Getting to Yes in the Blogosphere: YouTube Launches the Dance of the Sock Puppets

As someone who has been an observer of the state of the music business for a while, I can tell you that the attacks on Warner Music Group and their artists in the blogosphere are (A) silly and (B) laced with what is called “quibbling” in some circles. And if you’re a black helicopter guy like me, not an accident.

First of all, the new media folk at Warner Music Group are and have been at the leading edge of adopting new media in our business. They’ve had some company, but have always tried to get it right and often have. Sorry, everybody else, but that’s my view.

In the recent past, this includes really smart work on Michelle Branch, The Secret Machines, Linkin Park, and having a very important role to bringing new media to country music. (Attention those having breakfast at Bucks–Nashville is that place where the people come from whom you like to mock.)

I don’t have any special information about this, but here’s what I can tell you from following my nose. When a company gets a big advance on a deal, they don’t have to share that money with the artist until it earns out. If they get to the end of that deal with an unrecouped balance (called a “red balance”, no offence meant to the EFF), then the label pockets the unrecouped amount.

The label doesn’t have to account, i.e., share that advance, with artists until they get an accounting for actual usage of that artist’s work, or videos in the case of YouTube. So it is to the label’s advantage to have the accountings be terrible (which I keep hearing they are at YouTube) and to have the per unit royalty rate be low so that they get to keep as much of the advance as possible.

For example, let’s say that an online company paid Big Records a $25 million advance for a 3 year license. And let’s say that the per unit rate the Big Records agreed to was some version of a revenue split with a minimum of $0.01 per play. And let’s say the accountings were really poor quality on the revenue split so that the per unit minimum was all that got paid through to Big Records on 5,000,000 plays per quarter just to keep it simple.

So Big Records has to account to the artists for $50,000 a quarter, or $600,000 life of the deal. And at the end of three years, Big Records has an unrecouped balance of…wait for it…$24,400,000.

This is a bit of an extreme example, but you get the idea.

Now lets say Not So Big Records wants to get a higher per stream royalty rate. Who benefits from that? The artists signed to Not So Big Records for one. The label, of course.

The artists. Get it? The higher the royalty rate, the more the artists get paid.

Now who doesn’t benefit from that higher rate?

The online service who has a Most Favored Nations clause in their license so that if Not So Big Records wins their negotiation, the online service has to pay Big Records the same rate.

That’s got to make the online service feel desperate enough to make it worth launching a few sock puppets in the blogosphere, don’t you think?

It’s also why it is really, really bad form to mock a label trying to get a higher rate in an arms length negotiation. One thing that most artists are realizing is that the people in the DMCA industry are not their friends.

Friends don’t let friends get ripped off on YouTube.