Donald Passman is one of America’s top entertainment attorneys and the architect of record-breaking “mega” deals for both Janet Jackson and R.E.M. He has authored All You Need to Know About the Music Business, which the Los Angeles Times called “the industry bible” and which has sold hundreds of thousands of copies over the last eighteen years. A completely revised and updated seventh edition is being released this week, and we are happy to bring this interview to our readers. Michael King is a course author and instructor for Berkleemusic.com, Berklee’s online school.
MK: Congratulations on your revised and updated book! Let me start by asking what do you see as being the most significant changes in the record business since the book first came out twenty years ago?
DP: Well, there’s no more vinyl…[laughs]. In the record biz the changes have been profound. The record companies have gone from being incredibly powerful players to still powerful, but not nearly as much as they were. The biggest change is of course piracy, which devastated record company revenue. The record business has gone through such a hard period because it is difficult to compete with free. The record companies have been blamed for being asleep at the switch. They could have probably done more than they really did–although there wasn’t much anybody could do even with a rear view in the mirror.
MK: Speaking of revenue, the 360 deals are certainly a way for labels to engage in other revenue streams, but are the 360 deals a good option for artists? Is that something that an artist should be interested in if they are going to be signing a development deal with a major?
DP: Whether they are interested in it or not, if they’re going to sign with a major or even an independent, they will have to make one of these deals as none of these companies will sign them without it. The labels are essentially trying to position themselves as branding companies, and are saying that they are not just a record company; i.e. we’re people that are investing in your career, we’re going to help you build your brand, and when you get benefits from that brand we should share in them.
MK: This seems like a contradiction to me. The majors have downsized over the past few years, they have fewer resources, yet they are promising more with the 360 deals. Can they deliver?
DP: No. In fact, they quit making promises a while ago. They started out by saying they would give you more attention, that they would give you a better record deal if you gave them 360 rights. They wanted the 360 rights to hedge their bet. That’s all gone. Now it’s just a record deal that looks pretty much like a stand-alone.
MK: Are you saying that if you provide a label with the rights to merchandising, touring, or ticketing there is no guarantee they will provide in turn marketing support and help increase new sources of revenue?
DP: Correct. There are two kinds of 360 rights, active and passive. Some of the labels are actually taking the merchandising rights to manufacture and exploit, some the publishing rights, and others are just taking a part of income–meaning that you make your own deals for a piece of the pie. In the situations where they have a merchandising company, they are of course going to give you those services. They’ll do the manufacturing, the distribution, and the marketing. If they have a passive interest, however, they’re not really going to do anything.
MK: That looks like a pretty tough deal for artists. In the past, the only possible option was to work with a major label to get worldwide distribution, marketing support, tour support and more. So, do you think that now is a good time for artists to be working with independent labels, which might be less constrained by the concept of multiple rights?
DP: Well, the independent labels have gotten just as aggressive as the majors in terms of 360 rights. So you don’t actually get much comfort by going to an indie label. You may make a better deal, but they are still going to want the 360 rights as well.
MK: Would it make sense, then, for a developing artist to switch their focus away from labels and instead try to market and promote yourself with the help of partners like a PR firm, an indie distributor, or a low-cost online distributor such as Tunecore or CD Baby?
DP: It depends on what kind of artist you are. Nobody that is mainstream and wants to sell a multi- million release has done it yet without a label behind. That may change. But that is where we are today, Nov. 2nd. If you are an indie artist that has a niche market and a cult following, and you are content to stay there, then you can do just fine without a label. You can sell directly to your fans, you will know who they are, and you will have control of your marketing database. Anywhere in between, the answer is a little bit trickier. You’re better off economically on a per unit basis doing it yourself, because you can make so much more if you keep the 360 rights. But the question is: Will you sell enough going through a label to make up the difference? This is of course unknowable. It is easy to sign up on MySpace, use Tunecore, or have someone distribute your music digitally (or even do physical distribution). The problem is everyone can do that too. There’s no barrier to entry, and there are four million bands in MySpace. How do you break through the noise? That is essentially what record companies help you do.
MK: In some of the courses we teach [at Berklee and Berkleemusic] we talk about the importance of engaging in permission marketing as opposed to the push marketing that the labels practice with radio and retail. You seem to say that direct-to-fan marketing is an effective option only for a particular type of artist.
MK: France is adopting the ‘three-strikes-and-you’re-out’ law, where Internet users could face a suspension of their services for sharing files. Britain might go the same way. Do you think that this is an effective way to fight file sharing?
DP: It is certainly better than what we have right now. Presently, there is no consequence to infringers, really—there have been consequences for a few people here and there, but for the most part file sharing is rampant. So, I’m in favor of anything that makes piracy more difficult. But I also think it has to be coupled with something that people actually want, which we haven’t done a good job of providing yet. And by the way, that is not completely the industry’s fault. A lot of it is technological. There are limits to what [the record companies] can deliver today.
MK: You could offer fans a legal and more convenient option to get music, as file sharing can get complicated. I am thinking of the new Spotify model, where the idea is for users to pay a subscription to effectively have “anytime, anywhere” music with the inclusion of an iPhone app. Do you think that technology will develop to the point where piracy might stop being an issue?
DP: Yes, if we offer something people really want. In that case, I think we can ‘conscript’ the pirates. There will always be piracy. Every business, from grocery stores to anybody else has some kind of theft. But it is minimal. In music, it is rampant. If we come up with something that is easy to use and readily accessible and cross-platform, I think we’ll have something that people will really want and should be able to monetize. It could be very good for new bands, because people who would never buy at a record store may now be willing to pay for music.
MK: The founder of Spotify has put forth data suggesting that file sharing is down in Sweden, where the company operates. Could Spotify signal a better way forward to deal with piracy than France’s strong-armed approach, which has a negative impact on freedom of choice over the Internet?
DP: You may have an impact on freedom of choice, but so does stealing. I do not have much choice if someone’s able to steal something.
MK: As traditional CD sales drop, are new income sources—such as video streaming services and the like—showing promise as alternatives to recorded music sales?
DP: Well, none of that means much now. The revenues from videos are relatively modest when spread out, at least on an ad-supported model, because videos haven’t worked very well. It is hard to tie advertisers to a specific video and the advertisers are not willing to pay much for it anyway. This may change, but at the moment such revenue has not amounted to much. The same applies to cell phones. In the future, more things will be possible, but as yet there are relatively few options.
MK: After years of contention, rights holders and commercial webcasters have agreed on pricing terms for online music streams; the prices will stay in place until at least 2014. In the updated edition of your book, you refer to the Copyright Royalty Board and this recent agreement. How does this change the playing field for consumers and artists?
DP: It doesn’t change anything for consumers and artists. It really has to do with an alternative break in the statutory rate for webcasters, who were complaining that it was so expensive they couldn’t do it. So they came up with a private settlement, affordable to most, that makes the cost a bit less. So I think it would help consumers in the sense that there would hopefully be more services available that would cheaper. But otherwise, it’s not a direct impact.
MK: In the new edition, you refer as well to the so-called ‘upstream’ deals. Many readers might be considering music startups and say, for example “Oh, I’ll just get a P&D [Pressing and Distribution] Deal.” Could you discuss some of the options independent labels have when they join forces with major distributors and labels?
DP: A P&D deal works fine except that it is very risky and you are taking the risk of the manufacturing and the returns coming back. It can be expensive, but when it works you make far more per record. The upstream deals are deals that kick-in after a certain critical mass [of sales] is reached. Then, you no longer have a P&D deal, but a profit sharing deal. You are not taking any financial risk, and the major label takes over the cost of marketing, promotion, and so forth. Again, you make less, but presumably they take it to another level. Some of these deals have worked pretty well, but a lot of them haven’t, so it is not clear where the advantage lies. You may be better off or not. Just keep the P&D deal, and if it really works then your label will have more leverage to go out and make a better arrangement with the distributor.
MK: At what point should an independent label think about a P&D deal? What should they have going before they even consider a P&D?
DP: Products… [laughs]. You can make a P deal at any time. You just need to know that you are taking a pretty big risk with it. Maybe that’s all you can get, because nobody will give you any money, so they’ll only press and distribute the records. But that’s probably the deal you will end up having to make to get things going at the beginning, when you have no kind of track record or buzz.
By Michael King
Michael King’s new course, Online Music Marketing with Topspin, is enrolling now for Berkleemusic’s winter term. Keep up with Mike on his blog: http://mikeking.berkleemusicblogs.com/