Digital Download Certifications by Todd Beals/Creative Media Services in
"The Beals Media Update" (09.01.04), a monthly newsletter 'Defining the Future
of Digital Media' published at Creative Media Services.
The Recording Industry Association of America
has officially launched its RIAA Digital Award
Program this month with a recent reception in
Miami as an expansion of its Gold and Platinum
program. This is obviously the natural
evolution of a growing new sales channel that is
becoming widely adopted. According to Clive
Davis, CEO of BMG North America, "even
though U.S. music sales are up +9 percent so
far this year, retailers are struggling to hold their ground in a market
where digital sales are growing."
According to recent reports by SoundScan, "there were 54 million
legal
downloads in the first half of 2004, compared to 19 million for the last
half of 2003." With that kind of an explosive market growth rate,
individual song sales are well on their way to cross the 100 million
threshold by the year’s end. A potential contributing factor to such rapid
growth, if you’ve been reading recent news reports, is that many
universities and legitimate music services are increasingly teaming up to
offer high-quality, legal online music options to students across the
country. But hold on….Wait a minute…Stop the presses. To rightfully
recognize and award artists who are becoming successful selling online
music is a noble cause, but I think the RIAA is going about it the wrong
way. Aren’t organizations like Nielsen’s SoundScan and SoundExchange
in place to help buffer the potential conflict of interest that can occur
when you judge yourself? Of course even with external accountability,
it’s still quite possible to be swayed under the muscle of the RIAA, but it
seems a little strange to me for the RIAA to be the one counting the
votes, (um sales) I mean, since they (and their members) are to directly
benefit from the press. Perhaps its just another ploy to attract more
attention to the specific artists they want to push and will have no
relevance in the long run, as many feel the cartel of the major labels will
become extinct soon. If the truth be told, the RIAA’s Digital Download
Certification Program is actually a derivative of an original invention and
business model process created in 1998 by Andre Gray and therefore, it
is not the first organization to come up with the idea.
As an expansion of its successful Gold and Platinum awards, the
RIAA
Digital Awards will recognize artists with "legitimate and certified" legal
download sales beginning at 100,000 units. (This amount is
understandably less than today’s 500,000 requirement to be certified as
Gold because many CD singles contain more than one song as opposed
to a single song download.) Surprisingly though, I have read that the
RIAA itself will calculate the sales of music downloaded from the various
legal download sites (i.e. Apple's iTunes Music Store, AOL Music, Napster
and Sony Connect) instead of conducting an independent sales audit of
each title by an unbiased and respected accounting firm (like the process
for a regular Gold Record certification.) Also, an RIAA spokesman said
at present the program will not include album downloads, which are, as
yet, too negligible to measure. While I wholeheartedly agree that the
U.S. music industry and the rest of the world for that matter, needs an
organization to certify awards for successful internet sales, I question
whether the RIAA is the one to do it, especially if they are going to
exclude the independent artists/labels, which make up over a quarter of
the entire market. There are now legitimate organizations like the
Distributed Computing Industry Association (DCIA) with numerous
member companies such as Secure Media Licensing (WEEDSHARE) and
Altnet out there in the market legally selling and promoting single song
downloads which rightfully deserve to be counted.
According to the RIAA’s website, "certified
sales of 100,000 singles would earn a Gold
award, while 200,000 downloaded singles
would garner a Platinum award. Multi-platinum
awards would start at 400,000 and increase in
increments of 200,000 thereafter." The
traditional RIAA certification program is open
to member and non-member companies, so I
was very surprised to read that for the new
digital awards "only downloads from a
legitimate online music service with licensed
content from the record companies will be
recognized." I have to ask, who died and made them king? Hasn’t the
music industry’s lagging sales coupled with a resistance to supply the
demand for consumer’s desire for a complete online catalogue indicated
that we’re in the midst of a revolution? Who are they to decide what is
"legitimate?" Hasn’t anyone told them they’re not the gatekeepers of
musical success anymore? As a result of the RIAA’s careful wording, the
new digital awards will apply ONLY to digital music from the online music
sites supplied and supported by the Big Four record labels. That sounds
like the good ol’ boy syndrome to me. That exclusionary policy decision
begs the question, what about the independent artists and labels and
what determines a "legitimate" service? The global music industry
totals $40 billion annually, and the U.S. recording industry accounts for
fully one-third of that world market. The last time I checked, the
independent segment of the music industry comprised about 30% of all
recorded music sales. So, with today’s technology, why the exclusion of
independent acts who are grossing roughly $4 billion in the future
disbursement of these new digital awards? Are the major labels afraid
to publicly acknowledge who else beyond their control is also selling well
over the internet? From a business standpoint, it’s understandable to
want to only promote successful sales stories from within the
organization, but for credibility purposes, the awards program should be
open to all musicians. The internet has quickly turned the industry into
a global one and in order to avoid a quick death, the labels better learn
how to adapt to change a little bit faster. Consumers want freedom of
choice in the music they buy and listen to. They want one universal file
format. But most of all they want good music. It seems that the RIAA
and its member labels (which are run by out-of-touch aging executives)
are really not interested in recognizing successful artists gaining traction
via legal downloads like they claim. Maybe I’m naive, but I thought this
new digital award category is supposed to recognize artists for their
successful online sales. So I must ask, why aren’t they including reallife
legal sales from independent websites, stores and the P2P networks?
In an exclusive interview with the Digital
Electronic Music Organization’s (DEMO)
Founder and CEO Andre Gray, I asked these
questions and more as we discussed his
views of the state of the struggling industry.
For those of you not familiar with DEMO, one of its missions is to
promulgate a globally accepted standard for Secured Electronic Music
Sales (SEMS™ is a term he coined way back in 1999) and to actively
promote music for independent artists. Unlike the RIAA’s new awards
program, DEMO provides online music sales certifications on a global
scale and is not exclusionary. Gray, a true visionary, is the recipient of
numerous industry awards for inventing online music sales certifications
over 6 years ago and DEMO was in fact the very first company to
recognize artists and vendors who achieve a certain sales plateau
"caused" by the Internet. (In this context, the word "caused" shall be
construed to mean: downloaded, mail order fulfillment, click through
advertisement, a la carte, non-a la carte, subscriptions, affiliate
programs, digital kiosks, ringtones, mobile phones, PDAs, educational
institutions, legitimate P2P music sales, and any other future enabling
technologies, etc.)
For a company that is not giving anything away or using gimmicks
to
attract visitors, DEMO’s website is currently experiencing an impressive
50,000 unique visitors per month, averaging 2,000 people per day and
is ranked #1 in its category by ranking.com. Receiving approximately
3,000 emails a day, Gray believes his high traffic volume is the result of
successful Search Engine Optimization (SEO) and the fact that musicians
in general are looking for free and helpful information which his site
provides. "Our primary business model is to hand out certifications on a
global scale for music sold that was caused by the internet. There is
nothing illegal or political by what we’re doing and in fact we were the
very first to do what we do."
DEMO recently granted the first Titanium + Certification Award
to the
Apple iTunes Music Store on July 29, 2004, which was enthusiastically
received in California. The Award was presented to Apple to
commemorate the monumental achievement of 100,000,000 digital
downloads and for ushering in the legitimate online secured electronic
music sales (SEMS™) era. Gray stated that "Apple is a leader in its field
and has been a forerunner in a new era of music sales….and the
company has helped to legalize digital music on the internet." Hip-hop
artist Chuck D from Public Enemy was also recently selected by DEMO to
be a recipient of the Pioneer Award and presented it to him on July 30,
2004 in New York City. Gray comments, "Chuck D has long embodied
the spirit of the independent musician and even with his tremendous
success throughout the years, he has never considered compromising
his musical integrity. He is also one of the very first artists to harness
the power of the internet and to use it as a viable promotional sales
tool."
Gray admits that conducting independent audits to determine who
is
eligible for awards is quite difficult because many companies are not
willing to share their data. "They’ll give you a round figure but not
necessarily break it down into specific items like genre or how many
sales per hour, per day, or per week." The general figures most
companies are willing to give are per month or per artist once sales hit a
certain level. Fortunately for the public, there are forward-thinking
companies out there willing to be open about statistics which will only
benefit everyone in the long run. One such company is CD Baby. Their
global sales totals are updated daily on their website and I hope to see
that trend continue with their new legal CD Baby Digital Distribution
Program and with other similar companies following suit. Gray adds, "I
would love to see the day when every musician and every online store
and every online label is willing to share the analytics with those who are
in the business of doing research for digital media. Whoever comes up
with a business model that can connect and track these things globally
as an industry standard, like Bloomberg does in the financial markets,
will stand to make billions of dollars because just like the stock market,
they’ll be offering access to streaming real time data."
Unlike the RIAA awards program which monitors itself, DEMO
conducts
an independent audit of each submission and its accompanying records
to quantifiably verify the secured electronic music sales (SEMS™)
accuracy of any and all claims. Gray’s response to my question
regarding the RIAA’s recent announcement about their awards program
was, "to be honest, in Western popular culture, every success story
breeds a thousand imitators, so I can look forward to seeing someone
copying my idea in the next few days, months or year or two. And as
far as all these law suits we keep reading about, I mean really, what
portion of these out-of-court settlements that the RIAA is collecting
(average of $3,000 per lawsuit with roughly 4,000 lawsuits is around
$12 million dollars) are the artists actually receiving?"
According to Gray, "since the Internet has turned the world into
a digital
global village that has no geographical constraints, the sales certification
criteria for each continent will be the same, regardless of the sales
breakdown attributed to certain countries, regions, or hemispheres."
Many experts agree that the music industry has been permanently
altered, beginning with the emergence last year of Apple’s iTunes Music
Store and that the music sales playing field has been leveled to include
participants of any size who are now able to step up to the plate via the
internet. As a result of the Apple store’s simple design and unobtrusive
DRM called Fairplay, Gray also believes that "music is now the hottest
selling item on the internet, which wasn’t the case just a few years ago.
Part of the problem is that the music industry wants to keep spoon
feeding the music public ‘corporate pop’ and their mentality is ‘let’s
make the most money off of each artist as long as we can and then let’s
just drop them and go for the next big thing.’ In other words, they’re
just throwing things at the wall and seeing what sticks without any real
development."
The music industry’s primary concern is not so much about legal
P2P or
filesharing, but the real problem is that the distribution system is no
longer centralized…."It has been de-centralized and perhaps
permanently splintered. Therefore, whoever controls the distribution
exclusively will control the industry and in distribution, whoever gets
their hands on the money first - keeps most of it." Gray doesn’t
particularly like the direction the music industry is heading in because,
"the industry as a whole wants to control the internet. It wants to
control digital rights management, it wants to tell technologists what to
do, it wants to control pricing and it wants to control digital radio and
digital streaming." For example, the music industry should never have
the audacity to dictate and try to lobby Congress to set a fee that would
be cost prohibitive and keep independent radio broadcasters off the
internet. Of course musicians should be payed for any music played on
the internet, but Gray thinks performance rights organizations (PRO’s)
like ASCAP, BMI, and Sesac should be at the forefront of deciding what
is a reasonable fee to charge. In his view, since the traditional PRO’s
have such extensive experience, newly formed organizations like
SoundExchange should not be making those kinds of restrictive
decisions. We both agreed that the music industry will never be able to
revert back to the way it once was, especially since most musicians are
somewhat technically savvy. If they already aren’t doing so, many of
them will learn how to record, mix, encode and upload their music to the
internet for direct sales to millions of consumers. "Once that starts
happening with more and more artists, we don’t really need record
labels anymore." Gray is also very concerned with how the numbers of
this industry really work, since traditional recording contracts have been
so disproportionate for so long (i.e. label friendly at the artist’s
expense.) "The truth of the matter is, many labels are still charging
artists a $.15 packaging fee for digital files that get downloaded that
have no packaging." As another reality check, the band Extreme
(remember them?) sold a few million CD’s in the early 1990’s generating
roughly $15 million in revenues for their label, but the band never
received a penny from royalties because they still owed the label for
expenses, etc. So when the internet came along, it was the most
liberating thing for musicians to be able to escape this type of unfair
business practice and escape the clutches of onerous recording
contracts. Gray would like to see musicians move past the mentality
that they "need" a recording contract to be successful. He professes
that the real money to be made is in merchandising and touring with
corporate sponsorships. However, as the labels slowly disappear,
musicians will still need to find savvy representation through personal
managers and publicists because the need for marketing will still be
there. In my opinion, as the industry begrudgingly is forced to evolve,
tracking FM radio will no longer be necessary because blanket licenses
will compensate artists. Previously accepted, but highly inaccurate
statistical sampling of playlists in geographical regions which are used to
determine "equitable" royalty payments will also become irrelevant.
Computers can and will soon historically track which song and which
artist was streamed or downloaded all over the world. Gray adds, "it is
unfortunate that many music industry organizations and trade group’s
statistical analysis and reports are known only to their inner sanctum."
When asked about what to expect in the next 12 months, Gray
responded, "I think it will be a great time of turmoil concerning digital
broadcasting rights, DRM, reverse technology and there will be a number
of precedent setting lawsuits. P2P once it becomes legitimate will
replace a la carte downloads." In regards to the currently unpopular
notion that a la carte downloads will continue to outsell subscription
services, Gray adds, "If you pay $10 for something, you want to hold it -
you don’t just want to rent it and therein lies the major difference."
Gray also predicts that in the next 18-24 months the industry will see a
major shakeout with numerous online music stores closing up shop
because there very little thought process has been put into these weak
business models. For example, the 70% average commission the record
labels receive per transaction is just too high. There’s no reason that
labels should be telling online music companies how much to charge for
downloads. Obviously the labels are entitled to a fixed percentage of
every digital sale, but they don’t automatically get a vote in setting the
the selling price of the commodity. It’s no secret that the music industry
has quite a long history of being very heavy handed, intimidating and
quite pushy to get their way. During our interview, Gray reflected on
the 2 year trend for record companies "to license their music to
technologists and then tell the technologists what to charge. The
current business models out there for online music stores cannot and
will not show a profit with these exorbitant kinds of commissions and
licensing fees."
Someday soon, the music industry will have hundreds of thousands
of independent musicians collectively outselling the major labels. Even
several major label artists (i.e. Madonna, Prince, Heart) are starting to
release and distribute their new music on the internet, independent of
record label control. "It might take some time, but when musicians
become wise enough, they will finally realize that they have been
liberated. Because of the internet, they don’t need a middleman
anymore to collect their royalties and with the simplicity of selling digital
media, they can easily sell directly to their fans and make more profits."
Perhaps the only middle man needed in the near future will be a
reputable DRM vendor so that all transactions can be properly recorded
and that the revenues can go directly to a secure account (i.e. PayPal)
for the artist. Gray believes that in the very near future, "certain trade
organizations will seek to have laws passed in the U.S. that will make it
cost prohibitive for independent musicians to sell their music online
direct without moving to an intermediary, which will prevent them from
making a lot of money. After those laws are passed, these same trade
organizations will then put pressure on the European Union and other
organizations around the world to implement similar laws enacted in
America, so what we will have is blanket global laws….And for those
countries and organizations who are not willing to play ball – they will
run into problems like trade tariffs and these monopolistic organizations
will put pressure on those countries or individuals not willing to
cooperate." In Gray’s opinion, "the music industry seems to have a
greater interest in commerce on the internet more so than Dell
computers has an interest in selling computers on the internet." For
example, Dell has never really tried to pass laws to make it illegal or
cost prohibitive for other companies to sell computers over the internet.
Amazon Books and Barnes and Noble have never tried to stop other
book sellers from selling their books through the internet. But,
according to Gray, "in the music industry, the industry as a whole seems
as if it wants to be the ‘gatekeeper.’ By trying to be biased gatekeepers,
the major label constituents of the RIAA will be unfairly deciding who
should be given certification awards for music sold through the web."
It is my sincere hope that someone influential from the RIAA
and/or its
member labels reads this article as it’s not too late to make a change to
their exclusionary policy for digital download award certifications. As an
independent musician and songwriter myself, I think it’s safe to say that
most songwriters ultimately want their songs to be enjoyed and
appreciated by the largest audience possible. The efficiency of viral
internet distribution makes this exciting possibility a reality in ways never
before thought possible and I think its only fair that everyone around the
world in cyberspace should be treated equal...
Reprinted with permission.
™ Digital & Electronic Music Organization, Inc. 
