Big tech companies go into recession and take songwriters with them [Chris Castle]

When the economic cycle downturn inevitably hits, Julie may not be very well positioned to survive. Read on and I promise you it will make sense…

by CHRIS CASTLE of Music Technology Policy

Unit royalties are a bet on yourself. Revenue share royalties tied to the performance of someone you license is a bet on this platform, not yourself. Nowhere is this more evident than with government-set songwriter royalties – penny rates on vinyl versus revenue sharing on streaming, especially ad-based streaming. This includes, of course, the non-statutory tariffs for audiovisual licenses on YouTube, which combine statutory and non-statutory.

The main difference between a penny rate and a percentage of revenue is that with a penny rate, you don’t care about runoff. With the percentage of revenue transactions you make. With a penny rate, you determine what it costs to deliver the song, just like anyone else using pay-per-use pricing. Imagine if Julie’s Widgets said, oh, just pay me a share of what you earn and if that covers my costs, great. Otherwise, I’ll just embrace bullshit. When the economic cycle downturn inevitably hits, Julie may not be very well positioned to survive. Like now.

This graph shows the absolute dominance of Apple, which is not based on advertising revenue or the nightmare of Web 2.0.

You may have noticed that the story by right is that Big Tech companies that rely on ad revenue got run over in the current recession. (I’m including Amazon in the chart above for a measure of the impact of the recession on “get-big-quick” types). One of the reasons is that in times of recession, companies reduce their advertising. And oh, okay, don’t get confused. you, but the “D” in the chart refers to the “Dividend” that old-school Apple pays. I’m just saying. It’s not “D” for slowdown.

And speaking of the downturn, you may have noticed that Big Tech companies that rely on ad revenue have been crushed by the current recession. Their crush is shown in the chart above comparing Google, Amazon, Meta and Spotify to Apple. One of the reasons smart people get run over is because in a recession, companies cut back on their advertising. So if your business is dependent on advertising… You know, ad revenue, the part of their business that you have absolutely no control over and they won’t let you pre-audit.

But make no mistake, Google and Facebook in particular are still making billions from advertising. Or put it another way, way more than songwriters. The tape story is you can see how it might go – cost cuts before the hiring freeze, hiring freezes before the layoffs, layoffs before the downsizing, downsizing before the mergers , pre-bankruptcy mergers. Somewhere along the way, someone will be delisted and likely have a split or two reversed in order to postpone the inevitable. And so on.

Now would be a great time to make sure everyone who pays royalties based on a percentage of their advertising revenue is up to date with their royalty payments. If you expected these minimum warranties to be extended in the future…don’t count on it. (It will also be a good excuse to put off another price increase, not wanting to test the elasticity of demand when subscription revenue declines while the number of subscribers increases). Now they will really bad talk and blame the labels. But the cuts will have to come from somewhere.

Otherwise, how will they pay for the green heat in the golden bidets? And what will you think of YouTube’s antics when your runoff royalties start to drop as inflation rages and you have no cost-of-living adjustments?

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