A Last.fm account picture / Lego DJ by minifig.

As music listening takes new forms, that builds new business models. But who calls the shots? Who gets to play, and who reaps the benefits? One immediate danger is that major label deals will dominate as outlets vie for position. Online outlets like MySpace have started to look a bit like the same-old, same-old world of major labels and big deals. “Indie” music sometimes makes an appearance, but nearly always in the form of signed artists and often in the shadow of the majors. Unsigned artists can get onboard, but the playing field often isn’t level – and while majors negotiate lucrative deals for their music, unsigned artists and indies have to give theirs away for free. At the other end of the spectrum, unsigned artists often don’t get paid by services that benefit from their work (like MySpace).

That’s why Last.fm’s announcement yesterday was a potential bombshell. Now fully available after months of development, the Artist Royalty Program will pay artists royalties on plays directly – no label required. Unsigned and independent artists can sign up to earn royalties from on-demand plays and Last.fm’s streaming radio.

Last.fm Artist Royalty Program (last.fm/uploadmusic)

Royalties 101

To fully understand what that means, let’s back up and talk about where royalties come from in on-demand online music. This is entirely separate from downloadable music – that’s pretty straightforward. If you, for instance, sell a track on your band’s website for 50 cents, people pay 50 cents, own the track, and you get 50 cents. If you sell it through another vendor, then you get a slice of the sales pie.

But on-demand, streaming music, via radio stations or elsewhere, works differently. Since the days of radio, broadcasters have wanted broader access to music. Obviously, if they had to negotiate rights individually for each track, they couldn’t exist. So the solution has always been a system of blanket royalties. In the online space, there are two kinds of royalties, coming from two different licenses. Here’s the simplified version (lawyers, feel free to clarify):

1. A license for the recording – the “statutory license.” These fees are set by the Copyright Royalty Board and collected by SoundExchange. It’s called “statutory” because webcasters don’t need your explicit permission to broadcast music. They’re paid to the owner of the recording. If you’re a signed artist, that’s your label.

2. A license for the “performance rights” of the copyrighted work itself. These fees are negotiated with performing rights organizations like ASCAP, BMI, and SESAC.

That sounds odd (Last.fm isn’t “performing”), but it makes more sense if you think about the actual music. There’s the recording of the music, and the “work” itself. So, for instance, you might record a cover of a song. There’s the songwriter, and the artist recording the work; they may not be the same person.

If you’ve written and recorded your own song, you own both of these rights. You might sign with a label and give them the recording rights, but either way, the basis remains the ownership of the recording and the musical work.

So where does ARP fit in?

First, regardless of whether you’re part of ARP or not, you’ll always receive the performing rights if you’re the writer of your musical material. That’s why it makes sense to join an organization like ASCAP if you’ve ever produced anything; unless you do nothing but cover other people’s music, they’re there for you. They’re not the RIAA – they represent writers and publishers. In fact, even if you release your music under a Creative Commons non-commercial license, you are eligible to receive royalty payments collected by these bodies. (That’s the topic of an upcoming article.) If you join ARP, you’ll continue to receive income for this music.

What ARP does is to provide additional income for unsigned artists. A spokesperson for CBS Interactive (parent of Last.fm) tells CDM:

If you participate in the ARP, you should not be signed up with a recording rights society. In effect, Last.fm is cutting out the middle man here by paying the artist directly without going via the collection society. Writers benefit from the publishing rights royalties that Last.fm pays to the publishing rights societies. ARP is for recording rights only.

Who Benefits from ARP?

One major strength of Last.fm is its data collection and mining capabilities, and the open API built on it. That’s enabled powerful applications like the beautiful lastgraph. (And yes, this is some of my listening here…)

Here’s where ARP makes a difference. Previously, the system for the artist was to go get a label, and then get that label to collect royalties on the recording. The label, in turn, had to go to SoundExchange, formerly part of the RIAA but now an independent organization, to get the money. Result: fees get set by a board of judges chosen by the Copyright Office (the Copyright Royalty Board), and you’ve got multiple middle … men, actually.

Under the ARP, you go to Last.fm, and Last.fm pays you. You upload the music where you want it to go. And, via Last.fm’s community pages, you actually have some tools for your music:

Last.fm for labels and artists

In addition to royalties, that includes stats, event management, and the ability to connect with fans. And the other thing that’s interesting about this whole system is that both parties essentially have to be happy. Artists have to be getting value from Last.fm’s service, and royalties that make sense for them. Last.fm can then, in turn, build an ad-based revenue model that works for them as a business. That’s a far cry from a giant battle between the recording industry and large performers’ organizations in front of a group of judges. It’s new, so we’ll have to see how it works, but it’s nothing if not appealing.

(See also a similar announcement from imeem, though that one required working through SNOCAP for distribution, and comes from, arguably, a less popular service. I also think some of Last.fm’s unique tools for data collection and fan management make it more interesting than imeem. But this is all the more significant if other sites do the same thing in the future.)

ARP for Labels, Getting Paid

The ARP system isn’t limited to artists, either. New labels could embrace the system. Again, a Last.fm spokesperson clarified for CDM:

A label can participate in the ARP Program IF they own the WORLDWIDE rights to the content and have NOT signed up with any collection societies.  (Basically only startup labels that aren’t collecting any royalties would be interested in participating in the program since they’d only receive revenue from Last.fm in that case)

One other simple upshot of all of this is that people actually get paid. That’s not the case with MySpace. As Eliot Van Buskirk writes for Wired’s Listening Post:

We’ve had a bone to pick with MySpace about this for a while, because it plans to compensate major labels with a share of ad revenue without similarly compensating indie labels, unsigned artists, or possibly even the artists signed to them.

The headline says it all:

Last.fm Compensates Artists, Unlike Some People We Know [Wired.com Listening Post]

It’s well worth the full read. Eliot notes that even Last.fm doesn’t maintain the amount of money will be huge, partly because online streaming is still growing gradually (though I think listening habits will continue to grow). The money is coming from ads that appear with the streams. But Wired notes over 450,000 tracks are available on Last.fm as part of the Artist Royalty Program. And they also observe that, unlike MySpace, indie artists aren’t left in the dark, and unlike almost everyone, payouts are transparent – you can actually monitor what you’re earning.

Ultimately, I think that’s the bottom line: Last.fm is actually paying people. And I don’t mean to make an argument against labels. On the contrary, ARP is a tool many artists will likely use while looking for a label – alongside other useful tools (some arguably more valuable than direct revenue) provided by the service. The one question I do have, though, is whether new upstart labels might forgo the complex recording collection process entirely and start to use services like this directly. That would allow them to continue to fill the business and promotion roles labels have always provided, which artists and writers often can’t handle on their own. But it could be the first glimpse of a new set of models in which music creators, publishers, and labels deal with online business directly, rather than dealing with a middle man.

Update: Labels not so happy

I missed this: Merlin, one of the aforementioned rights bodies representing the labels (12,000 independent labels total, controlling more music than EMI) has protested the ARP license:

Merlin Opposes Last.fm’s Artist Royalty Program [Wired.com Listening Post]

The grounds: no retroactive license fees, a breakdown in negotiations with Merlin, and vague licensing terms. Now, I’m not sure on any of those points – in particular, Merlin’s negotiations should theoretically be independent of ARP to begin with; it explicitly excluded people who have signed with labels who are part of separate negotiations. If you’re an independent artist, it doesn’t really matter what Merlin thinks or even what they deem “illegal” – particularly if you’re uploading and licensing your own music, which is presumed by the ARP deal.

But the main thrust of this argument is that past Last.fm plays were illegal and unlicensed.

Last.fm’s response is, basically, ARP is about indie artists, not Merlin. Merlin’s banner says “representing the rights of independent record labels worldwide,” by which they mean, of course, their members, not necessarily anyone else.

But Does it Add Up to Anything?

The big problem is, streaming rates in general are a tiny fraction of a cent per play. If Last.fm achieves greater volume, that could be good news for artists. Until, then, though, this is largely symbolic. Further discussion:

Fine Print: What Do Royalty Rates Actually Pay?

  • http://myspace.com/fallsastar foosnark

    Very interesting indeed… hmmm.

  • Plus Device

    however you look at it, there is a whole heap of shit when you start to deal with unsigned artists.. there has to be some form of A&R/Talent Scout to see through all of it.. i think there needs to be more "labels"looking for indie artists.. but in the end, success is always granted to those who deserve it (except in the case of major labels alot of time)

    but my point is there needs to be a middle ground.. labels are always looking for success and to make money which in turn makes them follow the shadows of these evil major labels

    no?

  • poorsod

    What a great article. Just a thought: where do remixes fit in with this new scheme?

    This is of particular interest to me because one of my best tracks is a bootleg. I haven't uploaded it to last fm yet because I'm not sure of the rules but if I were to, who would collect how much of the royalties?

  • http://www.createdigitalmusic.com Peter Kirn

    Well, if you don't own the rights, uploading to Last.fm would violate the terms of service. ;)

    Otherwise, I think it comes down to the license you have for the music you've remixed. Any remix pros out there want to explain? And again, you get into recording and performance rights…

  • dead_red_eyes

    poorsod, by "bootleg" do you mean that you never cleared the sample of the "remix" you did?

  • poorsod

    that's right, the vocals I used were ripped straight from the song and I haven't got around to contacting the artist yet (besides that they'd probably say no)

  • dead_red_eyes

    Well, you never know. Hit the artist up and not only ask permission, but maybe throw them the track to listen to as well.

  • http://www.sighup.ca Steve

    I haven't uploaded anything yet to Last.FM. On first glance through the text of the royalty scheme, I had enough questions to warrant holding off until I got around to giving it a closer inspection.

    But, doesn't anyone else find the compensation rates ridiculously low? $0.0005 per play means you get 5 cents for every 100 listens (or higher depending on on ad revenue generated by each listen, but whether that amount will be significantly higher is anyone's guess).

    Checking Youtube's all-time stats, some video by Nelly is the most watched at just under 12 million views in two years, which would net around $3000 a year on Last.FM. I'm not exactly overwhelmed given the millions that went in to making and promoting that Nelly song. Is a cheque for 46 cents for every independent act really something to be excited about? You could make more just setting up streams and google ads on your own site.

    I think it's nice that Last.FM intends to pay out rather than rip off, but it all feels like smoke and mirrors to me.

  • Shnakepup

    Wow, that lastgraph thing looks gorgeous. Unfortunately I'm not a last.fm guy…does anyone know of anything similar for iTunes or anything like that?

  • dead_red_eyes

    Yeah Steve, the rates are pretty low. That's for sure.

  • http://www.createdigitalmusic.com Peter Kirn

    It's low, but it's at least in the same ballpark as the new CRB rates. They caused a huge splash just by suggesting that a previous $0.0008 rate go up to $0.001. So, it's low, but not by an order of magnitude. (By an order of … well, 4. But those rates at the earliest don't happen for a couple of years, and even that's up in the air.)

  • http://www.createdigitalmusic.com Peter Kirn

    Steve and others, I was thus inspired to add an addendum to the previous story. Feel free to let me know if I've gotten it all right or if you have more to add!

  • http://www.soyuz7.net cosmonaut

    oh no. wasn't it the rampant corruption and assholism that killed MP3.com?

  • moonbass

    Good to see you are still a corporate Shill and apologist Peter. and good to see you like listening to my music too… maybe.

  • http://www.createdigitalmusic.com Peter Kirn

    @moonbass: I'm a terrible corporate shill. In that case, I should be siding with the RIAA and arguing for the original streaming fees.

    Which is your music?

    (and, really, you're not starting this routine *again*, are you?)

  • dead_red_eyes

    moonbass, perhaps you could enlighten the rest of us as to how Peter is a corporate shill? Don't skimp on the details.

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  • http://evolvingmusic@wordpress.com Gavroche

    Bravo, last.fm (CBS!)– this is sorta a step in the right direction. I think it's important in this digital age to figure out a way to make musicians money from their art. If you look at both sides of the industry spectrum — from the labels on one end to Creative Commons on the other — most musicians aren't making too much, and there needs to a new model attached to digi music.

    Last.Fm's model, however, isn't quite right. First, they severely under pay the artists. Big surprise, eh? But, at least they're engaging in some mild profit sharing with the musicians. MYSPACE, ARE YOU LISTENING?

    I think the next year or so will experience new ways for musicians to make a buck online. this is just the first bang.

    One interesting thing here is you can't sign up with a collection agency if you want to be a part of ARP, and every label and indie artist in their right mind has signed up with one (under the theory that they just might make some money…which doesn't really happen too much for us Indie cats).

    PoorSod — because Last.fm is not paying royalties, by uploading it, you will be deriving financial benefit off the bootleg, which is a no no in the copyright world. Otherwise, you would be violating the copyrights but since you weren't monetizing the bootleg, you're cool. If you want to make $ off it, you should probably clear the samples.

    Shnakepup — Itunes will NEVER do this. they are in the business of selling tunes, and the only reason they offer you the chance to stream a bit of a song is b.c they think you'll buy it after. I, however, would LOVE to see an on demand streaming service (ad supported) from Itunes, but this would decrease Mp3 sales i imagine.

  • http://evolvingmusic.wordpress.com Gavroche

    Btw, for some clarity on some the legal issues discussed in this post, check out:

    http://evolvingmusic.wordpress.com/2008/06/13/wtf

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  • http://www.cooptrol.com cooptrol

    i entered the royalty program of last.fm, and the contract was more or less clear in almost all points, but i was never asked one primordial thing: how should we pay you? i can't understand how are they going to pay me if they don't know where to send the money…

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