June 28, 2016
Kendall Minter is someone who has seen - and worked in - the music industry from a variety of sides. He started in radio, then got into entertainment law, where he learned how the deal with the labels. Now on top of his law practice, Minter is on the Board of SoundExchange and has written a book on the "360 deals" that are now standard operating procedure between major labels and artists. Here he offers his insight on a variety of issues facing music and radio.
When did you first want to get involved in the music business and why?
Professionally and economically, I started to really get involved in the music business in college. In my freshman year at Cornell, I was an announcer at WVBR. From sophomore year through graduate law school five years later, I had my own show at a local station, WTKO. During college, I also formed a concert promotion company and my partner, William Manns, and I started promoting a number of live concerts in the upstate New York region featuring artists such as Chaka Khan, Stevie Wonder and the Stylistics, which gave me my first significant entry into the music business.
After graduation from Cornell Law School, I worked corporate for Fairchild Industries in DC, which I parlayed around the radio community. My legal job was general counsel, which had oversight of the corporation. That's when I met Chuck Brown, who was doing go-go, so I started representing artists and studios after hours. The more I did that, the more I enjoyed it. I decided to send resumes to law firms to New York City, so I could get more involved in the entertainment business.
From an attorney perspective, how has the industry evolved since you first got in?
It has gone 180, if not 360, degrees in the past 25 years when I started. The entire industry has gone through a cataclysmic transition. Everything we knew about a successful business model over the past 10-15 years isn't viable anymore. That has been brought on primarily by the advent of the Internet and the transition from physical sales to download sales to streaming, along with free peer-to-peer file sharing. We're now at the point where streaming has become the predominant form of music consumption; and it has decimated what was the digital download business. Instead of paying 99 cents for one track, people pay maybe $10 to stream thousands of songs for an entire month. That means a lot less revenue for artists, and it also means fewer artists are being signed by the majors, and those that do get signed have smaller budgets to work with. There's significantly less money for labels to invest in new artists.
The days of the big major label deals have come and gone, except for a very small handful of artists. There literally could be tens of thousands of artists around the world who might be equally talented but will never be discovered. It has forced them to go back to the days of being independent. Fortunately, with computer tech and things like Pro Tools, people are making full albums in the comfort of their own home, mixing it themselves, then putting it up on TuneCore, CD Baby or other indie-friendly websites. They can put their own videos up on YouTube or Hulu, which provides easier access to reach the consumer. It's also a lot cheaper; you don't have to spend tens of thousands on promotion. A student of the Net and social media can be real smart and make a significant impact.
But if so many people have the tools to make and produce their own work, how do you stand out among the deluge of product?
Savvy marketing. It's not good enough to throw your work up and expect everyone to hear or see it. You still have to create a fan base and interact with them, usually through live shows, and engage them via social media to build the YouTube views up from hundreds to thousands to, ideally, millions. To be honest, that's a full-time job for folks who do it themselves. Many artists are hiring Net marketing companies that specialize in taking product and branding it to potential consumers.
So is it easier or harder for indie artists to survive in the New World Order of the music business?
It's definitely easier for folks to make some money. It's all relative to how much you need to make to sustain yourself. Let's just say it doesn't cost you much to make a record in a controlled environment. Say you could make an entire album of your music at home -- to record and master it -- add some marketing expense, and all told you spend $10,000. If you're able to move just 5,000 albums or single-equivalent albums at $10 a pop, after iTunes' cut, that's $35,000 from a $10,000 investment. If you go out on the road, not only will you make some money from that, but you also increase the chances of additional music sales, as well as merch sales.
I'm not even including streaming income, because you need millions of streams to make anything worthwhile from that. Still, even though the chances of Gold or Platinum sales success are next to impossible, there is money to be made. It's all relative.
You're on the board of SoundExchange. Do artists realize all that group does besides collect digital royalties?
People don't realize what goes on behind the scenes. They'll see a quick headline that might flash about things like royalty rulings and such, but the reality is that there are entire departments focused on a variety of issues. In one aspect, SoundExchange is no different than ASCAP, BMI or SESAC in that we all specialize in advocacy on Capitol Hill, lobbying Congress on pending bills, such as getting terrestrial stations to pay artists and labels a performance royalty the same way they do in other countries around the world. We're always at hearings where judges rule on what the new webcasting rates are going to be. That process continues on a regular basis. We check out streaming services when they send in payment reports. Audits are regularly conducted to make sure payments are proper. Quite often there are discrepancies, and disagreements may need to be settled or litigated. But the public doesn't hear much about that because it's boring to the mainstream consumer.
Radio groups continue to insist that any kind of performance royalty would damage their already tenuous profitability. Your response?
That's their party line, but I disagree with that. People don't look at the actual amount SoundExchange and the artist community are negotiating for in performance rights. Education, religious and non-profit stations would pay as little as $500 for the year. That's not going to put stations out business. For commercial stations, it's a percentage of revenue, much like ASCAP. What makes American radio any different than all the other civilized countries around the world that do pay? Nothing, but because of a strong lobby like the NAB, which represents its constituency in the hearings, there's been no performance rights royalty ... at least so far.
Isn't it difficult to lobby for a bill that attracts members of Congress from both aisles? This isn't a liberal/conservative issue; how do you effectively build a coalition to pass the bill?
It's definitely not a partisan issue; Republicans and Democrats fall on both sides of the bill. I feel for politicians who feel compromised if they oppose the bill. The reality is those same politicians will have to broadcast commercials when it comes to elections, where the placement of ads and interview opportunities are important. You don't want to tick off local radio stations and TV outlets, so they won't have open arms when it comes time for election ads. It's a difficult task at best.
You wrote a book on 360 deals. What was your inspiration to do that, and what's the key to making them work?
My law practice specializes in the entertainment industry all across the board -- a blend of artists, songwriters, music producers, indie record company owners, executives at major labels, publishers, managers and concert promoters. It has afforded me a unique opportunity see all aspects, all of the concerns of my clients.
Bottom line: 360 are deals here to stay. They're not going to go away; if anything, they'll get more sophisticated. Basically, with 360 deals, record companies get a stake, passive participation, in all revenue streams such as touring, merchandise, film and TV usage. That's why called they're called 360. What has changed is that the deals are much more sophisticated. Previously the details about the revenue streams would comprise one or two paragraphs inside a record contract. Now labels are breaking out separate 20-page contracts for each stream, be it touring, merch, fan club ... now there can be five different contracts for any deal. Since there were no books in the marketplace about the 360 deals, I wanted to demystify them and explain what it is negotiated in them.
What are the potential problems in 360 deals?
For artists, the problem with 360 deals is that now they have multiple parties to pay that they didn't pay before. Artists always paid a percentage of their income to their manager, agent, attorney and business manager. Now the record company is added to that list, which can take anywhere from 10-25% of what they make. Artists could see 50% of their revenue going out door to people supporting their career. They're left with less money in a tough environment.
Where does potential streaming income come into play?
In a way, it's already a part of the deal. Streaming is just another revenue source that goes to the label, whose accountants pay the artist as if it's just another revenue source. It is true that artists not getting close to 50% of streaming revenue ... more like a very small fraction. If you look at the typical royalty rate, labels get a larger share as oppose to the artist. In fact, most artists may not see any of that unless they negotiate a better royalty because now, that money is withheld until the money the record company spent on the record release is fully recouped. Only then are they obligated to allocate streaming revenue, which is why most artists never see any royalties.
Do you consider that to be fair?
No, unfortunately it's not fair. It does give indie artists the opportunity to set up and be their own record companies ... invest in their own careers, if you will. If you control the copyrights across the board, you'll be paid as much as possible.
Labels used to be an artist development machine, but not so much anymore. They want artists who have already developed in the market and established themselves to a certain point. They're still a great marketing and promo machine with the resources that indies don't have to position artists for global success, but indie artists can still achieve a decent level of success on their own.
So what's your take on the future of the music business? How can an industry prosper when music streaming is considered an accessory by the general public?
It's definitely not an accessory. You can't go anywhere without hearing music. Go to a ballpark, a party at a club, or shopping at a mall. Music is everywhere; it's not going away. The key: Since music consumption patterns are changing, the way to generate revenue has to change, too. It's up to the industry to adapt to change. Streaming services are not going away and eventually they will generate higher revenue. The music industry has to figure out a way to coexist with a maximum number of content creators to keep the music alive. Some folks will get that; those who don't understand that will go by the wayside.