes to the musicians.

In your report you suggest that a blanket license for digital will really begin to change relations fundamentally. You mention managers, and artists co-ops. Can you elaborate?

The key things that the record companies do are probably finance and distribution. Well, distribution is much easier because of the net. There's also marketing - and that's really finance. Then you have an issue of these complex rights - so who do you back? Do you put your money into the record or into the whole game? And I think everyone's moving into putting money into the whole game.

You can envisage a different investment model - imagine estate agents for IP. Someone wants to come in and invest £100,000 in Billy Bragg. And he goes to someone and someone says "Sure, Billy Bragg, it's safe to give him £100,000"...

I can't see it working. We might live in four or five houses in a lifetime and there's only one Billy Bragg career for Billy.

There's one career - but the logic is sound. If you turned over 50,000 and made a 50,000 profit, he'd be safe

You can look up the recording part of it, and chop that up. Or you can just promote the brand. I think you call them consultants rather than estate agents. That way you're asking what is the key element of the equation - and the key is to "own the fans" - and the person who owns the fans is the artists. So it may be the best person to invest in is the management - you'll get the best return on your investment - and you can see what the manager did last year. Or they can say, Peter Jenner - I know what he does. Let's let him go out and find the promotion people and the marketing people.

I like the idea of doing co-ops to raise the money, too. If I give money to you to write a book, that's fairly high risk. If I lend it to 100 people that's much lower risk - someone's going to come through and I'll get my money back. The industry understands these issues. And you're less likely to rip each other off.

Small businesses working together strengthens the market.

There are intangible things about physical music we're only just discovering we value. I'll tell you something. Have you noticed that digital people are pretty twitchy people. Recently I was reunited with all my old vinyl and it's much more sociable than running it off a computer or an iPod. People appreciate each other's company more, and appreciate the music more - we grow more patience and it's lovely. The tyranny of the playlist, of interactivity is horrible - it's a curse.

Well, without sounding like a clever clogs, I always said this was going to be a streaming media, which has even less interactivity.

Like what we're listening to now it washes over me. That's fine. I see music as a commodity as being the driver. There's far more casual access to music and for those people, you need all of the music. It's no good just having Sony's catalog. While for the fans, they want more from one artist. They want to get close to the artist, they want better packages. Real fans might want many versions of a song from a demo, to the final version, to the mash-up version, as many as 20 - it's a continuum. And you can give them it now. You've got that sort of market for the fanatics - they want the live recoridng, the backstage photos, the singer's blog when he's on the road.

That's a complicated bundle of rights - it's about bundles. You can't sell that individually, but it's a bundle. And people will want to give your their money.

And mobile?

The real game in town is not online. It's a skirmish. The real game is mobile phones. If your mobile phone is a portable computer, which has got all the facilities of an iPod and a radio, and a TV, with some limits on their memory but as time goes it'll have huge memory. But you need access to everything. ®

Peter Jenner's conference Beyond The Soundbytes, organized by MusicTank, takes place on 15 November.