 Alright, well thank you to Senator Wyden for coming here today and the first day that they're back in session to take time out to talk to us was really fantastic. So we're moving on to our next part of the conversation which involves Jean Cook. And Jean is the co-director of the Artist Revenue Streams project. And she's going to do a presentation about something that we discovered as we did some of our work which was about artist leverage. And more specifically, and she'll get into it, is exactly how much control and how much access to the process artists have in regards to how they're paid when their sound recordings and their performances happen. So with that, I'll turn it over to Jean Cook. Hey everybody, how you doing? How you doing? You're doing alright. So this is the clicker, huh? Okay, great. So as Kristen said, my name is Jean Cook. I'm a musician. I'm the director of programs for Future of Music Coalition. I'm the co-director of the Artist Revenue Streams project. So this is the latest in a series of presentations and data memos and case studies from the Artist Revenue Streams project which is this massive data collection effort to understand the various revenue streams for individual musicians in the United States. So here you can see, I'm just going to jump right into it because we don't have a lot of time. Here you can see the revenue streams we asked artists about. This is what guided the framework of our research. We collected data from thousands of musicians and composers to understand how they put it all together. These revenue streams have been divided up into different buckets for composing, for recording, for background income, that's session musician income for performances, and then also brand related income and patronage. Can you guys see this okay? Is it clear enough? Okay. Great. So this list is published along with a lot of our reports at money.futureofmusic.org. This presentation is going to be in three parts. We decided to do this presentation because, as Kristen mentioned, we wanted to talk about how artists actually get paid. How does that process actually work? A lot of people know that when you buy tickets to see a show or listen to an artist's music online or on the radio, the artist eventually kind of benefits from your support somehow, somewhere. But how exactly is a mystery to many people? The details are pretty vague. As it turns out, it may be mysterious because how the money actually flows in the music industry can be quite complex. So rather than being like something like this, it's more like, I just picked Aaron because she happened to be around, more like this. So the first part of this presentation is going to ask the question, who decides how much the artist gets paid? Then we'll look at some details about how rates for a few of the more popular income streams, some of the income streams that we've been talking about today, are calculated and eventually distributed. And then we'll close with a few takeaways from musicians that offer a little context for the information that we're about to provide. So the first question is, who decides how much the artist gets? So this map, as I mentioned, this is a fake map. This is an actually Aaron's situation. I just used her picture because she happened to be in the house and I'd like to thank her. I'd like to thank her for letting me use it. But it gives you a sense of how the money generated from music trickles back to the artist. So of the 42 streams we've identified, some of them are negotiated by the artist directly, one way or another. Like a music teacher can usually set their own rates for lessons. Sometimes the rate's negotiated by somebody on behalf of the artist, like a booking agent who negotiates a guarantee or a percentage deal with a concert promoter. So sometimes the rate's set through collective agreements representing a group of creators, like a union or ASCAP, BMI or CSAC. We talked a lot about that today. Sometimes the rate is set by a process outlined by law. Sometimes it's set through private negotiation. So there are three basic categories of stakeholders who negotiate how much artists take home at the end of the day for each income stream. These are the middlemen who negotiate the rates that artists end up getting paid. So the first group, we would call them, I guess, direct agents. These are the artist managers, booking agents, attorneys, people who work directly on behalf of an individual artist. They represent the individual artists in negotiations and are usually paid through a percentage of the artist's overall income or a percentage of a deal that they may source. The second group is record labels and publishers. These are the copyright aggregators. These are folks who are investors that provide upfront capital to the artist in exchange for control over the artist's copyrights a lot of the time. They distribute and promote the catalog and pursue licensing opportunities. The third group is the collective management group. These are the ones that are formed to collectively manage artists' rights. So they're the PROs, the unions, entities like ASCAP, BMI, and CSEC exist to negotiate performance rates for compositions and collect and distribute the income to their composer and publisher members. Sound Exchange does the same thing for recording artists and sound recording copyright owners. The American Federation of Musicians does the same thing for performers and recording musicians, SAG-AFTRA, represents recording vocalists. So for most, if not all of the copyright related income streams, these rates artists get paid or negotiated by and with record labels and publishers or by collective management groups. So how are the rates determined with these middlemen and what is their ultimate responsibility to the artists? Because that's the thing that we're really concerned about. So as I mentioned before, it's impossible to generalize the answer that question because it's quite complicated and we are limited in time. So I'm gonna take a look at how details work for three specific examples. We're gonna look at Spotify, iTunes, and Pandora. So here you can see the flowchart of the money that goes from the fan to the music service, then to the middlemen and then back to the artist. And the name of the second part of this presentation is the devil lives in the details and we're gonna be focusing on this particular area between the services and the middlemen. So there are two caveats before I show you the slides that break down the rates and how they get put together. So for the purposes of this presentation, we tried to focus on specific and essential aspects of the right setting. Who's at the table, the basic nature of the deal structure and for the three different types of uses. Now it might get a little bit confusing if you don't know, for example, that copyright law treats compositions and sound recordings differently. So because copyright law treats them differently and they also treat things like interactive versus non-interactive streaming differently. Just who's sitting around the table for these negotiations is gonna vary from service to service. When digital music services, for example, want to use an artist copyrighted works, they have to deal with labels and PROs or aggregators or unions to negotiate what the rate is to be paid. So is everything kind of tracking so far? Is everybody cool? Okay, so we'll start with Spotify. So you see on the left, one side of the negotiating table, we have Spotify, which is an interactive streaming service. That means that as a user, you can choose what songs you wanna listen to. You can listen to them as many times and whenever you like. So on the right side, we have the sound recording copyright owner on the top. That's the record labels and aggregators. And below we have the composition rights. So if I'm Spotify, I'm gonna go through theoretically. And there are many people in this room who have much more intimate knowledge of these details than I do. And they should feel free to correct me in the places where I am wrong. But this is what I think happens, which is that if I'm Spotify, I'm gonna go through a private negotiating process with every single record label and aggregator that controls the sound recordings that I wanna use. The deals with each label or aggregator may be different from each other. I'm pretty sure that they are different from each other. And by the way, none of these rights that have been set have been published that I'm aware of. Then we're gonna go to the PROs. That's ASCAP, BMI, and CSAC. We're gonna get a blanket license for the compositions that are streamed on Spotify. And because it's an interactive service, I'm also gonna negotiate with each publisher for mechanical license. The NMPA, which is the National Music Publishers Association, can sometimes be helpful and negotiate on behalf of its members in times like these. But any publisher that isn't a member of the NMPA, I'm going to have to find them. So did that kind of make sense? Did you guys already know all of this stuff? Okay, so we're gonna move on then to iTunes. Here we have iTunes on one side of the table and labels and aggregators are on the other side. Again, these deals are private, though I've heard that iTunes deals don't tend to vary terribly from deal to deal, unlike Spotify. The Composer Money is much simpler for this kind of use. It's a simple download, so it's a statutory mechanical rate. That's the same for everybody. And instead of dealing with the publishers like Spotify has to, iTunes can just give the money to the labels to pass on because it's just a set rate. So that's iTunes. Did you have a question? Thank you. That's actually a really good clarification. Thank you. Yeah, cool. I'd like to talk to you about that later, actually. Thanks, Gerald. Next, we've got Pandora. So I believe we've covered a lot of this today. So this will probably just be a recap. I don't know if we have any folks from Pandora in the room. I know their lobbyist was here earlier. OK. So rather than doing private deals with all the labels, Pandora participates in a public rate setting process at the Copyright Royalty Board. And they do this every four or five years to determine the rate. Pandora submits evidence and testimony about why their business is expensive and difficult. And then rates should be lower as a result. And Sound Exchange then submits evidence and testimony about why artists have it so difficult. And that Pandora should maybe pay higher rates. So then the judges review the evidence and then make a ruling on the rate that Pandora will pay. So while this is happening, Pandora and Sound Exchange have the option to reach their own settlement agreement about what the rate should be, which then will be reviewed and approved by the CRB, which is the Copyright Royalty Board, which is the three judges that the senator was talking about earlier. And then the rates will apply to everyone once it's approved by the CRB. The rate is then published on the Sound Exchange website. So on the composer side, Pandora gets a blanket license for a non-interactive stream from ASCAP, BMI and CSAC. It's a standard formula based on ad revenue, user revenue, number of uses, and the rates are published. So those are the three that we're going to take a look at, interactive, non-interactive, and downloads. So the beginning of this section, I asked the question, how are the rates determined with these middlemen? And what is the responsibility to the artists with respect to the artist's bottom line? So now it's to the second part of the question. As it turns out, not all middlemen are the same. While they play similar roles in the negotiation of the rates that the artists are paid, there's some important differences that are worth noting between labels and publishers and collective management agents and unions. So let's start with what they have in common. Both simplify the licensing process by negotiating on behalf of groups of artists, a bunch of labels, or an entire catalog of work, that that's been talked about earlier today. I think it's absolutely true. It's obvious. So music services don't have to try and negotiate directly with millions of artists. And artists don't have to chase down every single service when they use their music. That's a good thing. They also take responsibility for finding and paying the artists once they receive the money from digital services. So that's another burden that's relieved. So here's where they differ. So the PROs and the unions, they ultimately answer to their artist and songwriter members, arguably. Most have mechanisms in place that allow the artists to have input on how these organizations are running how they do business. Protecting the artist's share of the income streams they negotiate and collect is dictated by law in the case of sound exchange. And with ASCAP BMI and CSAC, it's written into their charters. Half of the sound exchange board is artists, representatives. So this is in contrast to labels and publishers. Artists rarely have substantive oversight over how the label publisher will negotiate on their behalf. And on the back end, labels can often be unreliable payment agents, as many of them will cross-collateralize the income they negotiate and collect on behalf of artists against the debt the artist usually owes them. And in other cases, major labels have used their ability to control massive catalogs to extract additional income in the form of equity stakes. In the case of Spotify, as it's been reported, or something like an access to the catalog fee, as they did with Rhapsody. And then in other cases, I think there's even been reported. We will show up at the negotiating table fee. So time will tell whether these additional income streams that the labels extract from services will ever be seen by artists or if it will make its home in the major labels general coffers. So where does it leave us? We started by wanting to talk about how artists get paid. We dive deep into the mechanics about how some of the royalty rates are determined for three popular services. And now as we head into the home stretch of this presentation, I'm just going to roll back to 150,000 feet and focus back on the artist and give some context for how musicians and composers fit into this picture. So not all income is created equal. So this is kind of the first takeaway for artists. Like, how do you think about these income streams? Where do these particular income streams, iTunes, Spotify, and Pandora, fit into the artist's big picture anyway? While it may be a relatively small portion of an artist's income, our research has told us pretty compellingly that every little bit counts. So if you were to make a pie chart that included all of the revenue that a real musician earns. So this is actually a real musician. This is all the revenue that they earn. It's probably the pie chart that aggregates their income is not really going to look like this. It's going to look like this. So for that particular musician, certain income streams are more significant in some ways than others. Live performance salary and CD sales on the road are more significant to them than, say, acting or TV royalties or being a producer or a session musician. And as a result, it's perfectly natural that the artist would then spend more time on the larger income streams. But not all income is created equal. While this artist made 30% of their income from live performance, you might say that their income from live performance is, say, five times the amount of income that they get from their PRO, if you were just to look at this chart, except for the part where this chart is actually just gross numbers. And anybody who tours will tell you that there are expenses associated with touring. So when you take those expenses into account, you may find that the net income from live performances is much closer to the ASCAP money. So the smaller income streams have more value when they have no expenses attached to them. So most of the income streams of musicians are somewhat interdependent. That's another important concept. It's because they're touring that people are going to promote their music and encourage things like licensing and radio airplay. That results in more PRO money. Touring can also help merchandise sales. Radio airplay helps touring and record sales. Making more records can sometimes give you a reason to tour. The revenue streams all rely on each other. And successful artists are able to leverage them all against each other. So that brings us to the concept of leverage and its role in artist income. But what does that term really mean? Leverage is a pretty broad concept and it can apply in many different situations. So for example, an artist who owns their own masters in publishing, they have more leverage than the artist who's beholden to a label and or a publisher. Labels can be like banks. They're like banks. They have leverage with some artists simply because they can advance cash. Music services can gain leverage with artists and labels when they start to get traction in the marketplace and have a critical mass of users. Artists gain leverage when they collectively manage their rights. In other cases, artists with valuable catalogs may gain leverage when they choose not to give up control to collective agencies and negotiate their own deals. But if we really want to talk about leverage, we need to acknowledge that the major labels and the major publishers have a lot of it. I think that we heard a lot about that in the last presentation. Through the legacy catalog and their existing roster, they control access to vast amounts of valuable recorded work and compositions. And even in this age of ubiquity and talk about the death of the major labels, their power has not really diminished in this area. So this is a fundamental dynamic that has and will continue to shape all negotiations about music rights for the foreseeable future. It's an important point to acknowledge. While new digital music services will want to continue to pay the absolute minimum they can get away with and want the licensing process to be as easy as possible, and artists and copyright aggregators and collective management bodies will want the rates to be as high as possible. And in the case of the majors, they actually do have the leverage to force a conversation in these negotiations about things like, well, what is the material difference between a stream and a download, a tethered stream, a ringtone, an audiovisual use, an interactive use, a non-interactive use, and the list goes on and on and on. These conversations, I mean, I think you could argue that it's possible these conversations may not have happened. They wouldn't have been forced in the same way without the leverage that the major labels were exerting. So the road to the frictionless licensing process of the future that we often talk about at this conference, we dream about it, we talk about it, we hope for it. This is a rocky road. It's a difficult road. It's expensive and it's long. It's also an excruciatingly incremental process. So, oh, yeah, that's a good chart. So the last takeaway is about how leverage has an impact on the landscape for negotiation. So if that last takeaway was about that, the third takeaway, which we're about to look at, is taking the artists and looking at where they fit into all of this. So in the examples earlier in the presentation, we describe the rate-setting process for a few different digital music services. Artists have different levels of oversight, depending on the types of rate-setting process. And there are opportunities to be involved that maybe some of the artists here don't know about. For example, when the rate-setting process by Pandora for how much performers get paid as a mini-statutory rate-setting process, there's actually a public aspect of the process through the proceeding at the copyright royalty board. Many people may not know about this. Most people probably don't have the time to participate, but it does exist. Any stakeholder can participate in the proceeding. Any participant can file testimony about how the rates should be structured and submit evidence to support their position. If artists disagree for whatever reason with how sound exchange is representing them, they have the technical ability to file their own testimony, which would be considered by the CRP judges through that proceeding. In the case of blanket licenses offered by ASCAP, BMI and CSAC described above, oh wait, hold on, artist involvement, and then there's also detailed reporting on the other end with sound exchange. In the case of blanket licenses offered by ASCAP, BMI and CSAC described before, as members of the PRO, artists can theoretically have the ability to give feedback directly to the PRO on the rate-set. And in the cases where the artists were unhappy with the PRO rates, they have the option to remove their catalog and pursue direct licensing with the music services for their catalogs. In the case of private deals, though, artists have limited recourse if they're unhappy with the rate that's agreed upon by music services in the middlemen who control the artist's copyrights. This is really the crux of the problem, and I think that it's been discussed at length today in many different contexts. There's very little transparency about the process and the rates that are rarely even published, in contrast with the CRB process or the blanket licenses that are offered by the PROs. Because these deals are private, there's no way to know for sure how much artists are supposed to be paid. There's often also very little accountability in the reporting when the labels distribute the royalties paid to them. I love Trish Pollock, I think she was very eloquent on that point. Now this is not to say that private deals are always bad, there are times when private negotiations are the best way for artists to get the most value out of their work, but you have to be at the negotiating table to benefit from the process. So this is my last two slides. I know I'm running out of time. Despite their differences, there are a few things that music services and rights holders can probably agree on. As this industry moves forward, I think there is broad consensus that more efficient ways of licensing is probably a good thing. No one thinks that it's a good idea for music services to have to chase down all of the individual publishers for every song they wanna use that isn't in the NMPA catalog. And I doubt anybody ever thought to themselves, gee, I think there should be 10 different mechanical rates. We've heard every stakeholder at one time or another say they want individual artists to get paid. That's true by the way about the 10 mechanical rates. Ann was just telling me about that. There's probably also consensus that accurate payments and accountability on all sides isn't the worst thing in the world. And transparency's one of those words you hear again and again and again at conferences like this one. So these are principles that can perhaps help to guide us. Those of us who are trying to figure out the next step for more efficient licensing processes of the future, as well as some suggestions. Here we've got some suggestions for middlemen who are interested in improving, improving how they serve the artists that they represent. I'm gonna stop here. I know that we don't have time for questions, but I appreciate you listening. This is the first time we're doing this presentation. I'm interested in your feedback. Please pull me or Kristen aside if you'd like to chat. Thank you.